Rent reviews in commercial leases can significantly impact both landlords and tenants. It’s essential to understand how this process works to avoid disputes and ensure a fair rent amount. In this article, we’ll provide an overview of rent reviews under the ‘standard’ Auckland District Law Society form of Deed of Lease, widely used in New Zealand. If you have a different lease, consult with a legal expert for tailored advice.

Rent Review Dates

The First Schedule of your Deed of Lease specifies the rent review date(s). No party can issue a rent review notice earlier than three months before the review date. Whether you are the landlord or tenant, you can initiate the rent review.

Responding to a Review Notice

The party receiving the review notice is the ‘Recipient,’ while the party initiating the review is the ‘Initiator.’ It’s important to note that this lease allows tenants to be Initiators. After receiving the proposed rent from the Initiator, the Recipient has 20 working days to dispute the proposed rent. Failure to respond within this timeframe implies acceptance of the proposed rent.

Ratchet Clause

The new rent cannot be lower than the current lease term’s rent, thanks to a provision known as a ‘ratchet clause.’

Handling Disputes

If the Recipient disputes the proposed rent, both parties must attempt to reach an agreement within 10 working days. If an agreement isn’t reached, two methods can be employed to resolve the dispute:

1. Arbitration: One party can give written notice to the other party, requiring the new rent to be determined by arbitration.
2. Registered Valuers: Each party appoints a valuer within 20 working days of agreeing to this method. If one party fails to appoint a valuer, the other party’s appointed valuer makes the determination, which is binding.

In cases where both parties have appointed valuers, they collaborate to determine the market rent. If they cannot agree, they appoint an umpire to make the determination. Both parties share the costs unless otherwise agreed.

Interim Rent

The interim rent during the dispute varies based on the circumstances:

1. If both parties provide registered valuers’ certificates, the interim rent is halfway between the proposed rents.
2. If only one party supplies a valuer’s certificate, the new rent is the value stated in the certificate.
3. If no registered valuers’ certificate is supplied, the interim rent matches the rent payable before the relevant market rent review date.

Seek Legal Advice

Rent reviews in commercial leases are complex, and getting the process wrong can lead to unintended consequences. To ensure you understand your obligations and protect your interests, it’s advisable to seek legal advice when undergoing a rent review. Legal professionals can guide you through the process, helping you avoid disputes and ensure a fair outcome.