Rent and rent review (Structure and content of a lease)- FS Flashcards
(11 cards)
What is a rent review clause in a lease agreement?
A clause that allows the landlord to revise the rent at specified intervals, often to reflect market changes or inflation.
It helps ensure that the rental income remains fair and commercially viable over a long-term lease
Why are rent review clauses commonly included in long fixed-term leases?
To allow the landlord to adjust rent periodically in response to changes in the property market or economic conditions, thereby protecting the value of the lease over time.
Definition: Open Market Rent Review
A clause that adjusts rent to the higher of the current rent or the open market rent at specified review dates. It benefits landlords by capturing upward market trends.
Definition: Fixed Rent Increase Clause
A clause that provides for rent to increase automatically at predetermined dates by pre-agreed amounts, regardless of market or economic changes.
What is an index-linked rent review clause?
A rent review mechanism where rent increases (or decreases) are tied to a published inflation index, such as the Retail Prices Index (RPI) or the Consumer Prices Index (CPI). It benefits tenants by offering more predictability and potential reductions in rent.
Definition: Turnover Rent Clause
A clause linking the tenant’s rent to the financial performance of their business, meaning rent fluctuates based on business revenue. This provides flexibility for businesses with variable income.
List: Types of Rent Review Clauses
- Open Market Rent Review – reviewed to current market rent, upward-only.
- Fixed Rent Increase – pre-agreed periodic increments.
- Index-Linked Review – tied to inflation indices (RPI or CPI).
- Turnover Rent – tied to tenant’s business revenue.
Which rent review clause is most tenant-friendly and why?
The index-linked rent review, because it allows for both upward and downward movement of rent based on inflation, potentially reducing the rent in times of deflation or low inflation.
How is rent typically defined in a lease agreement?
As the annual amount payable by the tenant, usually specified under a defined term such as “Annual Rent” and accompanied by provisions for when and how it must be paid.
What is the purpose of upward-only rent reviews from a landlord’s perspective?
To protect income streams by ensuring that rent cannot decrease at review dates, even if market rents decline.
What can a landlord do if a tenant company fails to pay rent after a statutory demand?
If a tenant company fails to pay the rent arrears within 21 days of receiving a statutory demand, the landlord may petition to wind up the company. Non-payment is treated as evidence of the company’s inability to pay its debts under insolvency law.
