Commercial lease rent reviews are a critical tool for landlords managing long-term investment income. Unlike residential tenancies where rent increases are regulated, commercial landlords and tenants are largely free to negotiate the review mechanism, but once agreed in the lease, the review provisions must be followed exactly. Missing a trigger notice deadline, failing to specify the correct basis, or serving a notice out of time can have catastrophic consequences for the rent the landlord receives for the remainder of the term. Understanding how review clauses work, and the traps they contain, is essential for any commercial property landlord.
Types of Rent Review Mechanism
Commercial leases use several review mechanisms: (a) Open market rent review: the most common mechanism in UK commercial leases; the rent is reviewed to the open market rental value of the premises on review date, typically the rent that a willing landlord and willing tenant would agree for a new letting on the same terms, ignoring any goodwill of the sitting tenant; the review clause specifies the hypothetical letting assumptions and disregards (e.g. ignore tenant's improvements; ignore occupation; treat the property as vacant and to let); (b) Upward-only review: almost all modern commercial leases contain an upward-only review clause, the rent can only increase (or stay the same) on review; it cannot fall even if market rents have declined; this is a major protection for commercial landlords and a major risk for tenants in falling markets; (c) Index-linked review: the rent increases by reference to a specified index, most commonly the Retail Price Index (RPI) or Consumer Prices Index (CPI); these reviews are automatic and formulaic, avoiding valuation disputes, but the landlord's return is tied to the index rather than market rental movements; (d) Turnover rent: common in retail leases, the tenant pays a base rent plus a percentage of turnover above a threshold; post-COVID, hybrid turnover/base rent structures have become more common in high street retail; (e) Fixed uplift review: the rent steps up by a fixed percentage or fixed amount on each review date, simple to administer but the increase may not reflect actual market movements; (f) Collar and cap reviews: open market reviews with a floor (collar, the rent cannot fall below a specified percentage of the current rent) and a ceiling (cap, cannot rise above a specified percentage); these reduce volatility for both parties.
- Open market review: most common; rent reviewed to what a willing landlord and willing tenant would agree for a new hypothetical letting on the review date
- Upward-only: the rent can only increase or remain unchanged on review, it cannot fall; standard in UK institutional leases and provides strong income protection for landlords
- RPI/CPI-linked: automatic formulaic review; avoids valuation disputes; return tied to index rather than market, may lag market rents in strong rental growth markets
- Turnover rent: base rent plus % of turnover above a threshold; useful for retail and hospitality, aligns landlord income with tenant trading performance
- Collar and cap: upward-only review with a floor (minimum increase) and ceiling (maximum increase); reduces uncertainty for both parties
The Open Market Review Mechanism, Assumptions and Disregards
The open market rent review clause contains a definition of the rent to be paid, the 'open market rental value', which is defined by reference to a set of assumptions and disregards. These are critical to the outcome of the review: (a) Key assumptions typically included: the premises are vacant and available to let; the lease is on the same terms as the actual lease (but at the reviewed rent and without the rent review clause itself); the premises are fit for the permitted use; the landlord and tenant are willing (not desperate); (b) Key disregards typically included (Landlord and Tenant Act 1954 s.34 basis): any reduction in rent attributable to the tenant's occupation, the hypothetical tenant starts fresh with no goodwill from the sitting tenant's business; any improvement carried out by the tenant during the term (or during a prior tenancy) at the tenant's own expense and not under an obligation to the landlord; the fact of the sitting tenant's occupation (to prevent artificially depressed rents due to tenure security); (c) Importance of the disregards: if the tenant has invested heavily in fitting out the premises, the disregard for tenant's improvements is critical, without it, the landlord could seek a higher rent based on the improved state of the premises funded by the tenant; (d) Assuming vacant possession: the assumption of vacant and to let means the review is based on what a new tenant would pay, not what the sitting tenant can afford, the sitting tenant's financial position is irrelevant to the review.
- Vacant possession assumption: review is based on a hypothetical new letting; the sitting tenant's financial difficulties are irrelevant
- Tenant improvements disregard: improvements funded by the tenant during the term (not pursuant to an obligation) are disregarded, the tenant is not penalised for investing in the property
- Tenant occupation disregard: the review ignores the sitting tenant's occupation to prevent artificially depressed rents caused by security of tenure
- Same lease terms assumption: the hypothetical letting is on the same terms as the actual lease (minus the rent review clause); unusual or onerous lease terms may depress the hypothetical rent
- Willing landlord and willing tenant: neither party is assumed to be under pressure, the review is not based on desperate or distressed transactions
Trigger Notices, Time Limits, and the Time-of-the-Essence Trap
Most open market review clauses require the landlord to serve a trigger notice on the tenant before the review date to activate the review process. The rules around these notices contain some of the most dangerous traps in commercial property law: (a) Time-of-the-essence: where the review clause expressly makes the trigger notice deadline 'time of the essence', failure to serve the notice in time can mean the review is lost entirely for that review period, the rent stays at the pre-review rate until the next review date; (b) Time not of the essence: in the absence of an express time-of-the-essence provision, courts have generally held that time is not of the essence for rent review trigger notices, Drebbond Ltd v Horsham DC (1978); this means a late notice can still activate a review, though the reviewed rent will only be payable from when the notice was actually served; (c) Deeming provisions: many review clauses contain deeming provisions, if the landlord fails to serve a trigger notice, the review is 'deemed' not to have occurred; these provisions vary widely and should be reviewed carefully; (d) Counter-notice: the tenant may have a right to serve a counter-notice disputing the landlord's proposed rent, failure to serve a counter-notice within the specified time can result in the landlord's proposed figure being accepted by default; (e) Surveyor appointment deadlines: if agreement cannot be reached, both parties typically have the right to refer the matter to an independent expert or arbitrator, the clause may specify deadlines for making such appointments that must be observed.
