knowledge 6 May 2016 |

Rent Review – Who’s Really in Charge?

Landlords traditionally sought to control the rent review process by reserving to themselves alone, the right to call for the review to take place. Where a landlord reserves that right, and chooses not to call for a review, this preserves rent payments at the existing level, even where the market has fallen during the relevant review period.

In all of the consideration of the legislation governing upward and downward reviews, the right to call for a review has a fundamental commercial significance which should not be overlooked. There is no express obligation in any legislation and no case-law, which reliably imposes any obligation on a landlord to initiate a rent review, where this is not expressed as an obligation in the lease itself.

In the days of “upwards only” rent reviews, the benefit to a tenant in having the right to trigger a review was more in achieving certainty of rental liability, than securing any market benefit. The rent was never going to decrease but the tenant could at least ensure that arrears did not build and, in preparation for an assignment for example, could ensure that the rent was settled. This remains a benefit from a tenant’s perspective, but with the potential in the market of upward and downward reviews, the commercial benefit to both landlord and tenant in controlling the rent review is potentially very significant – it is in fact now a key issue to negotiate and consider.

In a rising rental market as currently prevails, the practical significance of the right to review may once again be waning, as the likelihood of the downward review may be considered a thing of the past. However, landlords and tenants with a longer term view (and those advising them) will benefit from understanding the power inherent in it.