If you receive a notice from your landlord notifying you of a rent increase on commercial premises, and you don’t agree with the new figure, what can you do?
The first step is to look at your lease, and read the clause dealing with rent reviews to find out:
- Whether your rent is, in fact, due to be reviewed. There is usually a schedule in the lease setting out the rent review dates.
- In the case of a review, if the rent is to be increased to the market rate, in line with increases in the Consumer Price Index, or is to increase by a fixed percentage.
- The process by which the landlord is to initiate a rent increase. There are a few things to look for here. Most leases say that, if a landlord initiates a rent review after the due rent review date, the landlord can still go ahead. But, if the rent review is initiated more than three months after the due date, the new rent will only be payable from the date of the landlord’s notice. There will also be time limits for you to dispute the proposed new rent. The lease will usually state that the notice must be served in a particular manner. If the landlord has not followed the process set out in the lease, the notice may be invalid.
If you do object to the landlord’s proposed rent, the lease may also require you to provide a valuer’s report to support your objection.
Most leases contain a “ratchet” clause, too. This typically states either that the rent following a rent review cannot drop below the rent payable immediately before the review, or else that the rent can increase or decrease, but cannot drop below the rent payable at the commencement date of the lease.
If the rent can increase or decrease on a rent review, then most leases also allow the tenant to initiate a rent review (it would clearly not be in the landlord’s interest to initiate a rent review if the rent was going to go down).
If you do dispute the rent and give the appropriate notice under the lease, then the lease will set out a mechanism by which the disagreement over the new rent is to be resolved. Normally, this is done either by arbitration, or by registered valuers for each side acting as experts, with a third independent expert appointed to make a final decision if the other two valuers cannot agree.
If you are a commercial tenant, the most important takeaway is that if you receive a notice from the landlord initiating a rent review, you need to act promptly, as you might be deemed to have accepted the new rent if you don’t dispute it within the time period, and in the manner, set out in the lease.
If in doubt check it out. We are happy to help guide you through the rent review process under your particular lease, so you don’t lose your right to object and have the opportunity to put the best possible case forward.