Table of Contents
In Short
- Landlords can increase rent based on lease terms, market reviews, or when renewing a lease.
- Rent reviews usually occur annually or at predetermined intervals, often linked to market rates or inflation indices.
- Tenants have rights to negotiate or challenge rent increases, especially if they are deemed unreasonable.
Tips for Businesses
Review your lease agreement to understand the rent review provisions and potential for increases. Keep informed about market rates in your area so you can effectively negotiate. Consider engaging a property professional to assist if you believe a proposed rent increase is excessive or unreasonable.
When you run a small business, it is crucial to budget for your financial commitments to ensure you meet these. Once you reach a certain stage of growth, you will likely need a physical space to operate from, for example, an office or a warehouse. As such, you will look to enter into a lease, whereby you become the property tenant. This means that you will be paying rent in exchange for your occupation of the property. Your commercial lease agreement will detail the current rent amount and the frequency of payments. Generally, you can easily budget for rent, as you typically pay the same amount in regular payments. However, your landlord can increase your rent through a commercial rent review, a normal practice for commercial leases. This article will explain how often your landlord can increase your rent and the overall process.
Rent Review
Depending on the length of your lease, you may have either one fixed review during the term, or multiple reviews. Typically, your landlord may conduct a rent review for your commercial lease every three or five years. This is often set out as specific dates. Your commercial lease agreement should detail this and specify the dates for the review reviews. The rent review provisions also contain further information about how the variation in rent is calculated.
Methods
This might be an open-market rent review, in which your landlord assesses how much your lease would be worth on the market. The calculation is based on a hypothetical lease with similar terms to yours.
Another option might be a review based on an index (such as an inflation index) or set at a fixed rate. You may also have a minimum or maximum amount by which the rent can increase.
If you are moving out of your leased space and assigning the lease to another party, you are required to notify your landlord and obtain their consent. Use this free proforma template for this purpose.
The last possibility is for the rent to align with your business’ financial turnover. This works as additional rent on top of a set base rent, which fluctuates based on your business activity.
Most commercial leases state that rent will either stay the same or increase through a rent review. There will not usually be a decrease in your rent amount after one. If your rent does increase after the rent review, you can ask for the reasons and check if it is fair through a valuation by a surveyor.
Notice of Increase
If your landlord decides to increase the rent, they usually have to give you notice. The notice period may be specified in your lease, which is often set at three months before the increase. In general, a trigger notice should be given at a reasonable time in advance.
Ensure you are aware of what your lease agreement states about notice. If there is a deadline your landlord has to abide by to inform you of a raise, and they miss this, they may no longer be able to increase the rent. The rent review provisions will specify whether ‘time is of the essence’ for the review.
Timeframe
You will have a specific timeframe for responding when you receive notice of a rent increase. Your landlord cannot simply impose a new rent level on you as a tenant. You may respond and oppose it and ask to negotiate the new rental amount. If you and your landlord cannot agree on a new amount, you should take legal advice from a solicitor specialising in leases. Also, if you believe the rent increase breaks your lease agreement, you can appeal it.
Your lease agreement should state how you respond to the rise in rent and how to deal with disagreements. Any disputes on the rent increase usually require you to engage an expert to determine whether it has been validly calculated. Usually, their findings will be binding, and you may bear this cost.
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As a commercial tenant, rent for your commercial property can increase due to a rent review. This is a process where your landlord assesses your rent level, often regarding market value. Your lease agreement should state how frequently your landlord may conduct a rent review. If your landlord does increase the rent after a rent review, they cannot impose this on you. Instead, they must give you at least one month’s notice, and you may negotiate to agree on a new amount. You can also check if the level of rent is fair and appeal it where you believe it breaches your lease agreement.
If you need help understanding increases in commercial rent 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 for a low monthly fee. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A rent review is where your landlord assesses the level of rent you are paying to decide whether to adjust it.
Your commercial landlord can increase your rent after a rent review, typically every three to five years, as specified in the lease.
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