If you buy a leasehold property, rent is likely to be one of your major business overheads, and the amount will be reviewed every three to five years. Don’t do anything until you’ve read our essential guide…

What is a rent review?

When taking a commercial lease on a premises it is normal practice for the landlord to request a rent review pattern. This is how often the amount of rent you pay will be re-examined. The basic principle of a rent review is to make sure that the landlord does not lose out if the local property market changes.

So what is a typical rent review pattern?

Unfortunately, there is no standard rent review pattern, so it’s open to negotiation between you and your landlord. As a guide, however, on a standard restaurant lease of 25 years the rent would probably be reviewed every five years. It’s also possible to have a 20-year lease with the rent reviewed every four years. A three-yearly pattern is more common on leases for office buildings.

What exactly happens when it’s time for the rent review?

The rent review pattern is negotiated before the landlord grants a new lease and is then detailed as part of the written lease itself. The method and practice for reviewing the rent are outlined in the lease as well. The procedure usually starts by determining an average rent for the local market. This is done by comparing any recent rent reviews, lease renewals, and new lettings of other properties.

The tenant should employ a surveyor who specialises in rent reviews for the particular type of premises under review. The surveyor will decide what he thinks the rent should be and then argue it out with the landlord’s surveyor by letter.

There is usually a provision in the lease that if a rent cannot be agreed between the parties then you can apply to the Royal Institute of Chartered Surveyors for a third party to intervene. The surveyors from both parties then provide written representations to the appointed third party to try to agree the amount.

Can’t I just agree it with the landlord myself?

Not really. When a rent review comes along, a lot of new tenants panic when the landlord says what he thinks the rent should be. It’s common practice for the landlord to inflate this first figure dramatically and so begin negotiations. It is definitely advisable to get advice from a surveyor before entering into any direct negotiations with the landlord.

Anything else to bear in mind?

The rent you pay is an important part of your business outgoings. A rent review will decide how much that will be for maybe the next five years, so negotiations shouldn’t be rushed. Rent reviews can, and often do, take a long time to conclude, unless the lease sets time limits.

Produced by CatererSearch in association with Gilmarc Associates