Rent review

Question 1

What is Stepped Rent?

Answer 1

A lease may set out a yearly rent of £25,000 for the first two years, £30,000 for the next two years.

This structure allows for predictable increases in rent over the lease term.

Question 2

How is Turnover Rent calculated?

Answer 2

Rent is calculated based on the tenant’s turnover.

This type of rent aligns the landlord’s income with the tenant’s business performance.

Question 3

What does Index-linked rent involve?

Answer 3

Increased by an agreed measure of inflation, specifically the RPI.

Question 4

What is Open Market Rent Review?

Answer 4

The most common type of rent review adopted by FRI leases, focusing on the hypothetical, open market rental value of the premises at the time.

Question 5

What is a characteristic of commercial leases regarding rent reviews?

Answer 5

Commercial leases almost always have an upwards only rent review.

Question 6

What happens if parties cannot agree on a new rent during an Open Market Rent Review?

Answer 6

The lease will set out a mechanism for a specialist valuer to be engaged to determine the new rent.

Question 7

What assumptions are made when imagining the hypothetical lease for rent review?

Answer 7

• There is a willing landlord and tenant
• The property is to be let with vacant possession
• The lease will be on the same terms, excluding the rent, but including review provisions
• The term will be equal to the unexpired residue of the term
• The tenant has complied with its covenants
• The property has been reinstated if it has been damaged or destroyed

These assumptions provide a standard framework for evaluating the rent.

Question 8

What factors are disregarded when imagining the hypothetical lease?

Answer 8

• The tenant’s occupation
• The goodwill of the tenant
• The effect of voluntary improvements by the tenants

Question 9

What is documented in a rent review memorandum?

Answer 9

The new rent, which is signed by the landlord and tenant.

Question 10

What may the tenant have to pay if the rent review occurs before the 5th anniversary of the term commencement date?

Answer 10

Further SDLT or LTT, as this is calculated using the first five years’ rent.

This can lead to additional tax liabilities for the tenant.

Question 11

What happens if new rent is decided after the rent review date?

Answer 11

The rent is backdated to the rent review date.