Rent Reviews in Commercial Leases: Fixed vs Open Market – Which Works Best?

*The information in this blog relates to England and Wales only

Rent review clauses remain one of the most important and, at times, contentious features of a commercial lease. They are designed to ensure that rent payable during the lease term remains either fair (reflecting prevailing market conditions) or predictable (providing certainty for budgeting).

But the method chosen can have very different consequences for landlords and tenants alike. Understanding the options is critical when negotiating new leases or approaching review dates.

Open Market Rent Reviews

The traditional model is the open market rent review. Here, the rent is adjusted to reflect the amount the premises could command if re-let on the open market at the review date.

Advantages:

• For landlords: Opportunity to capture rental growth and enhance asset value.
• For tenants: Comfort that rent reflects current market benchmarks, rather than arbitrary uplifts.

Drawbacks:

• Market evidence is often subjective and contested, leading to disputes.
• Arbitration or expert determination can add significant cost and delay.
• “Upwards-only” clauses remain standard meaning rent can stay the same, or increase, but never decrease.

Stepped (Fixed) Rent Increases

An increasingly popular alternative is the stepped or fixed rent review, where rent rises by a pre-agreed figure or percentage at specified intervals.

Advantages:

• Predictability: tenants know exactly what they will be paying and when, aiding cashflow and business planning.
• Simplicity: no need for contested valuations, which reduces legal and professional costs.

Drawbacks:

• Landlords risk being locked into below-market rent if inflation or demand surges.
• Tenants may find themselves paying above-market rent if trading conditions weaken.

Other Rent Review Mechanisms

While open market and fixed uplifts dominate, other approaches are available:

• Index-linked rent reviews: rent is tied to an inflation index (e.g. RPI or CPI), offering a middle ground between certainty and market responsiveness.
• Turnover rent: rent linked to the tenant’s trading performance. This can align landlord and tenant interests but requires careful negotiation and drafting.

Government Proposals: The End of Upwards-Only Rent Reviews?

In a move that could reshape the commercial leasing landscape, the UK Government has introduced the English Devolution and Community Empowerment Bill, which includes a proposed ban on upwards-only rent review clauses in new commercial leases across England and Wales.

What’s Changing?

• The ban would apply to all new and renewal leases falling under the Landlord and Tenant Act 1954.
• It targets clauses where future rent is not predetermined (e.g. open market, index-linked, turnover-based) and can only move upwards.
• Fixed or stepped increases and genuinely index-linked reviews (where rent can go up or down) will remain permissible.
• Anti-avoidance measures will prevent landlords from using collars or side agreements to replicate upwards-only effects.
• Existing leases are unaffected, but renewals will be caught.

 Why Now?

The Government’s stated aim is to support struggling businesses and revitalise high streets by allowing rents to adjust downward in tough economic times. Ministers argue that upwards-only clauses “pit landlords against businesses” and contribute to unaffordable rents and vacant premises.

What Does This Mean for You?

• Landlords: Expect greater scrutiny of rent review structures. Valuation models and lending assumptions may need to adapt.
• Tenants: Stronger negotiating position and potential for fairer rent adjustments in downturns.
• Market Impact: Possible shift towards shorter leases, stepped rents, and more creative structuring to balance risk.

Key Considerations for Landlords and Tenants

For landlords:

• Protecting rental growth and safeguarding asset value is paramount.
• Open market or index-linked reviews often provide the strongest protection.

For tenants:

• Predictability and cashflow stability may take priority, particularly in uncertain markets.
• Fixed uplifts or caps on indexation can provide reassurance.

Ultimately, the “right” rent review clause depends on:

• The bargaining position of each party.
• Sector-specific norms and expectations.
• Long-term commercial objectives.

There is no one-size-fits-all solution what works for a retail lease in a volatile market may be entirely unsuitable for a long industrial lease.

Conclusion

Rent review mechanisms are not just technical legal provisions they are central to the economics of a lease and can shape the relationship between landlord and tenant for years. Whether you are negotiating a new lease or preparing for an upcoming review, careful consideration at the outset can prevent disputes and align the lease with your long-term strategy.

At Gilson Gray, we regularly advise both landlords and tenants on structuring rent review clauses that balance certainty with flexibility. We also act in disputes where interpretation is contested.

If you would like to discuss rent review options, please contact Rajan Shori, Head of Real Estate (England), who will be happy to guide you through the best approach for your circumstances.

Find out more about our Real Estate services here.