A rent review is a mechanism for adjusting rent to the current market rate. Typically rent reviews occur every 3 to 5 years depending on the lease.
Why should you care?
Well this question has two different answers depending on whether you are a landlord or a tenant.
If you are a Tenant
If you are a tenant and the reason you are reading this is because you have received a rent review trigger notice from your landlord, then you need not look further than this short blog. Initially always read the lease. The lease is the contract between the landlord and tenant therefore the most important component.
Usually rent reviews are ‘upwards only’ which means your rent can only increase or in the best case scenario, stay the same otherwise known as ‘nil increase’.
Rent reviews must be documented even if they are a ‘nil increase’ to protect your position from future increases in rent. For example if you agree with your landlord that the rent is not increasing but DO NOT document your rent by way of a ‘rent review memorandum’ and then a new landlord purchases the property, potentially the new landlord could go back to any undocumented reviews and trigger the notices. If the landlord is able to go back to your rent reviews and successfully argue an increase, you will be liable for back rent per annum and any interest payments.
If you are a Landlord
If you are a landlord, a rent review is your opportunity to increase the rent and enhance your yield. This works on various scales, for example if you own one shop with an income of £20,0000 per annum and after review the rent increases to £24,000 pa this is an increase of 20% and your investment yield will adjust respectively. If you have 200 shops and apply the same method………..you get the picture.
The rent review clause may specify ‘Time is of the essence’. If the lease is time of the essence then there will be a strict time line as to when to serve notices on the tenant. If dates are missed this will lead to delays in the rent review agreement.
Ideally you want to settle the rent review amicably without the involvement of a third party Independent Expert or Arbitrator. In order to reach an agreement on the rent review with the tenant as swiftly as possible the timeline will need to be adhered to (if time is of the essence) along with relevant comparable evidence to justify the increase. By pertinent I mean relevant in terms of location, size and hierarchy of evidence. Always compare apples with apples and pears with pears.
