When it comes to rent reviews, there are a number of options which could give tenants greater certainty regarding the rent payable over the term of the lease. Examples are:
CPI-linked review Cap and collar Stepped rent In most commercial lease agreements in Ireland, there are rent reviews every five years based on the open market rent level. Upwards-only rent reviews are prohibited by section 132 of the Land and Conveyancing Law Reform Act 2009 (the Act) for all commercial lease agreements entered into after 28 February 2010.
Landlords and tenants are free to negotiate the reviewed rent upwards or downwards. Unfortunately, however, the reviewed rent level will typically be influenced by the current market rents for comparable properties at the time of the review dates.
Alternative arrangements to an open market rent review
CPI-linked review: The rent is reviewed by reference to the increase or decrease in the consumer price index during a specified period. This period is typically five years. This is a recognised measure of inflation and the rates of inflation are published monthly by the Central Statistics Office.
Cap and Collar: Once the open market rent is determined, the landlord and the tenant look to pre-agreed cap and collar provisions in order to fix the rent. The cap will set the maximum limit to which the rent can be increased, while the collar will set the minimum level to which the rent can be decreased thereby preventing the rent from falling below or increasing above a certain amount.
Stepped Rent: This is where the lease provides for fixed increases in rent throughout the term of the lease. For example, it could be agreed that the yearly rent during the first five years of the lease will be 500,000 and the yearly rent during the second five years will be 600,000. Alternatively, an incremental fixed increase every year could be agreed.
A word of warning
These mechanisms have not yet been tested by...