Upward Rent Reviews

Upward-Only Rent Reviews

Upward-only rent reviews can be described as ‘providing a floor to the rent as passing such that could fall below the previously agreed rent’ (Sayce, Smith, Cooper and Vennore-Rowland 2006). In an upward only contract rents never fall below the original rent set out in the contract. Upon review the rent will either go up to the new market rent or rent will stay at original level agreed between the tenant and the landlord. It is when a valuer finds that the open-market rents are lower than the original rent that the rent remains the same.

Ireland is understood to have been only one of two EU countries where upward-only reviews were common features of business leases until February 2010. Many people have not seen a business/commercial lease agreement but would presume that there would be a term set out in the lease setting out the rent to be paid for the relevant premises in question. A commercial landlord’s role is to provide the necessary funds for a tenant to be able to occupy a building/premises without having to first commit the capital required to construct that building. This enables willing tenants to pay a fraction of that capital requirement per annum (i.e. rent) over an extended period of time and use their additional funds to finance the operation of their business. In order to finance the initial capital requirement of the premises most landlords borrow from banks, agreeing to repay the banks a proportion of the loan per annum together with the agreed interest rate which is funded by the rent paid by the tenant leasing the premises, so upward- only rent review is beneficial for landlords as they know that the rent they will be receive on a regular basis which will be partly used to repay loans will stay the same or will increase giving them and the banks reassurance. Business leases tend to be longer than residential leases because the tenant may wish to lease the premises for several years, and so provision is made in the lease for the determination of future rent for the premises. The future rent may be reference to growth of the businesses turnover, inflation or determined by an independent valuer, these and many other factors contribute to the ways in which future rent could be calculated.

The minister for Justice, Equality and Law reform in 2010 was Dermot Ahern who wanted to ban upwardly only rent reviews clauses in business leases, this was to come into operation on the 28th February 2010. The Minister felt the upward only review was unfair to tenants due to the recession in our economy ‘The practice of including upward only rent reviews clauses in business leases is a deeply entrenched one. The time has come to end this practice. I look forward to more equitable business arrangements being put in place in the future which take account of the reality facing many business owners and retailers’. The government