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What Is A Commercial Rent Review?

If you are leasing commercial premises your commercial tenancy agreement will likely include a clause relating to a rent review. To protect your best interests and long-term commercial ambitions, you must understand how a rent review works. In this article, we provide a simple explanation for SMEs.

What is a commercial rent review clause?

A rent review is a clause in your commercial tenancy agreement that states that at regular intervals, normally every two to five years, your landlord can review your business property rent and adjust the amount so it reflects current market rates. Most rent review clauses state that rent can only be adjusted upwards, therefore, if commercial rents have fallen in your area, your rent will stay the same.

How will my landlord work out any rent increase?

The three most common commercial rent review methods are:

  • Open market rental value – your landlord will look at the amount of rent charged for similar properties with comparable lease terms in the local area.
  • Retail price index (RPI) – any rent increases are aligned with the RPI.
  • Turnover rent – this is common in the retail sector – the landlord and tenant negotiate that any increase in rent will be based on an agreed percentage of your business’s gross turnover. Percentages range from 1% to 15% with 7% being the average. Turnover rent is in addition to a base rent which may be relatively low.

What should a rent review clause contain?

The following should be clearly stipulated in your tenancy agreement’s rent review clause:

  • The dates the rent reviews will occur.
  • How the rent review will be conducted.
  • The calculation method.
  • The process of any negotiations.
  • How any disputes will be resolved.

How Askews Legal can help

You should start planning for your rent review at least 12 months ahead. It is worth looking at local market rents and preparing your negotiation strategy well in advance. Our team can assist you with any aspects of your rent review, from negotiating with your landlord to resolving disputes. By instructing our commercial property law solicitors, you can be confident your best interests will be protected.

To talk to us about rent reviews, please call us on 02476 231000 or email enquiries@askewslegal.co