- Time-of-the-essence: where the review clause expressly makes the trigger deadline TotE, a late notice can forfeit the review entirely for that period, check the lease carefully
- Time not of the essence: courts generally hold time is not TotE unless expressly stated; a late notice activates the review but the reviewed rent runs only from the late notice date
- Counter-notice trap: if the tenant must serve a counter-notice within a specified period and fails to do so, the landlord's proposed rent may be accepted by default
- Deeming provisions: some clauses deem the review not to have occurred if the trigger notice is not served, effectively a financial loss for the landlord
- Diary trigger notices: diarise all review trigger notice deadlines with a 3-month lead time; missing a trigger notice in a TotE clause is a serious and potentially irrecoverable error
Resolving Review Disputes, Expert Determination vs Arbitration
If the landlord and tenant cannot agree the reviewed rent, the review clause will provide a dispute resolution mechanism: (a) Expert determination: the most common mechanism for commercial rent reviews; the expert (typically a RICS-qualified chartered surveyor) is appointed by the parties or by RICS if they cannot agree; the expert acts as an expert (not an arbitrator) and is entitled to rely on their own knowledge and expertise without being bound strictly by the evidence submitted; the expert's decision is binding on both parties and can only be challenged for manifest error or fraud; (b) Arbitration: an arbitrator (appointed by the parties or RICS) must decide the review based on the evidence presented; the Arbitration Act 1996 applies; the arbitrator's award is an arbitration award and can be challenged under limited grounds (serious irregularity; error of law on a point of law) in the courts; (c) Costs: in expert determination, the default is that each party bears its own costs unless the clause specifies otherwise; in arbitration, the arbitrator has discretion to award costs; (d) Calderbank offers: in arbitration, either party can make a Calderbank offer (equivalent to a Part 36 offer in litigation) specifying a proposed rent, if the other party refuses and the arbitrator's award is no better than the offer, the offeree may be ordered to pay the offeror's costs from the date of the offer; (e) RICS guidance: both expert determination and arbitration proceedings are governed by RICS guidance notes and are distinct from court proceedings; landlords and tenants should instruct specialist commercial property surveyors to represent them.
- Expert determination: the expert relies on their own expertise; decision binding except for manifest error; most common for commercial rent reviews
- Arbitration: evidence-based process; Arbitration Act 1996 applies; narrower grounds for challenge than court litigation; arbitrator's costs discretion
- Calderbank offers: make a Calderbank offer early to create costs pressure, if the award beats your offer, the other side may pay your costs from the offer date
- RICS appointment: either party can apply to RICS to appoint an expert or arbitrator if the parties cannot agree, the process is typically faster and cheaper than court litigation
- Specialist surveyors: instruct a specialist commercial property surveyor (not a general agent) for rent review negotiations and tribunal proceedings
Frequently asked questions
What is an upward-only rent review and is it still legal?+
An upward-only rent review is a clause in a commercial lease that provides that the rent on each review date can only increase or remain the same, it cannot fall even if market rents have declined. Upward-only reviews are legal and enforceable in England and Wales for commercial leases. They were prohibited for new leases in Scotland by the Land Reform (Scotland) Act 2003 (in force since 2009), but this prohibition does not apply in England and Wales. The Law Commission and various government consultations have considered restricting upward-only reviews in England and Wales, but no legislation has been passed as of 2026. For commercial landlords, upward-only reviews provide strong income protection and are a standard institutional lease term.
What happens if I miss the rent review trigger notice deadline?+
The consequences depend on whether the review clause makes time 'of the essence' for the trigger notice. If time is expressly stated to be of the essence, missing the deadline can forfeit the review entirely for that review period, the rent stays at the current level until the next review date. If the clause does not make time of the essence (the more common position), a late trigger notice can still activate the review, but the reviewed rent will only run from the date the late notice was actually served, meaning the landlord loses income during the delay. In both cases, missing a trigger notice deadline is a serious commercial error. Landlords should diarise all review dates with a 3-month lead time and instruct solicitors or surveyors to handle the review process.
Can the reviewed rent be lower than the current rent?+
For leases with an upward-only rent review clause, no, the rent cannot fall below the current passing rent on review regardless of market conditions. For leases with a purely open market review (without an upward-only restriction), the reviewed rent is whatever the market value is on the review date, which could theoretically be lower than the current rent. In practice, most modern commercial leases include upward-only provisions. If the lease is silent on direction, the court will not imply an upward-only restriction, the review is genuinely open market in both directions.
What is the difference between expert determination and arbitration for rent review?+
In expert determination, the expert (usually an RICS chartered surveyor) acts on their own expertise and knowledge and is not bound to decide purely on the evidence submitted by the parties, they can, for example, use comparable evidence they have found themselves. The expert's decision is final and binding except for manifest error or fraud. In arbitration, the arbitrator must decide the dispute based on the evidence and arguments presented by the parties. The Arbitration Act 1996 applies, and the award can be challenged (on limited grounds) in court. Expert determination is generally faster and cheaper than arbitration and is the more common mechanism in commercial rent review clauses.