Rent review time – points for a tenant to consider

Rent reviews provide a means for a periodical adjustment of the rent, which ensures that the Landlord receives rent which reflects the true value of the property. It would be unusual for a lease of over say, 5 years, not to include some form of rent review.  Reviews commonly take place every three to five years.

The two most common forms of review are an open market and an RPI review. An open market review seeks to set the rent to a level that reflects the value of the premises on the open market.  An RPI rent is a rent that increases in line with the ‘retail price index’. The ‘retail price index’ (RPI) measures the average change from month to month in the prices of goods and services purchased by most households in the UK.

An open market review clause should set out various assumptions and disregards to be made when valuing the premises for the purpose of the review. Careful consideration should be given to the wording. For instance, if a tenant has carried out works to the property at its own expense (other than those he is obliged to do under the lease) then these generally should be disregarded from rent review. Further, if a tenant runs a business from the premises, any goodwill attaching to the property by reason of the business should be disregarded. In effect, a tenant would not want to see increasingly valuable goodwill in a business resulting in an increased rent payable on review.

A well advised tenant may also seek to negotiate a right to break the lease, once the revised rent is determined, therefore if the rent is set too high, there will be a means for the tenant to bring the lease to an end. This would also strengthen a tenants bargaining position as the landlord will know that if the revised rent is too high a tenant may seek to terminate the lease.

From a tenant’s perspective, having a rent review just prior to a break clause is short-sighted as, if the rent is increased to a level which the tenant does not wish to pay, they will have missed their opportunity to break the Lease.

Ultimately, negotiation of Lease terms between the Landlord and Tenant will come down to the bargaining position of the parties.  Although a tenant can do so directly with a Landlord, an experienced surveyor, with local market knowledge, will be best placed to negotiate Heads of Terms.