The commercial property rent review clause allows the landlord to review the rent payable by the tenant during the lease term. Typically, rent review clauses only allow for rent increases in order to protect landlords. Here, tenants are informed of the upcoming review dates so they have a better understanding of when their rental payments may be adjusted.
As an example, a landlord could grant a tenant a 15-year lease at $15,000 a year. If the market changes significantly over 15 years, the rents can skyrocket and if the landlord does not have a commercial rent review clause, it would effectively be renting the property below market rates. Thus, a rent review clause allows the landlord to re-assess the rent at certain points in the lease.
Tenants are generally allowed to initiate rent reviews as well, but most review clauses stipulate that the rent review can only result in a rent increase or stay the same. In general, the clauses do not allow a tenant to decrease the rent (although this is possible), so tenants tend not to include them in their leases (although they can be useful for tenants, especially when it comes to backdated rent).
<H2> Stages of Commercial property rent reviews Negotiation:
Rent reviews are negotiated with the tenant during lease negotiations since there is no fixed method of reviewing commercial property rents. As the lease carries over from year to year, ensuring a well-balanced rent review structure helps ensure rental income does not lag behind market rates.
Implementation:
To maximize the returns, both parties must ensure that you implement rent reviews methodically and accurately after you have done all the hard work to negotiate profitable rents.
Methods of commercial property rent reviews Fixed Percentage Increase Review:
‘Fixed percentage increase reviews’ occur at specified dates during the lease term on
the anniversary of the lease start date, usually. This means that rent will increase every year on the anniversary of the commencement date by the amount of the fixed review which is usually between 2-5% of the current rent per year.
CPI Rent Review:
A CPI rent review is directly related to the movement of the consumer price index (CPI). Inflation is measured by the CPI. The rent is calculated according to a complex formula (usually based on the location of the premises) contained in the lease. Every location in Australia is provided with the CPI by the Australia Bureau of Statistics (ABS).
Market Rent Review:
A market rent review means your premises’ rent will change in line with the current market. Generally, market rent reviews are not conducted during the lease term.
Instead, they will only occur if you choose to exercise an option in your lease. As a result, the rent can be reset to reflect the market at the beginning of the new term under the market rent review provisions.
Expert advice from the best property management company is essential to negotiate a commercial real estate rent review successfully and to achieve a favourable outcome.
Here at Axis property, we have a dedicated team experienced in conducting commercial rent reviews in Australia. If you need any advice regarding rent review or assistance in conducting a commercial property rent review then please do not hesitate to contact the team at (03) 95237888.
