Rent Reviews: Frequently Asked Questions
What is the correct procedure?
Most leases will set out the procedure that the parties should follow in conducting their rent review. You can expect to find the following provisions in most leases:
- that either the landlord or the tenant (or only one of them) may refer to the RICS if the parties cannot agree the rent within a certain period of time from the rent review date;
- that the RICS will appoint someone to act as either arbitrator or expert, his fees being paid equally by the parties; and
- that the tenant will pay the passing rent until the new rent is agreed or decided, whereupon the tenant will pay the new rent and the difference between the passing rent and the new rent from the rent review date plus interest.
Some leases won’t contain a trigger notice/counter-notice procedure. Here, it is advisable for the landlord to send a letter to the tenant proposing the new rent. Before doing so, he should exercise his rights of access under the lease to arrange a valuation. If this happens, the tenant should try to have its valuation carried out either at the same time or shortly afterwards to assist in the negotiations that will take place later.
If the lease does set out a procedure, the parties should adhere to it as closely as possible to avoid disputes and possible costs penalties. Again, the parties should check whether time is of the essence for any particular steps.
Is time of the essence?
Whether time is of the essence will depend upon the terms of your lease. There is a presumption that time is not of the essence but time will become of the essence if your lease expressly says so or if it is a necessary implication of the lease when read as a whole.
Some leases make time of the essence for certain steps but not for others. It is essential to read the lease as a whole before deciding whether time is of the essence.
If time is of the essence and a deadline is missed - what happens?
The knock on effect of missing a deadline during the rent review process will depend on the lease provisions. It might be that the opportunity to review the rent is lost until the next rent review, or that the tenant loses the right to object to the landlord’s proposed increased rent. If you or the other side have missed a deadline, you should take immediate legal advice. A tenant may be able to challenge the validity of the landlord’s trigger notice. A landlord may be able to argue that time was not of the essence or that no trigger notice was strictly required under the terms of the lease.
Has the notice been properly served?
When preparing a rent review notice (trigger or counternotice) or reviewing one that has been served, you should always check the following:
- Landlord and tenant: correct name and address? Has ownership passed since the lease was granted? If a company, has the name or registered office changed: check with Companies House. If you are dealing with a group company, check whether ownership of the asset has passed and that the notice is addressed from or to the correct company.
- Address for service: The lease will usually contain a ‘notices’ provision near the end or there may be requirements within the rent review provisions. Check this to see where notices should be served and whether they have been correctly addressed. Check how service should be effected and whether it should be served at more than one address.
- Check how the notice was delivered and whether it was delivered within the timeframe envisaged within the lease. If it is out of time, check whether time is of the essence.
Can a landlord serve his trigger notice after the rent review date passes?
If time is not of the essence, then unless the tenant can argue estoppel or unilateral abandonment, the landlord can serve his notice late. In the case of Lanecrest Ltd v Asiwaju (2005), the Court of Appeal held that where a landlord served his trigger notice more than 12 months after the rent review date, his notice was still valid where time was not of the essence.
Can the landlord increase the rent after service of his trigger notice?
The lease will usually state how much the tenant must pay to the landlord whilst the rent review is ongoing. It is common for the tenant to pay the passing rent until the review is concluded, at which point he must pay the difference between the passing rent and the new rent for the time between the rent review date and the date the review is concluded. Added to this, he may have to pay interest. The tenant may agree, on a without prejudice basis, to pay a slightly increased rent on a without prejudice basis in order to ease his cash flow but this is unusual.
No response to landlord’s trigger notice – what happens now?
If time is of the essence and the tenant has failed to respond to a validly served trigger notice, the tenant may lose the right to challenge the figure proposed by the landlord. This is known as ‘deeming’ and will only happen if the lease contains a ‘deeming’ provision. Sometimes the existence of a deeming provision can imply that time is of the essence for a tenant’s counter-notice, even where this is not expressly stated. This will depend upon the wording in the particular lease.
The tenant has carried out improvements – are they included in the rental valuation?
It is common to find that improvements are expressly disregarded in the rent review provisions found in the lease. However, unless the lease expressly disregards improvements, the valuation will include improvements. This is even the case where the tenant has taken a bare parcel of land and then built upon it. The premises to be valued will consist of the land, the tenant’s fixtures and landlord’s fixtures. Tenant’s removable fixtures will not be valued on review.