On a lease of any length, the rent you agree at the start usually isn’t the rent you’ll pay throughout. Most leases include a commercial lease rent review: a point, often every three or five years, where the rent can be adjusted. How that adjustment is calculated is one of the most important commercial terms in the whole lease, and it’s worth understanding the main options before you agree to one.
Open Market Commercial Lease Rent Review
This is the traditional approach to a commercial lease rent review. At each review date, the rent is reset to the open market rental value of the premises: what the property would let for if it were put on the market that day, assuming a willing landlord and tenant and a notional new lease on certain assumptions.
The big thing to watch is whether the review is upward only. Most are. That means the rent can go up at review, or stay the same, but it can never come down, even if the market has fallen. Upward-only reviews are standard, and landlords (and their lenders) tend to insist on them, but a tenant should go in with eyes open. In a soft market you can end up paying above the going rate for years.
Open market reviews can also be a source of dispute. If the parties can’t agree the new figure, it goes to an independent valuer or arbitrator — RICS runs a dedicated Commercial Rent Review Appointment Service for exactly this — which costs time and money.
Index-Linked: RPI and CPI
The alternative form of rent review is to link the rent to an inflation index, so it rises in line with a published measure rather than a valuation. Two indices come up.
- RPI (Retail Prices Index): the older measure. It tends to run higher than CPI because of how it’s calculated, so it usually means bigger increases for the tenant.
- CPI (Consumer Prices Index): generally lower than RPI, and the measure the government treats as its headline inflation figure.
Index-linked reviews have one big advantage: predictability. There’s no valuation to argue about and no surprise jump to market rent. The tenant can model their costs years ahead. The trade-off is that the rent moves with inflation regardless of what’s actually happening to property values. In a year of high inflation but a flat property market, an index-linked rent can rise faster than an open-market one would.
Watch for caps and collars too. A well-drafted index-linked clause often has a cap (a maximum annual increase) and sometimes a collar (a minimum). Those limits protect both sides from the index doing something extreme.
Which Is Better?
Neither, in the abstract. It depends on which side you’re on and what you expect to happen. A tenant who values certainty and is wary of an open-market jump might prefer CPI with a sensible cap. A landlord in a strong location might want open-market upward-only to capture rising values. The honest answer is that it’s a negotiation, and it’s one of the terms where it pays to think a few years ahead rather than just focusing on the opening rent- much like weighing up a lease vs a licence to occupy at the outset.
The Detail That Gets Missed in a Commercial Lease Rent Review
Whatever method you choose, check the assumptions and disregards in the review clause: the small print about what the valuer pretends is and isn’t true. Things like disregarding the tenant’s own improvements (so you’re not paying extra rent on a fit-out you paid for yourself) genuinely matter to the figure. This is dull to read and expensive to ignore — and it’s worth reading alongside your break clause terms so you know exactly when and how you could exit if the numbers stop working.
Frequently Asked Questions On Commercial Lease Rent Reviews
Here are the questions people most often ask about a commercial lease rent review.
A point in the lease, often every three or five years, where the rent can be adjusted. The lease sets out the method: usually either a reset to open market rental value or an increase in line with an inflation index.
At review, the rent can rise or stay the same but never fall, even if the market has dropped. Most open market reviews are upward only, and landlords and their lenders usually insist on it.
Both are inflation indices. RPI tends to run higher than CPI because of how it’s calculated, so an RPI-linked rent usually rises faster. CPI is generally lower and is the government’s headline inflation measure.
Limits in an index-linked review clause. A cap sets a maximum annual increase; a collar sets a minimum. Together they protect both sides if the index does something extreme.
The small print in an open market review clause telling the valuer what to assume and what to ignore when setting the new rent. Disregarding the tenant’s own improvements matters most: without it, you can end up paying rent on a fit-out you funded yourself.
Aqqord’s leases set the rent review out clearly so both sides know exactly how future rent will be calculated: no buried assumptions, no nasty surprises at year five. Choose your terms and preview a full draft for free at aqqord.com, with nothing to pay until you both sign.
