UK commercial leases typically include rent review clauses allowing landlords to increase rent at set intervals (usually every 3-5 years). Historically, many leases included 'upward-only' clauses, preventing rents from decreasing even if market values fell. This trapped tenants in unaffordable leases during downturns (2008 financial crisis, COVID-19). Although upward-only clauses have become less common, many existing leases still include them, and some landlords attempt to enforce unfavorable reviews. Before signing or renewing a commercial lease, you need to understand how rent reviews work, whether the clause is upward-only or upward/downward, what the review process is, and whether you have any protection against unreasonable increases.
What is a Rent review and upward-only restrictions?
A rent review clause in a commercial lease specifies how and when rent is increased. It typically includes a review date (e.g., every 3 or 5 years), a method of valuation (market value, RPI-linked, or fixed percentage), and procedures for resolution if landlord and tenant disagree. Upward-only clauses allow increases but not decreases; upward/downward clauses allow both.
Red flags to watch for
Upward-only clauses are increasingly disfavored by courts and are less common in new leases, but many existing leases include them. This means you cannot benefit from falling market rents. Negotiate for upward/downward review or a break clause.
If the review is to 'market value' but the lease doesn't specify how market value is determined or who values the property, disputes will arise. Insist on professional valuation with a defined process.
RPI-linked increases without a cap could result in dramatic rent hikes if inflation spikes (as occurred in 2022-2023). Consider negotiating a cap (e.g., RPI + 1% or capped at 5% annually).
Some leases require you to keep paying the old rent, but if the review increase is substantial, you could owe significant arrears. Clarify whether payment continues at the current rate pending dispute resolution.
One-sided review provisions allowing only landlords to challenge valuations are unfair. Both parties should have equal rights to challenge.
If the lease doesn't specify arbitration, expert determination, or court proceedings for disputes, you could face lengthy and expensive litigation.
Your legal rights
UK commercial leases are governed by landlord-tenant law and the lease itself. The Courts have shown disfavor toward upward-only clauses, particularly in circumstances where they produce unfair results (e.g., post-crisis downturns). Under common law, rent reviews must be exercised fairly and in good faith. The Law of Property Act 1925 and case law establish that upward-only review clauses, while enforceable, are subject to scrutiny. Expert determination clauses are enforceable but parties have limited appeal rights. The Landlord and Tenant Act 1954 provides some security for business tenants but doesn't override express rent review terms.
Questions to ask before you sign
- 1When are rent reviews scheduled, and how frequently can they occur?
- 2Is this an upward-only or upward/downward rent review clause?
- 3How is new rent determined (market value, RPI-linked, fixed percentage)?
- 4If market value, who will value the property, and what is the process if we disagree?
- 5If RPI-linked, is the increase capped, and at what percentage annually?
- 6While a rent review dispute is ongoing, do I continue paying the current rent or an interim amount?
- 7How are rent review disputes resolved (arbitration, expert determination, court)?
- 8Do I have a break clause allowing me to exit if rents increase substantially?
Disclaimer: This guide is for educational purposes only and does not constitute legal advice. Contract law varies by jurisdiction and individual circumstances. Always consult a qualified legal professional before making decisions based on this information.