Falmouth Chamber of Commerce | for Business in Cornwall

Definition

Rent Reviews are a mechanism for adjusting a tenant’s rent to the current market level. There main purpose is to protect the landlord against inflation.

A well drawn rent review clause should clearly state: -

1. The date at which the rent is to be reviewed;
2. How the Landlord is to give the tenant notice of the review;
3. The formula for determining the value; and
4. How the parties can settle disputes regarding the rent review.

Usually the property to be valued is the actual property. However, there is nothing to prevent the parties from fixing the rent by reference to a “comparable”, a similar property which is also being rented out.

Where the property is large the parties may provide for the rent to be assessed by aggregating the rental values of its constituent parts.

Rent for some properties are determined by square footage.

When?

The frequency of rent reviews is typically once every three to five years or at the end of a lease, before renewal (usually 12 months before).   

Rent is usually charged quarterly, historically on quarter days which are: -

• Lady Day – 25th March
• Midsummer – 24th June
• Michaelmores – 29th September
• Christmas – 25th December

Retrospectively

A rent review clause may operate retrospectively, in the sense that the rent, when determined, may be made payable with effect from a date prior to the date upon which the reviewed rent was quantified.  

However it must be made clear in the lease that rent that becomes payable with effect from a past date need not be paid until the rent day fixed for payment of rent under the lease that next follows the date on which the reviewed rent is quantified.

How?

Rent charged may be reviewed in a number of ways: -

1. It may be increased by reference to the movement of a published index of process;
2. It may be linked to the tenants turnover;
3. It may be linked to the rent payable under a head lease or a sub-lease of the property; or
4. It may be increased by fixed amounts at stated intervals. This is the most commonly used and will be judged on the hypothetical letting of the demised property.

In modern leases it may be an idea to add an additional clause to the lease highlighting to the tenant that rent review will only be considered on an upward basis. This can come in two forms, either the clause may provide for the rent never to fall below the rent agreed at the start of the lease, but otherwise to fluctuate up or down according to changes in market value, or it may provide for the rent never to fall below that payable immediately before the review date.

Notice

The landlord should give the tenant notice in writing if he wishes to review the rent charged. Three months is the typical notice period given which then allows the tenant to raise any disputes he may have if he considers the rent review to be unreasonable. However some leases may give a specified date as to when rent will be reviewed.

If a tenant objects to the landlord’s proposals it must serve on the landlord a counter-notice. The form of counter-notice varies from lease to lease; sometimes the tenant is merely required to indicate his objection to the landlord’s proposal; sometimes he is required to elect to have the rent determined by an independent third party.

Arbitrator or Expert?

If you cannot reach an agreement with the landlord, most leases will include dispute resolution arrangement, usually involving the appointment of an arbitrator or independent expert who will settle the matter.

The vast majority of leases provide for the appointment of a third party to be made by the President of the Royal Institute if Chartered Surveyors. The lease will usually specify who is entitled to apply for the appointment of a third party. If it is silent on this point, then either the landlord or the tenant may apply.

The appointed third party will settle the dispute by considering evidence of rents agreed on other similar properties put forward by both parties and will also determine who will pay the cost of Arbitration.

Expert

An expert owes the parties a duty of care in making his valuation. Where the expert makes a determination which merely states the amount of rent which he has fixed, it will be binding on the parties if given in good faith.

Arbitrator

Where the determination of the rent is to be made by an arbitrator, he must determine the rent on the evidence adduced before him. He is not entitled to rely on evidence which he has acquired for himself, nor should he adopt a view of the evidence or of methods of valuation not put forward by either party without giving each party an opportunity of commenting on it.

Lands Tribunal

The Landlord and Tenant may, if they wish, provide in the lease that the amount of the rent payable under a rent review clause shall be determined by the Lands Tribunal on a reference by consent. The President of the Lands Tribunal has a discretion whether to accept such a reference but it is thought that he would accept it if the notice of reference complies with the Lands Tribunal Rules 1975 and either the reference is jointly made, or if it is made by one party only, the other party consents in writing to its making.

Advice

Before either formally challenging a rent or negotiating with your landlord we recommend speaking to a local Chartered Surveyor. He /She will have local knowledge of market rents in the area and also information about your chances of challenging a new rent. Also, ensure you speak to your Solicitor about the legality of the proposal put forward i.e. is the notice correct, filed within the strict time limit and have they complied with the terms of the lease.

For further advice speak to Henry Preston at Preston Goldburn Solicitors on 01326 318900.  

This only provides a generic outline of the law as at 23 April 2010, and  does not apply to every factual situation,  and therefore it might not apply to your situation. You must obtain specialist legal advice on the facts of your individual case before you  take any action, and as a result Preston Goldburn Solicitors cannot be liable for any losses you suffer as a result of failing to obtain your own specialist legal advice.

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