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All I want for Christmas is…a rent review?

20 November 2017

Christmas is fast approaching and with all of the distractions of the season it might be easy to forget that a rent review may be due under your lease, particularly as 25 December is the usual December quarter day.

This is often the last thing on anyone’s mind at this busy time of year, and landlords and tenants often don’t wish to bother each other with the issue.

However, if you decide to leave the rent review until a later date, or do not finish one that is already underway, difficulties may arise and the New Year could be a costly time.

A rent review usually results in one of the following:

  • Rent is unchanged. Many rent reviews are carried out on an upward only ‘open market’ basis. Therefore if the market rent is the same, or if it has decreased, the tenant will continue to pay rent at the current rate.
  • Rent decreases.  A few fortunate tenants have leases with a review to be carried out on a true ‘open market’ basis allowing for downward rent. In this case it is in the tenant’s best interests to get the review carried out as soon as possible, particularly as they will usually carry on paying the rent at the current rate until the new rent is set.
  • Rent increases. The tenant will continue to pay rent at the current rate until the new rent is agreed, however, in the case of an increase, review clauses usually state that the new rent will apply from the review date. This means the tenant must pay the shortfall between the old and new rent for the period during which the rent review was carried out, usually as a lump sum with interest. In some cases failure to pay the shortfall within the time allowed by the lease could result in default interest being payable and even lead to the landlord being able to take forfeiture proceedings against the tenant to terminate the lease.

So, whilst on the face of it a tenant may not see the advantage of triggering the rent review, it is often in their best interests to have any increase agreed and the matter settled as soon as possible. This way, they are aware of the ongoing rent liability and can factor this into the future running costs of the business.

Emma Thompson is a solicitor in our Legal 500-rated commercial property team. With a particular interest in leasehold work, she advises clients on a wide range of issues, including sales and purchases, landlord and tenant leasehold matters, and ancillary matters.

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