Navigating Commercial Lease Rent Reviews

During the period from 2020 to 2022, several safeguards were implemented to protect tenants within a commercial lease amidst the COVID-19 pandemic. With the pandemic now behind us, landlords are now able to push ahead with rent increases to align with market rental levels.

Rent Review Methods in Commercial Leases

The provision for rental reviews is incorporated within a commercial lease agreement. Commercial leases generally include allowance for an annual rent review, often using one of the following three methods:

  • Fixed percentage increase.
  • CPI increase.
  • Market rent review.

Increasing Demand for Accurate Rental Assessments

Landlords may choose to forego annual rent reviews to keep a good tenant happy. However, with the tightening of the rental market following the pandemic, Acumentis has observed an increase in inquiry from both landlords and tenants seeking accurate rental assessments to assist with negotiations.

Benefits of Engaging a Valuer for Lease Negotiations

Both landlords and tenants can engage the services of a valuer to ensure they are fully informed prior to formal lease negotiations. These negotiations usually take place when the original lease period is ending and option periods are being exercised.

Understanding Market-Based Rent Reviews

Market-based rent reviews allow for rent adjustments that reflect changes in the market between the lease commencement date (or last review date) and the date of the new review. For landlords or tenants, having a comprehensive understanding of the market during any rent review is key to successfully negotiating favorable lease conditions. Proactive management of the lease, including knowledge of review timings and lease conditions, is crucial to managing expectations.

The Role of Certified Practicing Valuers in Rental Reviews

A rental review conducted by a Certified Practicing Valuer experienced in the valuation of commercial property assets is a key requirement for any market rent review. It serves as an essential tool for rental negotiations. In addition, retail leases require the involvement of a Certified Practicing Valuer specialised in retail valuations.

To determine the market rental value for a subject property, the Valuer reviews the lease document and analyzes the most up-to-date rental evidence. They make adjustments for location, position, quality, and size of improvements.

Adjusting to Post-COVID Rental Landscape

No commercial lease document is the same. Now that the country is living with COVID-19, rental waivers and deferral periods designed to support tenants with limited income during lockdowns are coming to an end. Acumentis has witnessed an increase in inquiries from property owners and tenants seeking expert advice on market rents for commercial properties.

Expert Advice for Market-Relevant Lease Rentals

Acumentis has a team of experts in metropolitan and regional locations across Australia who can conduct a detailed analysis of the market on your behalf. By arming you with the most up-to-date data, they ensure that you are well-equipped to negotiate a market-relevant lease rental.

Laura Taylor
National Director: Risk & Performance
  |  LinkedIn
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