Briefing Note - Invoking a Rent Review

Drafting of leases requires careful to attention to the rights granted to either party at the outset. In a recent case, a lease contract stipulated that a landlord was entitled to initiate a periodic rent review but there is no similar clause which allows the tenant to do so, and as such remained silent on the point. Has the tenant the right to require a rent review to be carried out?

The tenant had held a lease since 1982, which included a clause allowing the landlord to undertake a rent review at seven-year intervals. Reviews had been undertaken in 1989 and 1996. In both cases the rent payable increased following the review, reaching £375,000 per annum after the second review.

Unusually, the rent review provisions allowed for a decrease as well as an increase in rent. Changing economic conditions led to a decrease in market rents and, believing that the rent payable would fall if a review were undertaken in 2003, the tenant requested the landlord to carry out the periodic rent review. The landlord declined to do so, so the tenant went to court to obtain an order for a rent review to be undertaken.

The tenant argued that if he were unable to require a rent review, the practical effect would be that the rent reviews would be ‘upward only’, as the landlord had only to decline to carry out the review for the rent to remain at the same level.

However, the judge was not persuaded by the argument that there should be a presumption that the clause should be exercisable by both parties when the lease specifically reserved the right to the landlord. If the parties intended that the tenant have the right to review the rent, the parties would have ensured that the lease contained the clause, which would have created the right in tenant to exercise it. The tenant’s application was accordingly refused by the court and held that the tenant has no such right.

This case illustrates the point that there is no substitute for careful drafting in all property leases. You should ensure that the wording of all agreements reflects your intentions precisely and that all reasonable contingencies are taken into account. After the lease contract is signed, unless rights are expressly given in the lease, a party wishing to exercise a right must reply on implied rights. In instances such these rectification of the deficiency requires an amendment to the contract document, placing the tenant or landlord in poor negotiating position. Such amendments are time-consuming - it is important to get it right the first time.