2 minute read
We all know how volatile the property market can be – as well as the overall economy – which is why we need processes in place to counteract this. This is where rent reviews come in.
Understanding more about this process is important for navigating lease agreements and managing expectations for both landlords and tenants, in both residential and commercial properties.
Here’s an in-depth piece about rent reviews, why they’re important and how they impact both landlords and tenants.
Understanding What Rent Reviews Are
Some tenants may feel that rent reviews are unnecessary and unwarranted, but they are actually contractual provisions within lease agreements that detail how and when the rental rate will be adjusted over the course of the lease term.
Depending on the terms negotiated between landlord and tenant, the reviews can typically occur at predetermined intervals. Whether this by annually, biannually, every few years, both the landlord and tenant will be aware of this.
Rent reviews safeguard the interests of both parties and are very important for these reasons:
- Reflecting Changing Market Rates: The rental rate needs to reflect the current market conditions in order to prevent the price becoming disproportionately high or low in relation to comparable properties in the area.
- Asset Value Preservation: Rent reviews help protect the value of the landlord’s investment as they assess the changes in property value, inflation and operating expenses over time.
- Helping with Financial Planning: By being aware of scheduled rent reviews, tenants are able to budget and plan their finances for duration of their term lease.
- Promoting Fairness & Equity: They have been designed to promote fairness and equity between landlords and tenants, so they mutually benefit from the leasing arrangement.
What Are the Different Types of Rent Reviews?
Did you know there are different types of rent reviews? Depending on the terms negotiated in the lease agreements, they can take various forms including:
- Fixed Increase: A predetermined percentage or fixed amount is stated in the lease agreement for each review interval. This type of rent review provides clarity and predictability for both parties which helps with financial budgeting and planning.
- Market Rent Review: An adjustment is decided upon to reflect predominant market rates. This is commonly calculated by comparing the property with other properties in the surround area.
- Consumer Price Index (CPI) Rent Review: After assessing the CPI, a measure of inflation that tracks the average price of consumer goods and services over time, the rental rate will be adjusted accordingly.
How Do Rent Reviews Impact Landlords & Tenants?
As mentioned above, rent reviews provide fairness and equity for both parties, with financial planning benefits for tenants and asset value preservation for landlords. When dealing with this process, in order to maintain full transparency and minimal issues, there must be open dialogue between the landlord and the tenant.
For extra peace of mind, it is recommended that landlords seek professional advice to ensure that rent review clauses are drafted accurately in the lease agreement. At BPS, our consultants have expertise of the entire procedure and the property market itself.
We strive to protect the interest of both parties, so get in touch with us today to discuss your requirements or book a free consultation with us below.