A landlord has successfully fought off a challenge to a rent review provision in a lease.

Most landlords prefer upward-only rent reviews, which guarantee that rents will go up if market rents rise, but will never go down if market rents fall. By contrast, tenants’ interests are better served by upward/downward rent reviews. The balance struck between their competing interests is a matter for negotiation between the parties, as is the form and operation of the rent review provision itself. There are plenty of traps for the unwary. The litigation in Bywater Properties Investments LLP v Oswestry Town Council [2014] EWHC 310 (Ch) concerned 99-year leases of commercial property that were granted in the early 1960s. They provided for rent reviews every 25 years, which only the landlord could instigate, and the rent review clauses included provisos stipulating that the reviewed rent was not to fall below the rent initially reserved by the leases. The landlord instigated a rent review in 1988, and the rents increased, but it chose not to initiate a review in 2013 because it was concerned that the rents would drop. The leases did not expressly state what level of rent was payable in such circumstances.   The tenant claimed that, on the true construction of the rent review clauses, the rents should revert back to the rents initially reserved by the leases, resulting in a rental saving of approximately £1m over the following 25 years. The landlord argued that the tenant remained liable to pay the passing rent. The judge upheld the landlord’s interpretation of the leases. The rent review clauses gave the landlord the “right to review the yearly rent for the time being payable hereunder”, which the judge read as a reference to the initial rent and also to any subsequent increased rent. This indicated that, if the landlord did not trigger a rent review, the “rent for the time being payable hereunder” should continue to be paid, and if that was a subsequent increased rent then it was that rent that would continue to be paid, rather than the initial rent, until either the next rent review or the termination of the lease. The tenant argued that the landlord’s interpretation offended against common sense because it turned the clause into an upwards-only rent review. However, the judge thought it inherently unlikely that a landlord who had successfully negotiated a landlord-only rent review would then have agreed a provision that might result in the rent reverting back to the rent initially reserved by the lease. Each case will turn on its own particular facts and on the wording of the rent review clause. However, this case contains an important lesson for draftsmen. Tenants who negotiate for upwards/downwards reviews must also ensure that they are able to initiate rent reviews because landlords who reserve exclusive rights to do this themselves can avoid rent reductions by refusing to instigate reviews. Indeed, the Code for Leasing Business Premises goes further. It advises all tenants to secure the right to serve a rent review notice on their landlord because they may be responsible for interest, at rates that exceed bank base rates, on any shortfall in rent until the reviewed rent is agreed and paid. Finalising the rent review will also put paid to any uncertainty about the tenant’s position. Allyson Colby is a property law consultant