How can rent review provisions help both landlords and tenants?

Main points to consider when negotiating a rent review include how the new rent will be determined upon a review. Methods used for calculating a rent review are: open-market value, which assesses the rent the landlord could reasonably expect to receive if the premises were leased to a third party on the open market; index-linked review, which follows a strict index during each review, such as the Retail Price Index or Consumer Price Index; and upward-only, which can apply to both above types of rent reviews.

If the rent review is upward-only, the rent will either increase or remain the same, but it will never go down even if the market rent has decreased. If a rent review clause uses the words ‘the greater of’, then it is likely to be upward-only.

Depending on how the lease has been drafted, the tenant will be left at a disadvantage should the rent review be calculated to address a wide use class rather than the specific use for which it is actually using the premises.

For example, if the lease defines permitted use as ‘to use the property only as a restaurant’, then this narrow permission will keep the value of the rent down. In contrast, if the permitted uses were anything ‘within Class E’, for example, then rent would be valued higher by the landlord’s surveyor as it would be suitable for a broader profile of tenant.

Most commercial leases should expressly exclude any improvements a tenant has carried out and/or any goodwill built up by the tenant. This means the new rent being negotiated in the rent review should disregard improvements made to the property by the tenant.

The wording of the rent review clause should be considered carefully to avoid the tenant penalising themselves for any increase generated from their own improvements to the premises and, ultimately, benefiting the landlord.

Harry Wilshaw is a trainee solicitor at law firm Lewis Denley