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What You Should Know About Rent Review in Commercial Leases

on Tuesday, 03 March 2020.

Rent reviews ensure that the rent you pay for a property keeps up with changes in the value of the property and also with inflation. They are important to know about if you are intending to take or have taken a lease with rent review provisions.

GDPR survey Jan20 v2

 

There are different types of rent review provisions. The most common and therefore the focus of this article is the open market value review.

What Is an Open Market Value Review?

In an open market review, the rent is adjusted to the market rent assuming (hypothetically) the property would be available to let in the open market on the date of the review.

The rent reviews are normally upwards-only, so the rent will either go up or stay the same, but will never go down.

The rent review clause in the lease will set out the considerations to be taken into account (called 'assumptions') and those to be ignored (called 'disregards') for the purposes of valuation of the rent.

What Happens on the Rent Review?

• The parties may agree the new rent between themselves.
• A dispute can be referred to a third party (usually a surveyor). The lease will specify whether the surveyor will act as an arbitrator or an expert.
• Once the new rent is determined, this will typically be back-dated to the rent review date. If there has been an increase in the rent, the tenant will have to pay the balance and any interest due on it, and then continue to pay the new rent.
• The parties may document the agreement in a rent review memorandum.


To find out more, please contact Madeleine Wakeley, who is a Partner in our Commercial Property team on 01923 919 315, or fill out the form below.

 

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