A guide to navigating a commercial rent increase.
Commercial leases often include provisions for rent reviews, which can lead to an increase in rent during the lease term. As a tenant, it is crucial to understand the rent review process and know your options if you wish to dispute a rent increase. Here’s your guide to navigating a proposed rental increase effectively.
Understanding rent reviews
Rent reviews are clauses in commercial leases that allow landlords to adjust the rent at predetermined intervals. These reviews can take several forms:
Market Rent Reviews: The rent is adjusted to reflect the current market rate for similar properties, essentially reflecting what the landlord could get for the property if it were placed back on the market.
Fixed Increases: In this instance, the lease would specify predetermined rent increases at set intervals.
RPI/CPI-Linked Reviews: Rent is adjusted in line with the Retail Price Index (RPI) or Consumer Price Index (CPI), reflecting inflation.
Steps to dispute a commercial rent increase at rent review
If your rent is due for fixed increases as set out in your lease, this cannot be disputed. However, if this rent is to be reviewed in line with the current market rent or based upon price indices, there are steps you can take to dispute this. If you believe your proposed rent increase is unfair or inaccurate, follow these steps:
1. Review your lease agreement
Your lease sets out the procedure that needs to be followed if rent reviews are included during the term. Check the rent review clause in your lease to understand the mechanism your landlord has used for the rent increase. This will determine whether the increase can be disputed and the appropriate process to follow. For example, if the reviewed figure is to be the ‘market rent’ or similar then the rent review clause will usually allow for a period of negotiation between the landlord and tenant (or their representatives).
2. Engage in negotiations
Most rent review clauses in commercial leases provide a negotiation period for both parties to discuss the proposed increase. It’s important to negotiate with your landlord or their representatives to present your case and seek a fair adjustment to avoid a potentially expensive third-party referral to an Independent Expert or Arbitrator.
In this situation, lease advisory services are critical, as you will then benefit from enlisting highly experienced and skilled negotiators to advocate for the best interests of your business.
If you suspect that your landlord’s proposed rent increase does not represent the market rent for your leasehold premises, enlist a chartered surveyor or property valuation expert to provide an independent assessment of the market rent. This can support your position in negotiations and ensure you have solid evidence to reinforce your case. UK businesses should seek advice from RICS-registered valuers, like ours at Brasier Freeth, who specialise in commercial property valuation to get an informed and accurate market comparison.
4. Challenge an RPI/CPI-Linked review
With an RPI/CPI indexed review, there will often be scope to refer the matter to a third party if there is a disagreement about the landlord’s methodology and calculations.
If your rent is linked to inflation indexes and you think that there are errors in your landlord’s calculations, the lease may allow you to challenge the methodology. In such cases, you can seek a review from a third-party, such as a chartered surveyor, to ensure accuracy.
5. Refer the matter to an Arbitrator or an Independent Expert
If the parties cannot reach an agreement, then there will usually be an option within the rent review clause in the lease for the matter to be referred to an Arbitrator or Independent Expert. The Arbitration Act 1996 sets out the use of arbitration as an alternative to going to court to resolve disputes. An Arbitrator will consider submissions made by both parties before making an award as to what is considered to be the market rent as defined in the lease. The Arbitrator also has the power to award costs. An Independent Expert has a similar role but also can make their own enquiries, as well as consider the parties’ representations. An Independent Expert may or may not have the ability to award costs depending on the wording in the lease.
Our chartered surveyors have a proven track record of representing tenants during rental disputes, providing expert witness evidence (both written and oral) for the consideration of Arbitrators and Independent Experts.
Key takeaways
- Understanding your lease terms is crucial before disputing a rent increase
- Negotiation should always be the first step in resolving rent disputes
- Expert witness and arbitration may help in cases where an agreement cannot be reached
- Leveraging expert lease advisory and commercial property valuation services can be the difference between an unsuccessful and a successful negotiation
By taking a proactive approach and seeking professional advice, you can ensure that any rent increase is fair and justifiable, protecting your business interests.
Do you need lease advisory support?
If you’re looking for expert guidance on commercial rent disputes, our lease advisory team is here to help. Contact us today for professional advice tailored to your business needs.