The purpose of a rent review clause in a commercial lease is to ensure that the rent payable by the tenant keeps pace with inflation and with the rent paid on the open market for similar premises.
Ban on upwards only rent reviews
Historically, upwards only rent review provisions were a common feature of commercial leases in Ireland, meaning that rent reviews would only result in higher rent being paid by a tenant.
A major change was brought about in 2010 when section 132 of the Land and Conveyancing Law Reform Act 2009 (the “2009 Act”) banned upwards only rent reviews. This was against a backdrop of many businesses being locked into highlevels of rent despite a deep global recession at the time and new leases being granted at significantly lower rents. The ban on upwards only rent review clauses was not retrospective and only applied to commercial leases granted after 28 February 2010.
Section 132(3) of the 2009 Act provides that a rent review provision contained in a lease granted after 28 February 2010 will be construed as providing that the rent payable following the rent review may be less than, greater than or the same as the rent payable prior to such review.
The impact of the ban on landlords has not been felt until recently, because rents in general have been steadily increasing since 2010.
Emerging Trends
Having been through two rent review cycles in 2015 / 2016 and 2020 / 2021, since the first “upwards / downwards” rent review leases were introduced and because prime rents per square foot are now levelling off, we are seeing more landlords opting for different methods of reviewing rent including:
(i) Index Linked - Consumer Price Index (the “CPI”)
Rent can be reviewed having regard to the CPI. As there is generally an increase in CPI, rent reviews linked to the CPI are usually likely to rise rather than fall. However, as there is a possibility of a decrease in the index, rent reviews linked to CPI are not considered to breach section 132.
(ii) “Cap and collar” clauses
“Cap and collar” clauses set parameters on how much the rent can rise or fall by on rent review. These clauses provide that on review, the rent will not fall below a fixed percentage “collar” and will not rise above a fixed percentage “cap”. Lately, we have seen landlords including collars of nominal percentages. While it could be argued that cap and collar clauses are valid, they have not been tested so, if challenged, there is a risk that a court could find a nominal percentage collar to be in breach of section 132.
(iii) Stepped rent increases
Stepped rent increase clauses provide that rents will automatically increase by an agreed amount at set intervals during the term of the lease. There is nothing to prevent increased rents being expressly provided for in a lease in this way and so the section 132 prohibition does not apply here.
(iv) Rent reviews triggered solely by the landlord
If the landlord is the only party entitled to trigger the rent review under the lease, it has the power to decide not to call for a rent review, thereby avoiding the risk of the rent being reduced on review in a falling market. A landlord only trigger such as this is not prohibited by s.132.
Recently, the UK government introduced the English Devolution and Community Bill 2025 to Parliament, which, if enacted as drafted, will prohibit upward only rent reviews in new commercial leases of premises in England and Wales. As the Bill is only just beginning its parliamentary journey, the effect of the ban on upwards only rent reviews in UK leases, if enacted, remains to be seen.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
