Rent reviews
These are generally found in leases granted for terms of 5 years or longer.
The process is set out in the lease (the contract).
There may or may not be provisions for service of notices and counter notices in the lease.
Time limits may have to be complied with, but not generally. If there are no limits, a landlord may be able to instigate a rent review years after the due date and back rent will be payable, normally plus interest.
The lease will set out the procedure for agreeing the rent, which will include a process for settling the rent if the parties cannot agree, by an Arbitrator or Independent Expert.
Both processes are binding on the parties.
The reviewed rent is agreed on the basis of various assumptions and disregards.
Important assumptions/factors will include:
- length of lease to be valued
- break clauses (if any)
- use
- rights to assign or sublet (i.e. alienation)
- parties have complied with their covenants
Important disregards will include:
- the tenant’s occupation and goodwill
- tenant’s improvements if licensed
Process of rent review:
- The landlord will generally serve a notice instigating the review.
- The landlord will propose a new rent.
- The parties will negotiate and if agreement is reached, record the rent with a rent review memorandum.
- If agreement cannot be reached, depending on the lease, an Arbitrator or Independent Expert will be appointed. Following written representations or a hearing, the third party decides what the new rent will be.
Once agreed, or determined, the back rent is payable from the rent review date, usually with interest at a rate specified in the lease.
In many instances, a tenant can instigate a rent review if the landlord is reluctant to do so.
