With the added complexity of lease terms, lease renewals and rent reviews require a thorough understanding of terminology and extensive market knowledge. To help clear up potentially complicated expressions in your contract, we have provided a summary of all the essential information below.

Rent Review

Rent Reviews involve a revaluation of the property value and a subsequent review in the rent due, with a view to adjusting the amount so that it better aligns with current market conditions and the state of the property.

Methods of rent review include:

  • Open Market Rental Value – the majority of commercial rent reviews are completed this way and refers to the rent your landlord can expect to receive for the property based on the value and the rent being paid for similar properties in the surrounding area.
  • Retail Price Index – the average change in the prices of goods and services are measured by the Retail Price Index, meaning the rent aligns with RPI on general inflation levels rather than changes in the market specifically.
  • Turnover Rent – found particularly in the retail and charity sector, this is based on the turnover or profit of the tenant.
  • Fixed Rent – this one is rare but can be found in short leases or premises that are hard to value. In your lease, the rent for each year and the price increase is specified in the contract meaning it is always fixed to increase at that price.

Lease Renewals

Under the Landlord and Tenant Act 1954, most commercial tenants have the right to a lease renewal after the five years has passed in order to prevent tenants from having to vacate the property without having the chance to renew. A lease renewal is not always necessary as the lease automatically continues if the renewal process is not triggered by the expiry, therefore entitling the occupier to remain in the same premises on the same terms as before.

If a tenant wishes to issue a lease renewal, with notice between six months and a year, then these are the features it should include:

  • A desired rental figure
  • New suggested length of the new lease
  • A start date for your renewal of lease

As the property manager, if you wanted to renew the lease then you should contact the tenant for a renewal. If they are happy then send a proposal over – 90 days before the current one expires – with a certain time you want to hear back.

Arbitration

Arbitration is a method of ideas to prevent a traditional method for resolving legal disputes by filing a lawsuit or going to court. This is a procedure in which a dispute is submitted, with the agreement of parties, to one or more arbitrators who will make a binding decision on the dispute privately.

This process has many of the same features as a courtroom trial with the evidence being presented, arguments being made, witnesses are called and questioned before a decision is made. However, time taken is simplified meaning your process is quicker.

Here at Baker Storey Matthews, we will interpret leases and evaluate market conditions to advise both landlords and tenants. We also regularly prepare submissions for arbitration and can act as experts when appointed by third parties. Get in touch with our expert team today if you require further information on rent reviews, lease renewals or require third-party arbitration.