Commercial Property Rent Reviews (Part 13)

Third party determination—expert or arbitrator?

Landlords may try to retain the ability to choose whether the third party determining the new rent will act as an arbitrator or expert. The Tenant should ask it’s surveyor to give an opinion on which option is better.

In very short terms:

• experts tend to be cheaper and quicker; their decisions cannot be appealed against, but they can be sued in negligence.
• arbitrators have wide statutory powers. The parties may prefer an arbitrator if the premises are unusual in nature, or of high value, or where the rent review process is a particularly complex one.

Rent review memorandum.

The Lease should provide for both parties to sign and exchange (typically at their own cost) a rent review memorandum, recording the rent agreed at any rent review, so there is clear evidence of the agreement reached, even if no increase is agreed.

Payment of backdated rent and interest

Rent Review provisions typically confirm that:

• pending agreement or determination of the new rent, the “old” rent will continue to be payable at the existing rate
• once the new rent is agreed or determined, the Tenant must pay the shortfall (if any) between the new and old rent with effect from the rent review date
• any interest on the shortfall will be payable at a base lending rate (and not – from the Tenant’s perspective – at any higher/penal rate) and be calculated from the date on which each payment of rent was due (e.g. the relevant quarter day after the review date) rather than being calculated on the assumption that the whole amount is due from the review date itself.

Is time of the essence?

Rent Review provisions will ordinarily confirm that time is not of the essence in connection with reviews (including so that there is less chance of “missing” a review). However, this can be rebutted if:

• there is an express statement that time is of the essence
• the wording used confirms that time limits are, including in conjunction with surrounding circumstances (for example where the rent review is linked to a break option), strict.

(This article is not intended to be comprehensive or to provide specific legal advice. It should not be relied upon in the absence of specific advice given in relation to particular circumstances.)

For further information, please contact: Natalie Linehan, Andrew Williamson or David Thorp