Summary
- Commercial landlords must follow the rent review process set out in the lease, which typically includes assessment, notice, negotiation, and documentation.
- Common rent review mechanisms include inflation-linked reviews, fixed increases, turnover-based assessments, and open-market valuations.
- If a landlord and tenant cannot agree on a new rent, the lease will usually require the appointment of an independent surveyor to determine the appropriate amount.
- This article is a plain-English guide for commercial landlords in the UK, explaining the standard rent review process and the steps required to carry it out correctly.
- The content has been prepared by LegalVision, a commercial law firm that specialises in advising clients on commercial property and leasing matters.
Tips for Businesses
Check your lease carefully before initiating a rent review – it governs every step of the process. Serve notices within the required timeframes, keep records of all correspondence, and always sign a rent review memorandum, even where rent remains unchanged. If agreement cannot be reached, instruct a professional surveyor promptly.
As a commercial landlord, reviewing the rent you charge your tenants is an important part of managing your property, but the process must be followed correctly to be enforceable. Understanding each step of a rent review helps you avoid disputes and ensures your lease remains commercially viable. This article will explain what the standard rent review process is.
Rent Review
A rent review is when you, as a commercial landlord, have the ability to adjust the rent you charge your commercial tenants. This generally means putting the rent up, which is the market standard position in the UK.
Leases must specify the type of rent review. Some common rent review mechanisms are:
- an inflation-linked review based on the Retail Price Index or Consumer Prices Index;
- a fixed (pre-determined) increase;
- an assessment based on your tenant’s turnover; or
- an open-market assessment.
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. Rent Review Assessment
As part of the rent review process, you must assess the new rent amount. The assessment will depend on which type of rent review mechanism is included in the lease. For example, if you carry out an open-market evaluation, the new rent will be based on a hypothetical lease, similar to the one in place with your tenant. You will assess the market value of that lease, focusing on:
- the area your commercial property is in;
- the condition of the premises; and
- the terms of the commercial lease
The lease will often specify things to be disregarded, such as the nature of the tenant’s business or improvements they’ve made to the property.
2. Serve Notice
Once you have made the rent review assessment and decided that your commercial tenant’s rent amount will increase, you should notify them. Your lease agreement will contain the details of your notice requirements for a rent review.
Your tenant may wish to challenge the market assessment under the rules in the lease. This may involve them serving you with a counter notice letter, typically within 28 days after they receive your notice.
3. Serve Notice
If your commercial tenant serves a counter notice, you must allow time to agree to the new rent amount. Your lease agreement will usually specify a period prior to the rent review date during which the rent should be agreed.
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 independent expert who is a professional surveyor to decide on what the rent amount should be due to your rent review.
4. 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.
It is preferable to enter into a short rent review memorandum to record these points and for you and your commercial tenants to sign it. Your commercial property solicitors should assist with this. 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.
This cheatsheet includes practical tips to understand key clauses and avoid disputes in leasing agreements.
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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 a surveyor.
If you need assistance understanding the rent review process in the UK, LegalVision provides ongoing legal support for all businesses through our fixed-fee legal membership. Our experienced leasing lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.
Frequently Asked Questions
What is a rent review?
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.
What is the rent review process?
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.
What happens if a landlord and tenant cannot agree on a new rent amount?
If parties cannot agree, the lease will typically require appointing a professional surveyor as arbitrator. Their role is to independently determine the appropriate rent amount following the review.
Why should landlords document a rent review even when rent does not increase?
A rent review memorandum, signed by both parties, records that the review process took place. This protects landlords by creating a clear record of dates, agreed rent levels, and when any changes apply.
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