Glossary · UK
What is Rent Review Clause?
A term in a commercial lease setting out when and how the rent will be reassessed during the tenancy, most commonly upward-only reviews to the open market rent every few years.
Full Definition
A rent review clause is a provision in a commercial lease that sets out when, and by what method, the rent payable will be reassessed during the term of the tenancy, reflecting the fact that most commercial leases run for several years and landlords want the rent to keep pace with the market rather than staying fixed for the whole term. The most common structure in UK commercial leases is an "upward-only" open market rent review, typically every three or five years, under which the rent is reset to the current open market rental value for a comparable property, but can never be reduced below the rent already being paid, even if market rents have fallen since the last review -- a feature that has historically been criticised by tenant groups as favouring landlords, though upward-only reviews remain standard in much of the commercial market. Other review mechanisms include fixed increases agreed at the outset (for example, a set percentage or fixed amount at each review date), reviews linked to an index such as the Retail Prices Index or Consumer Prices Index, and turnover-based rents (common in retail leases), where rent is calculated wholly or partly as a percentage of the tenant's sales. Where the parties cannot agree the new market rent at a review date, most leases provide a mechanism for an independent surveyor, acting as an expert or arbitrator, to determine the rent, using comparable lettings evidence in the local area, and until the new rent is agreed or determined, the tenant usually continues paying the previous rent, with any increase then backdated to the review date once settled. Because rent reviews can materially affect a business's ongoing costs, and because upward-only clauses remove any prospect of a reduction, tenants negotiating a new lease will often try to secure upward-and-downward review clauses, capped ("collared") reviews, or shorter lease terms with break clauses instead, to retain more flexibility to respond to changing market conditions.