Rent review clauses are normally straightforward, but when they are not there may be trouble brewing. Recently, a case involving an office block in Bromley found its way to the Court of Appeal. In dispute was the amount of rent payable on the rent review date.
The lease itself was unremarkable. It was granted in 1985 and contained five-yearly rent reviews over its 25-year term. A new lease had been executed to commence when the initial lease expired. This contained a clause which set the rent by reference to the retail prices index (RPI).
The issue that sparked the debate was the figure to which the RPI uplift should apply. The tenant claimed that because of ambiguity in the relevant clause, the appropriate ‘base rent’ to which the RPI indexation should apply was that when the original lease expired – £965,000. This had represented a reduction in the rent from its former level. The landlord claimed that the clause was not ambiguous and the base rent figure they had agreed with regard to the new lease – £1.2 million – should apply. The difference in opinion regarding the correct rent to pay amounted to more than £300,000 per year once indexation was applied.
The Court agreed with the landlord.
The moral of the story is that landlords and tenants should ensure the terms of a lease are clear and fully understood before it is agreed. Otherwise they risk having to go to court at a later date to find out what the lease they signed actually means.
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