In the commercial property sector, leases commonly span from between 5 to 25 years, with rent reviews typically occurring every 3 to 5 years.
Without an appropriate rent review mechanism, a landlord could be at risk of the rent falling behind market value. There are various types of rent review mechanisms within a commercial lease:
- Open market rent review
- Rent review (inflation-linked)
- Stepped rent (fixed increases)
- Turnover rent
A rent review clause is therefore one of the most negotiated elements of a commercial lease.
Open market rent review
This is the most commonly used method within a commercial lease, particularly in longer leases.
The rent is reviewed to the amount the property would reasonably achieve in the open market at the review date, assuming certain lease terms and hypothetical conditions.
- Typically based on comparable properties.
- Assumes a willing landlord and tenant in an arm’s length transaction.
- Often includes hypothetical assumptions (e.g. property is vacant and in good repair) and disregards (e.g. tenant’s improvements).
- There is usually provision for determination by an independent expert or arbitrator if parties cannot agree.
- This could include a maximum cap and minimum collar to restrict fluctuations.
Inflation-linked rent review
This is known as Retail Prices Index linked or Consumer Prices Index linked rent reviews, this mechanism adjusts rent in line with inflation which are more transparent.
- Annual or periodic adjustments by reference to the percentage increase in the chosen index.
- This could include a maximum cap and minimum collar to restrict fluctuations.
Stepped rent (fixed increases)
This model is often preferred in shorter leases or where parties want to avoid disputes entirely.
This method provides for automatic rent increases at set intervals, often expressed as a percentage or monetary increment. An example of a stepped rent increase is the rent increasing by £8,000 every 5 years.
This allows for certainty for both parties and the benefit of no need for valuation or negotiation at review dates. A major disadvantage is that it does not track market or inflation, so may result in overpayment or underpayment.
Turnover rent
Turnover rent is particularly common in retail and leisure leases, where rent is tied to the tenant’s gross turnover.
A turnover rent mechanism is usually structured on a base rent, plus a percentage of turnover above a threshold.
The proposed bill to ban upward-only rent reviews
The UK government proposed legislation in July 2025 to ban upward only rent reviews in new commercial leases.
The English Devolution and Community Empowerment Bill was introduced in Parliament on 10 July 2025. It will apply to new and renewed commercial tenancies only and will not have an impact on existing leases.
If approved, this will mean that upwards-only rent reviews will be banned. This will allow for rent to be reviewed both upwards and downwards which would reflect market conditions at that time. It has been said one of the reasons behind this is to support small businesses.
The new rules would apply only to business tenancies under the Landlord and Tenant Act 1954 which is a lease where the tenant occupies the premises for business purposes.
The bill is currently going through the parliamentary process, following its first reading and further details and debate are expected.
Conclusion
Your solicitor will ensure the rent review clause is drafted in such a way that is appropriate to the transaction, whether this be open market, indexed or a turnover rent review clause.
The information provided in this article is provided for general information purposes only, and does not provide definitive advice. It does not amount to legal or other professional advice and so you should not rely on any information contained here as if it were such advice.
Wright Hassall does not accept any responsibility for any loss which may arise from reliance on any information published here. Definitive advice can only be given with full knowledge of all relevant facts. If you need such advice please contact a member of our professional staff.
The information published across our Knowledge Base is correct at the time of going to press.
