We recently published a blog detailing the rent review process and the issues around serving a rent review notice. See Rent Review in Commercial Leases. 

Where a rent review states that time is not of the essence, the landlord may trigger the rent review at any time after the review date during the tenancy.

Even if the lease is not explicit; there is a rebuttable presumption that time is not of the essence. This places the burden on the tenant to provide evidence that when the lease terms were agreed, it was understood that time would be of the essence. Several years into the tenancy, such evidence may be hard to find.

Unfortunately for the tenant, the decision in Proxima GR Properties Ltd v Spencer [2017] UKUT 450 (LC) confirms that the tenant is not able to make time of the essence by serving a notice purporting to do so. Unless the lease provides a specific right, the tenant must wait for the landlord to initiate the process.

If a rent review is not triggered by the landlord during the tenancy, it cannot be relied upon after the tenancy has ended to allow the landlord to claim the ‘shortfall payment’. That is, the uplift in rent between the current rent and the new rent that would be due from the tenant at the review date, had the rent review been completed.

The rights and obligations contained in the lease cease at the end of the contractual term. So does the landlord’s right to claim that uplift in rent; after all, they could have demanded it during the term.

What if the tenant is holding over under Landlord and Tenant Act 1954?

It might be possible for a historic rent review to be triggered during a statutory continuation under the Landlord and Tenant Act 1954. The case of Willison v Cheverell Estates Limited [1996] 1 EGLR 116, CA was clear that certain forms of rent review wording do not allow for a rent review once the contractual term has ended. However, the judgment indicates that if the wording in the lease had been drafted differently, it might have produced a different result.

However, each case will be fact specific, and the law is not certain on this point. This complicated situation illustrates how important it is for landlords to keep on top of rent reviews and, in particular, to make sure to trigger them before the contractual term ends. 

Effect of the Limitation Act 1980

Once the reviewed rent has been agreed or determined, the rent will have become due for payment. 

Section 19 of the Limitation Act 1980 limits a claim for recovery of rent arrears to 6 years from the date the arrears became due i.e. the date the rent is agreed. So, the moral of the story here is; once the rent review has been completed, make sure you collect the uplifted rent! If you allow more than 6 years to elapse, the right to collect that uplifted rent falls away.

Good news for landlords - It’s never too late for a rent review (*during the tenancy)

The case of Scottish & Newcastle Plc v Raguz [2008] UKHL 65 is the authority that tells us the liability for a shortfall payment falls due on the day the rent is agreed or determined and not when either the review period commences or when the review process is triggered.

This approach was followed in Bello v Ideal View [2009] EWHC 2808 (QB) where the court decided that the landlord’s right to initiate the rent review was not time barred, despite there being a 13-year delay in triggering the rent review.

As the landlord had not yet triggered the rent review, and the time limit to make a claim for recovery of the rent arrears does not run until that point, they were entitled to the uplifted rent. Provided the lease is still in existence, the landlord’s contractual right to the rent reviews survives indefinitely.

So, if the review date was more than 6 years ago, that is no bar to triggering the rent review now and claiming the uplift from the review date (or such other date as the lease allows).

Bottom Line

Delaying the rent review is not advisable where it can be avoided. It puts the tenant in a difficult position if they are unaware of how much additional rent will become due and they have not budgeted accordingly. There is also a greater risk of the tenant resisting the rent review, giving rise to litigation.

The disgruntled tenant may be more inclined to raise a defence that the landlord’s right to a rent review has been waived, abandoned or that the landlord should be estopped from doing so.

The landlord would only be estopped from initiating the rent review if they had made a representation to the tenant that they would not trigger it, and the tenant had acted to their detriment in reliance of that representation. That would be an unusual scenario. 

Legal advice

This blog provides general information in relation to rent reviews in commercial leases and is not intended to constitute legal advice. 

If you are thinking about serving a rent review notice, you have recently received one or find yourself in dispute with the landlord/tenant over the terms of the review, we can help.

Please contact our Property Disputes Team; we have a team of experienced legal advisors specialising in this area.