Legal advice: Reviewing rent reviews
By David Clifton of our team of legal experts at London solicitors Joelson Wilson.
Upwards only rent reviews (UORRs) have been targeted by the Office of the Deputy Prime Minister (ODPM) in a consultation paper called "Commercial Property Leases: Options for deterring or outlawing the use of upward only rent review clauses". The paper states that no decision to legislate has been taken yet.
The British Property Federation (BPF) has published its response. BPF members include companies owning, managing and investing in property, as well as professional advisers. In other words, they speak on the whole for landlords.
The BPF produced some interesting statistics:
- Sixty per cent of all leases do not have a rent review
- Only six per cent of lettings are for 20 years or more, the average term being less than eight years. If break clauses are included, this drops below seven years.
The BPF concludes that banning UORRs would discourage commercial property investment and development.
Several of the ODPM's suggested options are impractical. For example, if by law the term of a lease was restricted to five years, tenants would have the expense of frequent renewals.
The BPF suggests that, if the length of leases were limited by law, that should only apply to leases at lower rents. This would benefit small to medium sized enterprises.
Cynics argue that banning UORRs will encourage landlords to charge higher rents at the start of a lease. The truth seems to be that the market should sort itself out without intervention. Tenants worried about UORRs can negotiate break clauses.
When governments interfere, they often misjudge the effect of their reforms - remember the Beer Orders?
