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When running a business on leased premises, the lease rent will be an essential part of the lease for you. If you are a commercial landlord, the rent will be a crucial source of income and why you lease your commercial property. As a tenant, the lease rent will probably be one of your most significant outgoings for your business. Therefore, it is essential for both parties to a commercial lease to ensure all goes smoothly regarding rent. This does not only mean that a tenant pays rent on time; it also means that it is a satisfactory amount for both parties. Rent can change where a lease agreement contains a rent review clause, so you must understand this lease provision. This article will explain four key points about a UK commercial lease rent review.
Rent Review
A rent review is where a commercial landlord periodically considers the level of rent their tenant pays. They do this to check it is at the correct level for the commercial property. They will assess the rent and potentially raise it.
Rent reviews usually occur every three to five years in a commercial lease. However, to ensure that a commercial lease rent review will take place in your lease, you will need to check the rent review clause.
This cheat sheet outlines what you should be aware of in your lease agreement.
Key Points
There are many things you need to understand about commercial lease rent reviews. In this article, we have selected four key points about rent reviews to help you to understand the topic better.
1. Type
A key point about commercial lease rent reviews is that not all rent reviews will be the same type. Instead, there are various sorts of rent reviews which all work differently. Depending on what type of rent review clause you have, the commercial landlord will calculate your rent in line with this. The three common rent reviews are:
- open market rent review, which is an assessment of the rent in comparison to the market value of the property;
- turnover rent review, which is where the rent assessment relates to the commercial tenant’s business gross travel; and
- periodic rent review, where rent changes concerning the Retail Price Index (RPI).
2. Negotiate
If you are a commercial tenant, you may not know you have a right to negotiate your rent review clause before entering the lease. This is a crucial point to understand about commercial lease rent reviews. Your rent review clause determines the money you must pay your landlord, so it is in your interest to have a say in this.
When you negotiate a rent review clause, you can do so to the following elements:
- type of rent review;
- frequency of rent reviews; and
- potentially, whether there is the inclusion of a rent review clause.
3. Delays
A key point to note about commercial lease rent reviews is to be aware of delays. Although the rent review clause in your commercial lease may detail the frequency or date of rent review, it may not occur then. If you are a commercial landlord, you are not obliged to conduct the rent review when it arises. You may be busy with other things which are not your priority.
However, if you are a commercial tenant, you must understand what it means if your landlord delays the rent review. Many tenants incorrectly believe that a delayed rent review means the rent does not change. However, the reality of a delay to a rent review means that once it does occur, the change in rent will backdate to the due date of the rent review. Accordingly, you will owe the difference in the rent rise from that date.
4. Disputes
Commercial lease rent reviews can understandably lead to disputes between the two parties. This is a crucial point to be aware of for rent reviews. A commercial tenant will not always agree to the rent increase amount, and where this is the case, the rent review clause should detail how to dispute it. If you are a commercial landlord, you must think carefully about this and ensure that it is evident in your rent review clause.
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Key Takeaways
Whether you are a commercial landlord or a tenant with a lease, you must be aware of and understand any rent review clause. A rent review clause means that your lease will sometimes need a commercial lease rent review. The rent review assesses the rent amount and likely increases the rent. If your business operates out of leased premises, you must understand the implications of the rent review clause, including the type of rent review, your capacity to negotiate the clause, the consequences of any delays and how you can address disputes.
If you need help understanding your commercial lease rent reviews, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. So call us today on 0808 196 8584 or visit our membership page.
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