Market Rent Reviews: A Guide for Landlords and Tenants

Owning a commercial property is not a set-it-and-forget-it matter. There are obligations and responsibilities that need to be understood in order for it to be a worthwhile investment.  One such process that landlords and tenants need to be well-acquainted with is rent reviews. Navigating this crucial aspect of property management requires understanding, transparency, and a fair deal of knowledge.  Let’s explore and unravel the complexities, the obligations of the landlord and tenant, and what to expect during a rent review as governed by a Deed of Lease.

What is a market rent review?

Rent reviews are an integral part of commercial lease agreements. They are established to ensure that the rent being paid reflects the property's current market value typically as determined by an independent valuation.   These reviews occur at predetermined intervals set out in the lease. The process begins with the landlord providing a rent review notice. The notice sets out the proposed new market rental for the premises. There are many elements which determine the market rental such as comparisons, market conditions and how desirable the property is. Following this, there's a window for negotiation and discussion. Both landlords and tenants have the right to question and negotiate the proposed rent increase. There is also no reason why a tenant cannot also get there own valuation as part of this negotiation as well. In the event of a disagreement or an agreement cannot be reached, the lease will outline a dispute resolution process.  

The landlord's obligations

As a landlord, managing a market rent review obliges you to ensure the process is transparent, fair, and consistent with the terms outlined in the lease. A rent review notice must provide clear, comprehensive information about the proposed new rent.  In addition, being aware of the benefits of a long-standing tenancy and current economic factors are also key to this process. For example, if a consistently great tenant is experiencing cash flow problems due to market issues, deferring rent reviews can strengthen the landlord-tenant relationship and be more benefiical in the long run.  It is also important to note that the rental of a premises also inherently impacts the valuation of the property, so keeping the property up with market rents is important in more ways the one.  

What to expect during a market rent review

Market rent reviews need not be daunting for either party involved. Understanding what to expect can help ease any concerns. Expect discussions and potential negotiations. The tenant has the right to query the proposed new rent and to negotiate.  In the event of a disagreement that can't be resolved through negotiation, the lease agreement should specify a dispute resolution process. Getting a property manager to help create a more balanced outcome is often better for all.  

The mutual benefit of a well-managed rent review

When managed correctly, market rent reviews ensure the longevity and health of a lease agreement. They safeguard the landlord's investment and ensure the tenant is paying a fair price that aligns with the current market value. As you navigate your next market rent review, whether as a landlord or tenant, remember the value of transparency, fairness, and understanding the process. With these in mind, you can contribute to a smooth, mutually beneficial rent review process. If you have any further queries or require guidance with rent reviews, please do not hesitate to get in touch. We're here to help you navigate the world of commercial property with ease and confidence.