Open market rent reviews: How do they work and what's changing?

What is an open market rent review?

Open market rent reviews remain key in commercial property leases. Often stated to be ‘upwards only’, they are designed to ensure that rent increases if market conditions allow (or at least stays the same if the market falls) and typically occur every five years. In practice, how that open market rent is established can be complex.

The standard position in Scottish and English commercial leasing is to create a hypothetical lease, with a set of assumptions and disregards that frame the valuation exercise. This hypothetical lease is between a ‘willing’ landlord and tenant, typically on largely the same terms as the lease but with several features assumed, and others disregarded. Understanding these features is essential when negotiating heads of terms and drafting lease clauses.

Assumptions: Standard assumptions include:

• the premises being fit for immediate occupation and use;
• the premises being capable of lawful use for the permitted use; and
• both parties complying with their obligations.

There is no assumption that the premises are fitted out. If the premises are to be valued in a specific state, an additional assumption is needed. It is also assumed that the willing tenant has received a market standard rent-free period (or equivalent) in order to fit out.

Disregards: Standard disregards include:

• the effect of the tenant’s occupation on rent;
• any goodwill attaching to the premises from the tenant’s business; and
• any rent increase or reduction attributable to tenant improvements. However, here the interplay with development works should be noted, as we discuss further below.

These are to avoid distorting valuations. A tenant who has built up goodwill should not be penalised for this at rent review. Likewise, a tenant who has invested in improvements would argue that they don’t want to see their rent increased because of this spend.

Key Negotiation Points:

Despite this established framework, a handful of assumptions and disregards routinely attract negotiation:

Tenant’s structural works: a tenant may carry out structural works as part of their fit-out. The treatment of these works at rent review is often negotiated, with parties approaching the issue from opposite ends of the spectrum. Tenants will prefer that such works are disregarded as they have already invested money into the works, but landlords increasingly insist they be considered, particularly where the landlord has contributed capital.

Where this lands usually depends on who pays for the works: 

• if the tenant pays, the works should be disregarded so it does not get a double-hit on cost (the actual cost of the works and then the rent increasing because the works have increased the value of the premises); and
• if the landlord pays, the works should be assumed to be completed so it gets the benefit of the works having been done (it has paid for the works and increased the value of the premises, so it should get the benefit of the corresponding increase in the rent).

• Landlord works: if the landlord has carried out works during the lease period or immediately prior to the lease being entered into, one needs to consider if those need to be specifically recorded or assumed as completed for rent review purposes. That ties into the above position too – if the tenant is carrying out some landlord works as part of the tenant’s fit out (with the landlord meeting the cost of those landlord works), the lease would ordinarily record that those landlord works are part of the premises for the purposes of valuing the premises at rent review.
• Break Options: break clauses are often excluded from the hypothetical lease at rent review. Break options are often drafted to fall the day before the rent review date. As such, the rent review only applies if the break is not exercised.

However, if the actual lease contains a break right providing flexibility, the hypothetical lease ordinarily mirrors this position as it is ‘market norm’. That also reflects the value attributable to a lease with a break: they are valued with a term up to the break date (i.e. assuming the break will be exercised). So a 10 year lease with a break at year 5 is ordinarily valued as a 5 year lease. The argument on the rent review clause therefore being that the rent review should reflect how the lease is valued.

Ban on upwards only rent reviews

In the UK, it is currently the norm that rents are upwards only: at review the rent is the higher of the passing rent or the open market rent. That protects the landlord against market values decreasing, but potentially leaves the tenant exposed. However, many jurisdictions are seeking to remove that imbalance – for example, Ireland has prohibited upwards only rent reviews since 2010.

The position in England and Wales

England and Wales are now moving to ban upwards only rent reviews. We have looked at this previously - Is this the end of the road for upwards-only rent reviews in England and Wales?  When this part of the English Devolution and Community Empowerment Act 2026 is implemented in, we expect, 2027 or 2028, upwards only rent review provisions in most new commercial leases will be prohibited. In these new leases, only an open market rent review clause which provides for rent to both increase and decrease as open market rents rise and fall will be permissible. Likewise, only a rent review clause which adjusts rent upwards or downwards by reference to changes in an index such as the Consumer Prices Index will be compatible with the new rules.

The position in Scotland

The Scottish Government has not announced any plans for a similar ban for commercial properties north of the border. It is worth noting, however, that in respect of residential leases only, the Scottish Parliament passed legislation in 2025 that creates the potential for parts of Scotland to be designated as residential rent control areas. In these areas, the amount by which a landlord can increase the rent payable under certain residential tenancies will be capped. Further details of those reforms can be found here.

Key takeaways

To assist in agreeing the lease itself, the detail of the open market rent review assumptions and disregards should be agreed early on, particularly those bespoke to the circumstances or premises. By engaging with these issues early, surveyors and clients can shape the rent review provisions from the outset, reducing time and cost in lease negotiations.