Break clauses and Rent reviews

[AndyPandy]

I'm in the process of moving to another office. Previous offices always have been fully inclusive, this time it's a tenancy so have a more substantial Agreement to negotiate.

The lease is for 5 years and I've asked for a Break clause at 3, which they have accepted, but I see that there is inserted an upwards-only rent review at the same time.

Is it normal to have a Rent review inserted if the tenant asks for a Break clause? Is it a case of "You can't have your cake and eat it. If you want a break clause, that's fine but we want to review the rent at the same time if you do decide to stay."

How effective is an upwards only rent review clause anyway? Surely we can haggle any price, even downwards as we have the sanction of walking away if (say) Britain is in a post Brexit downturn?

Thanks.

[brightncheerful]

The expression "upward-only review" is often misunderstood. It doesn't mean the rent necessarily has to increase. All it means is that after the rent on review is agreed or ascertained, the rent payable would not be less than the rent payable before the review.

As for having a review at the same time as the tenant break clause, that is not at all unusual. However, I'd have thought it less common where the term is only 5 years. Which might suggests the landlord thinks the initial rent on the low side and is hoping to make up for it by having review at year 3.

With tenant break clauses, it is important to avoid agreeing to onerous conditions, Break options come in a variety of guises, they can be rolling, once and for all or linked to anniversary dates. They may also have set conditions which must be complied with, such as the payment of rent, substantial compliance with covenants, penalty payments and vacant possession, all of which may require satisfaction at the time of service of the break notice, on the break date or both.

The following I prefer my tenant clients to agree to (amended for you!):

"The tenant may determine the lease at the expiry of the third year (insert dd-mm-yy), subject to giving not less than 6 (six) months prior written notice. The right to break is subject to the tenant having paid all rents, except payments described in the lease (including any related documents) as rent where the landlord has not demanded payment by the date of the break notice, and except any interest on any outstanding rents or other payments (described as rent) unless previously demanded by the landlord. Any payment of rent by the tenant for the period between the break date and the next following quarterly rent payment is to be refunded by the landlord to the tenant within 14 days of the break date. "

"Any obligations, repairs, etc per the usual proviso of "without prejudice to the rights and remedies of either party against the other in respect of any antecedent breach".

[brightncheerful]

How effective is an upwards only rent review clause anyway? Surely we can haggle any price, even downwards as we have the sanction of walking away if (say) Britain is in a post Brexit downturn?

PS - I'd have thought it unlikely for the rent review to be tied in with the break clause. More likely, the review could be operated at any time including after the review date - the revised rent would be back-dated to the review date in any event. Whereas the break clause would only be operative on prior notice, generally 6 months before.

So, most unlikely you would be able to haggle the review before deciding whether to walk away. And, assuming I'm correct in how the relationship between review operation and break clause notice would be structured, you would have to decide whether to trigger the right to break before and without knowing in advance what the landlord's proposal for the review might be.

[AndyPandy]

How effective is an upwards only rent review clause anyway? Surely we can haggle any price, even downwards as we have the sanction of walking away if (say) Britain is in a post Brexit downturn?

PS - I'd have thought it unlikely for the rent review to be tied in with the break clause. More likely, the review could be operated at any time including after the review date - the revised rent would be back-dated to the review date in any event. Whereas the break clause would only be operative on prior notice, generally 6 months before.

So, most unlikely you would be able to haggle the review before deciding whether to walk away. And, assuming I'm correct in how the relationship between review operation and break clause notice would be structured, you would have to decide whether to trigger the right to break before and without knowing in advance what the landlord's proposal for the review might be.

Rent Review is March 2021, Break Clause is 3rd Anniversary with 6 months notice, so we will have sight of the review with time to trigger the Break clause if we don't like what we see as the earliest we have to give notice will be May (assuming it goes through on our target of 1st November).

Whether that's their mistake, them being nice or just coincidence, it won't matter.

Thanks for your input BnC - appreciated.

[johnhemming]

You always have the option of exercising the break as part of negotiating a review. Depends really on how much grief moving is.