Commercial Property – Lease Renewals and Rent Reviews

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Landlord and Tenant Law in respect of Residential Property and Commercial Property is conducted within a complex framework of rules setting down law and procedure. Our Landlord and Tenant Solicitors and Barristers have an impressive track record in dealing with a broad range of Residential and Commercial Property cases.

Our Landlord and Tenant Solicitors and Barrister advise both landlords and tenants in relation to agreements for lease (including pre-lets), leases, re-gearing of leases, lease renewals, assignments, authorised guarantee agreements, licences, rent deposits and surrenders.

Our Landlord and Tenant Solicitors and Barristers can provide you with immediate advice upon a full range of property matters and represent you in Court at short notice if required.

Rent Review

Rent review in commercial property is only applicable to FRI (full repairing and insuring) leases and the purpose of it is to keep the rent in line with the (local) market for similar premises, by adjusting it regularly. The period after which rent is reviewed is known as a “pattern” for example, a “five-year pattern”, where rent is reviewed every five years. This is typical for a 15 year commercial lease.

A FRI lease is a form of commercial lease typically held by tenants for terms anywhere between five years and 35 years and has no ‘capital value’ to the tenants in that it is not saleable. FRI leases mean the tenant must cover the full cost of repair and insurance at the property either directly or indirectly for the duration of its lease.

The rent can be reviewed in various ways:

Stepped rent review: the landlord and tenant agree to increase the rent by fixed amounts periodically (e.g. yearly/five yearly);
Turnover rent: the annual rent is calculated as a percentage of the tenant’s turnover at the property for that year (this is common for leases of retail or leisure premises);
Index linked rent review: the annual rent is increased by reference to an agreed measure of annual inflation (e.g. the retail prices index (‘RPI’)); or
Open market rent review: the rent is reviewed by reference to the market rent for leases of comparable properties in the same locality as the premises at the time of review.

Lease Renewal

Lease renewal negotiations are more delicate than rent review negotiations because the landlord does not have an obligation to grant the renewal and the tenant does not have to stay. Under the Landlord and Tenant act 1954 “any tenancy where the property comprising the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes” enjoys security of tenure.

Essentially, it means a tenancy which is occupied by the tenant for the purpose of business can enjoy the right to hold over the lease even when it has passed its expiry date.

For tenants under a commercial tenancy agreement who do not qualify for the protection of the 1954 Act, it is recommended to start rent negotiations early to allow for the terms of the new tenancy agreement to be agreed before the lease expiry date.

Where the business tenant does have automatic rights to request a renewal of its lease agreement under the provisions of the Landlord & Tenant Act 1954 then strict timetables need to be understood and adhered to. Between the periods of 12 months before the expiry date of the lease and 6 months after the expiry date of the lease, either the landlord or tenant can serve notice on the other party to extend or terminate the lease.

The process of applying for a s.25 Notice (for Landlords) and s.26 Notice (for Tenants)