How Rent Reviews Work
What exactly are rent reviews? If you are renting out a commercial premise such as a restaurant, office, warehouse or shop, the landlord has the right to increase the rent after a certain period of time. As a business owner, you need to be on top of rent reviews to maintain control over your costs.
Perhaps the rent needs to change due to higher running costs, increase in inflation or greater demand in the area. We take a look at how they work, and everything else you need to know about the process.
When are rent reviews held?
Rent reviews will usually occur every five years or less than this, depending upon the lease agreement that is signed between the tenant and landlord. It may very well be the case that for short-term leases there aren’t any rent reviews at all, but to be sure about this it is important to check with your landlord.
How is the new rent price determined?
The new rental price is usually determined by the ‘open market rental value’. What this means is that if the landlord was to put this property on the market at the time of review, what amount would he or she expect to receives given the current rental market in the local area, based on similar agreements made to your lease. Factors that determine the open market rental value may include:
- How the premises are used (for example whether it is being used simply as storage space or as an office space)
- Level of rents in the area
Rent increases are not always based upon the open market rental value, they may instead be linked to the Retail Price Index which is heavily linked to inflation.
Who decides the new rent value?
If it has been decided that upon a rent review there will be an increase, it is most likely that your landlord will be the one to inform you of this decision. However, if you believe that the rent review is unreasonable, it is possible to dispute the rent review.
This is usually passed onto an independent expert who can assess the individual circumstances between landlord and tenant and decide what would be the best possible agreement to come to. There are companies that specialise in rent reviews including property and leisure management companies and solicitors.
If you do disagree with the proposed rent increase, it is extremely important that you put this in writing to the landlord as soon as you possibly can. This is because a large number of leases will stipulate a timeframe within which you can dispute a rent review. If you miss this deadline, it could mean that you will have no other choice but to accept the increase.
Do rent reviews take into account improvements made to the property?
Generally speaking, any improvements that you have made to the premises during the term of the agreement will not be considered in a rent review. However, if you do make any improvements it is vital you keep a complete record in the event that you are accidentally charged as you will likely need to provide proof. Nevertheless, you should bear in mind that if you have asked the landlord specifically to make improvements during this term, this may be factored into a rent review.
Do rent reviews ever lead to a decrease in rental value?
A question that is often brought up when it comes to rental reviews is what happens if the open market rental value has fallen in the area surrounding the premises. Could this lead to a decrease rent?
Unfortunately, it isn’t as straightforward as that, and it would most likely require you to refer back to your lease agreement. This is because many agreements will include an ‘upwards only’ clause. That means that should the open market value decrease, the rent can only ever remain the same as opposed to decreased.
How much notice do I get for a rent increase?
In the UK, the amount of notice you are given about a proposed rent increase is usually three months ahead of time, via a written notice by your landlord. However, do check in your own lease agreement the specifications of this timeframe, as it can differ depending on the contract.