Why is it important not to have delays of rent reviews in a lease?
Posted on 24th October 2018
Leases may provide for the rent to be changed throughout the term of the lease. Such clauses in leases are commonly referred to as rent review clauses. These clauses are usually “upward only” i.e. the rent will only ever increase from what it was on the commencement of the lease. Rent review provisions can be complex and parties should take care when deciding whether the review provisions have been correctly implemented.
How are rent reviews instigated?
This depends on the terms of the lease in question. Leases are likely to stipulate dates (sometimes known as “trigger dates”) by when the rent is due to be reviewed. These trigger dates are usually set dates detailed in the lease e.g. every fifth anniversary of the term of the lease. Some leases may specify that a party must serve a notice on the other stipulating the new sum for the rent, around the trigger date. Other leases encourage the parties to attempt to agree the new rent between them. In default of agreement between the parties, some leases provide that an independent expert is to be appointed to determine the new rent. In all the different circumstances, the strict terms of the lease must be adhered to.
Types of rent reviews
Rent reviews can be:
- Indexation linked e.g. linked to the Retail Price Index or statistics published by the Office for National Statistics.
- Fixed rent increases e.g. a set sum is detailed in the lease by how much the rent shall increase to by a certain date.
- Turnover rents e.g. in some commercial leases, the rent increase is linked to the profits generated by the tenant in the property.
Delays in bringing rent reviews
If a landlord misses a trigger date, it is important to consider whether missing this date is fatal to the landlord’s ability to implement the rent review, or in other words, whether “time is of the essence” for bringing the rent review by a set date. Failure to comply with a rent review, when time is of the essence, can be fatal to the landlord’s attempts to increase the rent. It is the general presumption that time will not be of the essence unless:
- There are express words in the lease stating that time will be of the essence,
- Time of the essence is imposed by a party, by serving reasonable notice asking the review to be conducted,
- The words of the rent review clause are interpreted in a manner that would mean that the rent review must be carried out by a certain time.
Effect of delay on rent review where time is of the essence
If time is expressly stated to be of the essence in the lease, or if time is found to be of the essence by implication, then missing the rent review date can be fatal to the landlord’s attempts to increase the rent, until the next trigger date. In some cases, where the trigger dates are say 5-10 years apart, this can result in the landlord missing out on a sizeable amount of rent.
What do you need to consider?
Where a rent review clause expressly states the phrase “time of the essence” in it, then the review must be carried out by a certain date, otherwise the rent review may not be able to be implemented. If the rent review clause is found to have time of the essence implied into it, by the general construction of the clause, then again the review should be carried out by the relevant date imposed. If time of the essence is not expressly stated as being part of the review clause or found to be part of it by implication, then it may still be possible for a tenant to make time of the essence by serving notice on the landlord stipulating that the review should be conducted within a reasonable time. It is therefore critical to thoroughly analyse a rent review provision before assuming that it has been correctly applied.