Commercial rent reviews are a crucial part of any business that operates from a leased property. A rent review is a process that takes place during the lease term where the rent paid by the tenant is adjusted to reflect changes in the property market, inflation, and other factors. It is a way to ensure that the rent being paid is fair and reasonable for both the tenant and the landlord.
The purpose of a rent review is to maintain a balance between the interests of the tenant and the landlord. It allows the landlord to keep up with changes in the market and maintain the value of the property while ensuring that the tenant is not unfairly burdened with excessive rent increases.
There are several types of rent reviews that can be included in a commercial lease. The most common type is open market rent review but there are a small number of indexed and fixed reviews.
Fixed rent reviews involve a pre-agreed fixed percentage increase in rent at set intervals during the lease term. This provides certainty for both parties and allows for budgeting and planning.
Indexed rent reviews are linked to a specific index, such as inflation or the consumer price index. This type of rent review is often used in longer-term leases, where market conditions are more difficult to predict.
Market rent reviews involve a valuation of the property to determine the current market rent. This is usually carried out by a qualified valuer, and the new rent is negotiated based on the outcome of the valuation. This type of rent review is often included in shorter-term leases or where market conditions are expected to change significantly over the lease term.
When negotiating a commercial lease, it is important to carefully consider the rent review provisions. The rent review frequency, method, and timing can all have a significant impact on the tenant’s financial obligations under the lease. It is important to seek advice before entering into any commercial lease agreement.
Commercial rent reviews can be a source of tension between landlords and tenants, particularly if the parties have different expectations or interpretations of the lease agreement. It is important to maintain open and clear lines of communication between the parties and to approach rent reviews in a spirit of collaboration and cooperation.
In conclusion, commercial rent reviews are an important part of any lease agreement. They allow for adjustments to be made to the rent to reflect changes in the property market and other factors. When negotiating a commercial lease, it is important to carefully consider the rent review provisions and seek appropriate advice. By maintaining open communication and a spirit of cooperation, landlords and tenants can work together to ensure that the rent being paid is fair and reasonable for both parties.
If you are a owner of occupier, our team of surveyors and agents have the knowledge and experience required to advise on all types of commercial rent reviews. For further information get in touch with Hootons today.