Can my commercial landlord increase the rent?

Can my commercial landlord increase the rent?

Unfortunately, rent rises are a fact of life for commercial tenants. Rent review clauses in leases allow landlords to adjust rents periodically for inflation and market conditions. But while landlords can increase rents during a lease, there are restrictions as to what they can do. As a tenant, there are also steps you can take if you feel an increase is unfair.    

In this article, we discuss commercial rent rises in more detail, from how much commercial landlords can increase the rent by to the notice they must give you.

Why do commercial landlords increase the rent?

Most commercial property leases include provisions that allow landlords to increase the rent under certain conditions. These provisions, known as rent review clauses, set out the frequency of rent increases, the notice period and how much the rent can rise.  

Although most commercial leases last one to three years, some can last between 10 and 25 years. In these longer leases, it’s easy to see why there must be some mechanism landlords can use to increase rents in line with inflation and market conditions and protect their return.  

What is a commercial rent review?

The process of assessing and adjusting the rent a tenant pays on a commercial property is called a commercial rent review. The frequency of these reviews will be determined by the rent review clause in your lease, but it’s usually every three to five years. There are different methods to determine how the revised rent will be calculated, and again, this will be outlined in your lease. 

How much can a commercial landlord increase the rent by?

That depends on how the increase is determined according to the rent review clause in your lease. The most common rent review methods include:

• Open market review - Rent increases are based on the current market rent in the area.
• Index-linked review - Increases are linked to specific indices such as the Retail Price Index or Consumer Price Index.
• Stepped review - A stepped review is a fixed increase at specific times based on an agreement between the tenant and landlord when they enter the lease. For example, it could be a 3% increase per year. 

It’s common for commercial landlords to increase the rent by an average of around 3-5% annually. Some landlords reward good tenants with lower increases, while high inflation in recent years mean commercial rents for some tenants have risen by far more. 

What is a fair commercial rent increase in the UK?

A fair rent increase for a commercial property depends on several factors, such as its location, the demand for similar properties in the area, inflation and the cost of improvements the landlord may have made to the property and the benefits they bring. 

There are no legal limits on commercial rent increases in England, but they must be justifiable and reasonable. If you believe a rent increase is unfair - for example, it may exceed the rate of inflation or is not consistent with the local market - you can negotiate with the landlord. 

Can I refuse a commercial rent increase?

Absolutely. If you are not happy with a proposed increase in your rent, you can refuse it by sending a written notice to your landlord that explains why you think it’s unfair. Researching the prices of similar properties in your area and comparing their condition to your premises will give you a better understanding of what a suitable rent might be.

If you cannot negotiate a figure that you and your landlord are happy with, mediation, arbitration or legal proceedings, such as rent abatement or lease termination, may be necessary to resolve the matter. The lease may outline an appropriate method of dispute resolution, such as appointing an independent expert to determine the rent increase. 

How much notice must a landlord give to increase the rent?

Commercial landlords must give tenants notice when implementing a rent increase. The statutory minimum is one month if you pay rent weekly or monthly, although most leases stipulate three months’ notice. That gives you time to assess the potential rise, do wider research and respond accordingly. 

How do I negotiate a commercial rent increase as a tenant?

The first step in negotiating rent increases on commercial properties starts before you sign the lease. You should seek professional assistance and request changes to the lease if the terms are unfavourable. Capped and fixed increases and renegotiation clauses can all reduce the likelihood of unexpected hikes.

If you have already signed the lease, using a lease advisory service to audit your lease can help you challenge unfavourable terms and reduce the risk of unjustifiable increases. Market research and benchmarking are an important part of this. Showing that rent increases are unreasonable based on current market rates and conditions enables you to negotiate from a position of strength. 

Protecting your interests

If you need help understanding or negotiating commercial rent increases in the UK or would like assistance with any other aspect of a commercial property lease, please get in touch. We can advise you on lease renewals, rent reviews, exits and more. Find out more about our lease advisory service and arrange a free consultation.