Upwards-only Rent Reviews

Rent reviews are included in most commercial property leases, so that the rent keeps pace with the market. They usually take place at three, five, or seven year intervals. An upwards-only rent review is a type of review that allows the rent to increase periodically, but prevents it from decreasing. In the event that there is no evidence to prove an increase, the rent will stay at the passing level, even if the market rent is lower. This type of rent review is overwhelmingly the most common form in UK leases, making commercial property in the UK an attractive proposition for investors.

For tenants, upwards-only rent reviews can present challenges. In a falling market, this type of rent review provision will put a tenant at a disadvantage, by keeping the rent above what the tenant could be paying elsewhere, and potentially higher than a competitor may be paying. It is therefore essential for tenants to carefully consider the rent review provisions when negotiating lease agreements, and account for a variety of rent review scenarios in their financial planning.

While upwards-only rent reviews have been a common practice in the UK, the landlord does not have an automatic right to include one in a lease. In some cases, tenants may negotiate for a more flexible rent review mechanism, which allows for rent decreases as well as increases. But in my experience, it is rare to see such a rent review, and most landlords will resist this type of deal, unless they have little choice, either through market forces, or because the tenant is coveted by the landlord, and negotiating from a strong position.

The use of upwards-only rent reviews has faced criticism and calls for reform in recent years. Concerns have been raised regarding the financial burdens for tenants, particularly in challenging economic conditions, such as those seen after the 2008 financial crash, the Brexit vote, and again now, with the recent commercial property market struggles. As a result, legislative changes and industry discussions have explored potential reforms to provide tenants with more balanced and fair rent review mechanisms.

For the time being though, the upwards-only rent review is very much still on the cards in most commercial property lease negotiations. Tenants need to be aware of what they are agreeing to when they sign a lease, and make sure they can manage the risk, perhaps by agreeing to a shorter lease term or negotiating, a break clause. This way, if the scenario arises where an upwards-only rent review puts them at a disadvantage, at least the duration can be kept to a minimum.