Understanding Rent Review Clauses in Commercial Leases
Rent review provisions are among the most commercially significant clauses in any commercial lease. They determine how rent may change during the lease term and can have substantial financial consequences for both landlords and tenants.
While rent review mechanisms are often treated as “standard” provisions, the reality is that poorly drafted or unsuitable clauses can lead to disputes, unexpected liabilities, and long-term commercial difficulties. With the UK Government also proposing reform to upward-only rent reviews, now is an important time for businesses and property owners to understand how these provisions operate in practice.
Common Types of Rent Review
Stepped Increases
A stepped rent review provides for fixed increases in rent at predetermined points during the term. For example, a lease may state that the annual rent will double every 25 years.
These provisions are commonly found in long leases because they provide certainty and simplicity for both parties. However, the disadvantage is that the rent may become disconnected from actual market conditions over time.
Indexation Reviews
Also known as “escalation” clauses, index-linked reviews increase rent in line with an agreed index, most commonly the Retail Prices Index (RPI) but frequently moving to using the CPI.
For example, if the annual rent is £100,000 and the relevant index increases by 10%, the reviewed rent would rise to £110,000. These clauses are often viewed as a middle ground between fixed increases and full market rent reviews, offering a degree of predictability while still accounting for inflationary pressures. A ‘Cap’ and ‘Collar’ can also be agreed which provides a minimum or maximum percentage increase regardless of the price index.
Turnover Rent
Turnover rent is particularly common within the retail and hospitality sectors. The rent payable is linked wholly or partly to the tenant’s business turnover generated from the premises.
There are several variations of turnover rent structures, including:
- a rent calculated entirely as a percentage of annual turnover;
- a base rent plus a turnover top-up; or
- a lower base rent with additional rent only becoming payable once turnover exceeds an agreed threshold.
These arrangements can help align the interests of landlord and tenant, particularly where trading conditions are uncertain.
Market Rent Reviews
A market rent review seeks to adjust the rent to reflect the open market rental value of the premises at the review date.
This is often the most heavily negotiated type of review provision, as valuation assumptions, disregards, incentives, and comparable evidence can all significantly affect the outcome. Market rent reviews can also become costly and time-consuming where surveyors or independent experts need to be instructed.
Upward-Only Rent Reviews
Traditionally, many commercial leases have included upward-only rent review clauses. These provisions prevent the rent from falling, even where market conditions have deteriorated.
Typically, the reviewed rent will be the higher of:
- the existing passing rent; or
- the current market rent.
For many years, upward-only reviews have been viewed as favourable to landlords because they provide investment certainty and protect rental income streams.
Proposed Reform to Upward-Only Rent Reviews
The UK Government has announced proposals to ban upward-only rent reviews in new commercial leases in England and Wales through the proposed English Devolution and Community Empowerment Bill 2025/26. It received Royal Assent on the 29 April 2026 but is not yet in force.
The proposed reform is intended to provide greater flexibility for commercial tenants and support struggling high streets by allowing rents to decrease where market conditions justify it.
Importantly, the proposed changes are not expected to affect existing leases. However, businesses entering into new leases should monitor developments closely, particularly where long-term occupation or investment strategy is concerned.
Practical Issues and Drafting Considerations
Rent review provisions should always be carefully considered and clearly drafted. Even where wording appears straightforward, practical problems can arise during the life of the lease.
Common issues include:
- unrealistic valuation assumptions;
- changes in planning use or property configuration;
- interaction with break clauses;
- the frequency and cost of reviews; and
- disputes over interpretation of review provisions.
It is also worth noting that former tenants who have assigned a lease may, in some circumstances, remain liable for outstanding rent review liabilities if the current tenant defaults.
Given the financial impact rent review clauses can have over the lifetime of a lease, both landlords and tenants should ensure that the review mechanism accurately reflects the commercial objectives of the transaction from the outset.
How We Can Help
Our commercial property team regularly advises landlords, tenants, investors, and developers on lease negotiations, rent review provisions, lease renewals, and property disputes. Careful drafting at the beginning of a transaction can often avoid significant cost and uncertainty later.
If you would like advice on commercial lease terms or ongoing rent review issues, our team would be happy to assist. Please contact Robert.walton@star-legal.co.uk Head of Commercial Property
Written by Cailim Lyttle Paralegal Commercial Property Department