Rent reviews: making time of the essence

It is prudent for landlords to ensure that leases, certainly those with a term of more than 5 years, incorporate a rent review provision. Longer leases will allow for a rent review periodically; often every five years.

As a rule of thumb, time is not of the essence when dealing with rent reviews. This includes the service of notice to instigate the rent review, and the timeframe within which the review must be completed.

This ensures that both parties have adequate time to properly obtain and review advice where required, and to allow the parties to take the matter to mediation, arbitration or to tribunal if necessary. However, this is not always the case; leases must be strictly and correctly interpreted to ensure that, where time is of the essence, the parties avoid the potentially serious consequences of breach.

What are the potential consequences for the parties where time is of the essence?

Tenants may find that, if they fail to serve a timely counter-notice, they are unable to engage in negotiation and are tied to the landlord’s proposed initial figure, regardless of what that is.

Landlords who miss rent review deadlines may find that they are unable to instigate a rent review at all which could prove extremely costly.

When is time of the essence in dealing with a rent review?

The parties may expressly agree that time will be of the essence in the lease provisions; it is recommended that, where an express statement is made to make time of the essence, similar statements are made throughout the course of the lease wherever timescales are intended to be strictly interpreted.

First Property Growth Partnership v Royal & Sun Alliance Property Services [2003] stated that emphatic terminology used in a rent review provision could cause the review to be time-restricted. In First Property, the court held that wording of ‘notice shall be served on or before [date] but not at any other time’ was clear enough to make time of the essence.

Where terminology used includes consequences for failing to meet a timescale, this may cause a court to interpret the provision as time-limited. For example, in Starmark Enterprises v CPL Distribution [2002], the Court of Appeal held that time was of the essence where a provision expressly stated consequences of the tenant failing to meet a deadline specified in the lease.

When interpreting a lease, the interrelationship between provisions must also be considered. For example, it may be that the rent review provision is closely linked to the break provision; timescales in break clauses are strictly interpreted and must be adhered to, so if the rent review provision is closely associated with the break option, it follows that time must be of the essence in the rent review as well.

Can timescales be imposed where a rent review becomes unduly lengthy?

It may suit a tenant to end any uncertainty over whether a rent review will be carried out by serving a notice on the landlord specifying the date by which the landlord must have referred matters to third party arbitration. In a falling market, landlords may choose to delay rent reviews but should be aware that tenants may choose to impose their own timescales, following which time will be deemed to be of the essence.

J B Leitch’s Phil Parkinson comments:

“Rent reviews are a common feature of longer leases but interpretation of clause wording relies not only on the language used in the clause itself but on surrounding circumstances, other lease provisions and the intentions of the parties. Landlords should be aware that tenants may impose their own deadlines where a review is delayed, and they are advised to seek advice promptly where a review may become contentious to ensure that it is progressed in a timely manner.”