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As a commercial landlord, you may negotiate the rental price for the commercial space you are leasing with your tenants. Once you settle on a price, you must include it within your lease agreement. Additionally, you may include a rent review clause so that you can review the rent and change it occasionally. However, you should detail the rent review process to provide clarification for you and your tenant. This article will explain what the standard rent review process is.
Rent Review
A rent review is when you, as a commercial landlord, check that the rent you charge your commercial tenants is correct for your property value. This might mean increasing or decreasing the rent over time. If you do not want it to decrease, consider providing an ‘upwards only’ review, which protects you as a commercial landlord.
Commercial landlords will usually base a rent review with tenants in commercial property on a specific assessment such as:
- a periodic assessment in line with the Retail Price Index;
- one in line with turnover; or
- an open-market assessment.
Therefore, the commercial rent review process largely depends on what type of assessment your commercial rent review contains.
What Does the Process Include?
The commercial rent review process depends partly on what type of assessment you use as a landlord. We explain the typical steps of the rent review procedure below.
1. Notification
The first step in the process of any rent review will be for the landlord to give your commercial tenants notice of the rent review that will take place. It is best practice to provide your tenant ample notice. Usually, this is three months before the review takes place and in line with what your lease says.
2. Rent Review Assessment
As part of the rent review process, you must assess the current rent amount. Assessment will depend on which type of rent review assessment you carry out. For example, if you carry out an open-market evaluation, you will analyse the market with a focus on priorities which:
- are in the same area as your commercial property;
- are in a similar condition to your tenant’s business premises;
- offer similar features to those your commercial lease provides; and
- are similar size to the commercial property.
3. Serve Notice
Once you have made the rent review assessment and decided that your commercial tenant’s rent amount will increase, you must notify them. This should include a written notice and must state what the new rent is. Your lease agreement will contain the details of your notice requirements for a rent review which should include where you must serve the notice for it to be lawful.
4. Agree On New Rent
If your commercial tenant serves a counter notice, you must allow time to both agree to the new rent amount. Again, your lease agreement should detail what the period is.
If you cannot agree on a new rent amount, the lease will detail the next step in the process. Usually, this will be to appoint an arbitrator who is a professional surveyor. Their role in the process is to decide on what the rent amount should be due to your rent review.
5. Documentation
When you carry out the rent review process, it is in your interest to ensure you document where appropriate. This should include:
- the dates of the rent review;
- the new rent level agreed upon; and
- when the new rent will apply.
Please ask your commercial property solicitors to draft you a short rent review memorandum to record these points and for you and your commercial tenants to sign it. You should do this even if a rent increase does not arise after the rent review. This is because it records that the rent review process took place.
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Key Takeaways
As a commercial landlord, you may conduct a commercial rent review for your commercial tenants’ property. This allows you to assess if the level of rent they pay is correct. However, your lease should detail the rent review process which you must follow. Some steps may include:
- notifying your tenants that you will carry out a rent review;
- documenting the rent review process; and
- including a rent review memorandum which you will both sign.
If you do not agree to rent after giving your tenants notice of any rise, you may need to involve an arbitrator.
If you need assistance understanding the rent review process in the UK, 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. So call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A rent review is where you, as a commercial landlord, assess the level of rent your commercial tenants pay you for the business premises you lease them, and it often increases their rental payments.
The rent review process is the process you take to conduct a rent review. This might include notification of a review, notice of a rent increase and the assessment of the rent level.
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