Rents on commercial property are typically reviewed at open-market values. This means determining the fair rental value at the time of the review. Other rent reviews are usually at fixed percentages or linked to the RPI. The review type will be stated in the lease document.

Types of Rent Reviews

There are 3 types of rent reviews which are most common in leases of commercial property:

Open Market Rent Review

This is the most common type, where the rent is adjusted to match the property’s “open market value.” Essentially, this means the rent is compared with similar properties in the area. If the market value has increased, the rent will rise accordingly, and in most cases, if the market value has decreased, the rent will remain the same. This “upwards only” clause benefits the landlord by ensuring rent never decreases.

RPI (Retail Price Index) Linked Review

In some leases, the rent is linked to an inflation measure, such as the Retail Price Index (RPI). Under this method, the rent is reviewed based on how much the RPI has risen over a specific period. The benefit here is predictability; however, it may lead to higher rent increases if inflation is high.

Fixed or Stepped Rent Review

In this scenario, the lease outlines fixed rent increases at predetermined intervals, regardless of market conditions. This gives certainty to both parties but may not always reflect the property’s actual market value.

How is a Rent Review Conducted?

When it’s time for a rent review, either the landlord or tenant will initiate the process, often through a notice period. Both parties typically seek to agree on a new rent figure based on the method specified in the lease. If an agreement can’t be reached, it may be necessary to involve a third-party arbitrator or an independent surveyor to make a final determination.