The rent review that nearly closed the shop

A commercial lease is the largest financial commitment most small retailers, cafés and salons ever sign, and it is routinely the document they read least carefully. The reason is understandable. At signing, the number in the lease is one you have already decided you can afford, the solicitor's report runs to fourteen pages of things that will probably never happen, and the fit-out is more exciting than clause 4.3.

Five years later clause 4.3 arrives in the post as a letter proposing a new rent, and it turns out to be the single most consequential paragraph in the business.

What a rent review actually is

Most leases longer than five years contain a review, typically every fifth year. Two mechanisms dominate. An open market review resets the rent to what the property would command if it were let today on the same terms — determined by comparable lettings nearby, and argued over by surveyors. An index-linked review moves the rent by inflation, sometimes with a collar and cap limiting how far it can travel in either direction.

The clause that catches people is the phrase upward-only. Under an upward-only review, the rent can rise to open market value or stay where it is, but it cannot fall, even where the street has visibly declined and the unit next door is letting for less. It has been criticised for decades and it remains standard in a great many existing leases.

The practical consequence is that a rent review is not a negotiation between equals. It is a process with a default outcome, and if you miss the deadlines set out in the clause — some leases make time of the essence for a tenant's counter-notice — you can end up bound by the landlord's proposed figure without ever having stated your own.

What the number does to the business

The figures here are illustrative; the ratio is the point. Consider a café turning over £280,000 a year, paying £24,000 in rent, with net profit after the owner's modest salary of £22,000. Rent is 8.6% of turnover. The review proposes £31,000.

That £7,000 does not come out of turnover. It comes out of net profit, because every other cost stays exactly where it was. Profit falls from £22,000 to £15,000 — a 32% reduction — from a letter. To stand still, the business needs roughly £23,000 of additional sales at a 30% net contribution, which is about £440 a week of extra takings in a business whose seating capacity has not changed.

A rent review does not take a percentage of your sales. It takes a percentage of your profit, and it is usually a much bigger one than the headline suggests.

As a working rule, occupancy cost — rent plus business rates plus service charge — above roughly 15% of turnover in retail or hospitality is a business with very little room for a bad quarter. Below 10% there is normally slack. The useful discipline is to calculate that ratio before the review letter arrives rather than after, because it tells you what you are defending.

The three clauses that matter more than the rent

Security of tenure. Business tenancies in England and Wales carry an automatic right to renew under Part II of the Landlord and Tenant Act 1954, unless the parties agreed before the lease was granted to contract out of it. A contracted-out lease ends when it ends. If you have spent £40,000 fitting out a unit and built five years of local trade in it, that distinction is the difference between an asset and a sunk cost. The Law Commission published its second consultation on modernising security of tenure in June 2026, with responses due by 16 September 2026; its provisional conclusion is that the contracting-out model should stay, so this remains something to check in your own lease rather than something about to be fixed by legislation.

The break clause. Breaks are frequently conditional, and the conditions are frequently strict: rent paid up to date, vacant possession given, all covenants complied with. Tenants have lost break rights over trivial arrears and over leaving furniture behind. A break you cannot reliably exercise is not an exit.

Repairing obligations. A full repairing and insuring lease makes you responsible for the condition of the building, and the bill arrives at the end as a dilapidations claim. A schedule of condition agreed and attached at the start — photographs and a surveyor's description of the state of the place on day one — caps that exposure to the condition you found it in. It costs a few hundred pounds at signing and is worth many times that at exit.

What to do about a review you have already got

Read the clause first, before responding to anything. Note the review date, the notice requirements, whether time is of the essence, and how disputes are resolved — usually by an independent expert or arbitrator appointed by the RICS if the parties cannot agree.

Then get your own evidence. The landlord's surveyor will cite comparable lettings that support a higher figure; comparables that support a lower one exist too, and a local commercial surveyor will know them. The fee for that advice is small against the five-year cost of the difference: on the example above, £7,000 a year for five years is £35,000.

Negotiate the whole package, not just the number. Landlords with a vacant unit risk on their hands will often trade a rent-free period, a contribution to works, a shorter term or a new break in exchange for the headline rent they need to show their own lender. The headline figure is what gets valued; the concessions are what you actually live on.

And know your walk-away point before you start. Work out the rent at which the business stops being worth running, and hold it. If the property genuinely cannot support the rent, that is information, not failure — the same discipline that applies to any large fixed commitment, as the refit that took three years to pay back sets out for capital spending.

Before you sign the next one

Ask four questions of any new lease, in writing, before the fit-out gets exciting. Is it inside or outside the 1954 Act. How does the rent review work and is it upward-only. What exactly must be true for me to exercise the break. And is there a schedule of condition attached.

Ask a fifth if a personal guarantee is on the table, because a guarantee on a fifteen-year lease can outlive the business by a decade — the same exposure covered in what you're really signing up for on personal guarantees. Landlords expect these questions from a well-advised tenant. The ones who bristle at them are telling you something useful.

Common questions

What is an upward-only rent review?

It is a review clause under which the rent can rise to the open market level or stay the same, but can never fall, even if market rents in the area have dropped since the lease was granted. Upward-only reviews remain common in existing commercial leases in England and Wales, typically operating every fifth year. The practical effect is that a tenant in a declining location can find themselves paying materially more than a new tenant would pay for the identical unit next door. Because the mechanism has a default outcome, missing the notice deadlines in the clause can leave you bound by the landlord's proposed figure.

Do I have an automatic right to renew my commercial lease?

In England and Wales, business tenancies carry security of tenure under Part II of the Landlord and Tenant Act 1954, which gives a right to a new lease on broadly similar terms when the current one ends. That right can be excluded if the parties completed the contracting-out procedure before the lease was granted, and a great many leases are contracted out. Check which yours is before you invest in a fit-out, because the answer decides whether that investment is protected. The Law Commission consulted on modernising the regime in June 2026 and provisionally concluded the contracting-out model should be retained.

How much of my turnover should rent be?

There is no legal limit, but as a working rule occupancy cost — rent plus business rates plus service charge — running above roughly 15% of turnover in retail or hospitality leaves very little room for a poor quarter, while below 10% there is usually some slack. The more useful calculation is what a proposed increase does to net profit rather than to turnover, because rent rises come straight out of the bottom line. A £7,000 increase on a business making £22,000 of net profit removes nearly a third of it, which is a far more alarming number than the turnover percentage suggests.

Can I negotiate a rent review, or is the figure fixed?

It is negotiable, and the landlord's opening figure is an opening figure. Rent reviews are settled on comparable evidence — recent lettings of similar properties nearby — and a local commercial surveyor acting for you can produce comparables supporting a lower valuation. If agreement cannot be reached, most leases provide for determination by an independent expert or arbitrator, often appointed through the RICS. It is also worth negotiating the wider package rather than the headline rent alone, since landlords will frequently trade rent-free periods, works contributions or a new break clause to protect the headline figure their own lender sees.