Rent Review 
Rent Review |
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HistoryIn post war Britain investment in property by major institutions grew significantly as reconstruction of city and town centres took place. In 1954 the Landlord and Tenant Act was introduced, the essential feature of which was to grant business tenants the automatic right to renewal at the end of a lease.As a result Landlords sought to protect their investment by ensuring that rent kept pace with inflation. When inflation was at minimal levels it was considered adequate to adjust the rent at fairly infrequent intervals – 21 years and in some cases 33 years was the rent review period. As leasing of property became more sophisticated and inflation took on a more sinister presence in the economy leases became shorter and rent reviews more frequent, the norm becoming a lease for 25 years with 5 yearly rent reviews. Evolution of the Rent Review ClauseEarly draftsmen of leases could not have anticipated the proliferation of litigation which has taken place as a result of disputes over rent review clauses. No single element of a modern lease has received more attention in the Courts so that most modern rent review clauses are now longer than some early leases!Attempts have been made by successive governments to introduce flexibility in the rent review procedure, with the emphasis on upwards or downwards reviews so far without success. Similarly the introduction of rent reviews based on turnover has met with limited success, most notably in retail premises. Occasionally a rent review clause contains a formula rent whereby the parties must agree the value of a hypothetical building and use that agreement to formulate the value of the subject building. Rent Review Clause InterpretationThe principle behind the rent review is simple; the landlord wishes to ensure that he receives the maximum rent as at the effective date whereas the tenant wishes to ensure that he is not over-paying. In straightforward cases where there is ample comparable evidence the process should be simple.However the effect of numerous Court cases and post-lease legislation only serves to complicate the issues and even two identical buildings can be valued on different bases if the leases demand. Often there is no directly comparable evidence and the debate revolves around the interpretation of what evidence is available and how the resultant figure should be adjusted to be applicable to the subject property. The Review ProcessTypically a landlord will serve a rent review notice upon the tenant requiring agreement in accordance with the lease terms. Unless the lease specifically states that “time is of the essence” any time limits imposed by either party are unenforceable.Occasionally a tenant will serve the rent review notice in order to advance negotiations. The effective date of the rent review is the date from which the new rent will apply. Rent review notices can be served after the rent review date in which case the rent review becomes retrospective to the effective date. If agreement cannot be reached, determination by a third party may be necessary. |