Rent Review Memorandum – Commercial and Residential

rent review memorandum

If you’re a landlord, it’s good practice to carry out rent reviews consistently so you can keep up with rising mortgage costs and other expenses. In fact, carrying out a rent review could create a more sustainable relationship between you and your tenant in the long run. A rent review memorandum records any change in rent, and is a good way to keep track of changes made to the lease.

rent increase notice

What is a rent review memorandum?

A rent review memorandum is a document that records the amount of revised rent agreed upon by the landlord and tenant. This is created at the end of a rent review and is sometimes required by the rental contract.

Who signs a rent review memorandum?

Both the landlord and tenant must sign the rent review memorandum. This ensures that it is legally binding and can be produced if a dispute about rent arises.

Even if the rent increase agreed is zero, the memorandum remains useful for documenting the agreement.

How do I undertake a rent review?

Commercial and residential rent reviews can be undertaken in different ways, and are necessary before creating a rent increase memorandum.

Rent reviews for residential property

For Assured Shorthold Tenancies (ASTs), landlords can trigger a rent review by invoking a rent review clause in the lease (if it contains this clause).

For Periodic Tenancies, landlords can provide tenants with a Section 13 rent increase letter, so long as they have given the tenant one month’s notice.

The landlord may also undertake a rent increase by simply asking the tenants. This is more viable when there is a good, long-term relationship established between the landlord and their tenants. If there is mutual agreement, this can be put in writing and signed off.

Rent reviews for commercial property

For commercial property, either the landlord or tenant must give notice, and outline the proposed changes to start the rental review process.

Sometimes, the landlord and tenant will employ surveyors to assess the property’s value – and see if a rent increase can be justified. After the surveys are complete, the two parties will negotiate the new rent increases. If an agreement is reached, the rent will be increased. If not, the commercial lease usually includes an arbitration clause to allow a third party to settle the dispute.

When should you do a rent review?

It’s good practice to review the rent as regularly as your contract will allow and ensure that your tenants understand when this will happen.

For example, if you see rising maintenance and mortgage costs, then it is a good idea to consider a rent review to help offset your expenses. Equally, if you have made significant improvements or extensions to your property, you could raise the rent to match the increased quality of the home.

Can a tenant trigger a rent review?

Commercial tenants can usually trigger a rent review, as outlined within their contract. Tenants may want to do this if they feel the specific time is convenient for the review (which is due to happen within a certain timeframe anyway). In some cases, this can be used to negotiate a rent decrease if allowed within the contract.

Residential tenants will not usually trigger rent reviews, but it is possible for them to appeal to a first-tier tribunal if the rent increase suggested by the landlord is unacceptable.

When can a landlord do a rent review?

Landlords can undertake rent reviews when allowed to do so by their rental contract. This timescale is different for residential and commercial lets, and also varies between the different types of lease.

For example, Periodic Tenancies allow for rent reviews at any point, but not more than once per year. Landlords are only allowed to do a rent review for ASTs if a specific provision is made in the rental contract.

If you are letting a commercial property, then the time for a rent review will be clearly defined within the contract. Usually, there are pre-agreed rent reviews every 3-5 years – but you must consult your specific contract to determine when it is okay to do so.

And finally

Rent reviews and memorandums must be conducted with care, and in line with the relevant leases. If you’re unsure about how to proceed, it’s always best to get legal counsel to help you understand the do’s and don’ts of the rent review procedure.