How is Rent Decided at a Rent Review?
Introduction
When a rent review date arrives, many tenants and landlords wonder how the new rent is actually decided. It’s not simply a figure picked by the landlord, there is a structured process based on market evidence and the lease terms. Understanding how rent is assessed will help both parties prepare for fair negotiations.
The Principle of Open Market Rental Value
Most rent reviews are based on open market rental value. This means the rent should reflect the amount the property could reasonably achieve if it were let on the open market at the review date, on the same lease terms.
The aim is to put landlord and tenant in the same position they would be in if the lease was being newly agreed today.
Key Factors Considered
Surveyors look at a range of factors to decide the correct rent, including:
Comparable evidence – Rents achieved for similar properties in the same area are the strongest indicator of value.
Lease terms – Length of lease, repairing obligations, restrictions, and rent-free incentives can all affect the rent level.
Property characteristics – Size, layout, condition, and specification of the premises.
Location – Position on the high street, visibility, transport links, and surrounding occupiers.
Market conditions – Supply and demand at the review date, vacancy rates, and broader economic climate.
Assumptions and Disregards in the Lease
Most leases contain detailed clauses setting out assumptions (e.g. that the property is in good repair) and disregards (e.g. ignoring improvements made by the tenant). These clauses are crucial in ensuring the rent reflects only the property’s core value, not tenant investments.
The Role of Surveyors
Landlords and tenants often appoint surveyors to provide an independent assessment. Surveyors:
Gather and analyse rental evidence
Apply lease assumptions and disregards
Negotiate directly with the other side’s representative
Advise on whether to settle or refer to arbitration/independent expert
Without professional input, one party may end up agreeing to a rent that does not reflect true market value.
Dispute Resolution
If agreement cannot be reached, the lease usually provides for referral to either an arbitrator or an independent expert, often appointed by the RICS. Their role is to make a binding decision based on the evidence submitted.
Key Takeaway
Rent at review is decided by applying the open market rental value test, supported by comparable evidence, lease terms, and professional judgment. The process is structured but interpretation can differ, which is why having a surveyor on your side can make a significant financial difference.