Fixed Increase Rent Review in a Commercial Lease

When negotiating a commercial lease, one of the main considerations for both landlords and tenants is how future rent will be reviewed.

A fixed increase rent review in a commercial lease is a clause that sets out predetermined rent increases at specific intervals during the lease term. Instead of relying on market conditions or professional valuations, the landlord and tenant agree in advance on the exact amount or percentage by which the rent will rise.

This blog explains what a fixed increase rent review is, how it works, its advantages and disadvantages, and how it compares to other rent review clauses often found in commercial property leases.

Table of Contents

What Is a Fixed Increase Rent Review in a Commercial Lease?

A fixed increase rent review is a commercial lease clause in which the rent increases by a predetermined amount or percentage at set intervals.

Instead of relying on property market values or inflation, the lease sets out predetermined rent increases, either a fixed percentage or a fixed monetary amount, at agreed intervals. This gives both parties certainty and makes financial planning easier.

How Does a Fixed Rent Increase Work?

The mechanics of a fixed increase rent review clause are straightforward:

1. Agreement at Lease Signing

When the commercial lease is first negotiated, the landlord and tenant agree in advance on how the rent will rise during the lease term. This could be a specific monetary increase (e.g., £2,000) or a percentage increase (e.g., 5%). The dates of these increases are also agreed and written into the lease agreement.

2. Predetermined Rises

At the scheduled review dates, often every three or five years, the rent automatically increases by the agreed figure. This happens regardless of whether the commercial property market has risen, fallen, or remained stable.

3. Certainty for Both Parties

Because the increases are agreed in advance, tenants know exactly how much rent they will be paying in the future, making it easier to budget and plan for growth. Landlords also benefit from guaranteed rental growth without having to depend on the volatility of the open market.

4. No Market Assessment

Unlike an open market rent review, there is no need to involve a valuer or negotiate based on current property values. The rent rises automatically in line with the pre-agreed figures.

Pros and Cons of a Fixed Increase Rent Review for Landlords

For landlords, a fixed increase rent review in a commercial lease provides some valuable advantages but also comes with certain risks. Understanding both sides of the equation helps landlords decide whether this type of rent review clause suits their investment goals.

Advantages of a Fixed Increase Rent Review for Landlords

• Guaranteed income growth: Landlords can be confident their rental income will rise steadily throughout the lease term.
• Protection against falling markets: Even if the commercial rental market weakens, the agreed increases will still apply.
• Simple to administer: With no need for valuers or lengthy negotiations, the process is straightforward and cost-effective.

Disadvantages of a Fixed Increase Rent Review for Landlords

• Missed opportunities: If the property market rises sharply, landlords may be stuck with lower-than-market rent.
• Less common: Compared to open market rent reviews, fixed increases are less frequently used, as they don’t allow rent to fully reflect market value.

Pros and Cons of a Fixed Rent Increase for Tenants

When entering a commercial lease, tenants need to carefully consider how the rent will be reviewed over time. A fixed increase rent review, sometimes called a stepped rent increase, can bring both benefits and drawbacks. Below is a breakdown of the main points from a tenant’s perspective.

Advantages of a Fixed Increase Rent Review for Tenants

• Predictable rent expenses: Tenants know exactly when and by how much their rent will increase, removing uncertainty.
• Easier financial planning: The set increases allow businesses to plan budgets, manage cash flow, and prepare long-term strategies with confidence.
• Reduced disputes with landlords: Because the rent review clause is agreed in advance, there’s less chance of disagreements or lengthy negotiations.
• Transparency: The lease agreement clearly sets out the rent rises, making the process simple and easy to understand.

Disadvantages of a Fixed Increase Rent Review for Tenants

• Potential overpayment: If rental values in the market remain flat or fall, tenants may still have to pay the higher fixed rent.
• No flexibility: Unlike open market or index-linked rent reviews, tenants cannot benefit from a declining market or negotiate reductions.
• Risk in uncertain markets: In volatile economic conditions, pre-agreed increases may not reflect real property values, creating extra financial pressure.
• Long-term commitment: Even if business circumstances change, tenants remain locked into the rising rent agreed at the start of the lease.

Comparison with Other Rent Review Methods

When negotiating a commercial lease rent review, it’s important to weigh up different approaches.

Open Market Rent Review

Under this method, rent is adjusted to reflect the current open market rental value of the property at the time of review. This can benefit landlords in a rising market but may also result in lower rents during a downturn.

Index-Linked Rent Review

An index-linked rent review ties increases to an inflation index, such as the Retail Price Index (RPI) or Consumer Price Index (CPI). This ensures rent keeps pace with inflation, providing a balance between certainty and market alignment.

Is a Fixed Increase Rent Review Right for You?

The choice between a fixed increase rent review, open market rent review, or index-linked rent review depends on the priorities of both landlord and tenant.

• A fixed increase rent review offers predictability and simplicity.
• An open market review aligns rent with real-time market conditions.
• An index-linked rent review balances rent growth with inflation trends.

Before signing a commercial lease, both parties should carefully consider which method aligns with their financial goals and risk appetite. Seeking professional advice from a solicitor can help ensure the chosen rent review mechanism works in the long term.

Conclusion

A fixed increase rent review in a commercial lease is a straightforward, transparent, and predictable rent review clause. It benefits tenants who value certainty and landlords who want guaranteed income growth. However, it lacks flexibility, which can leave either party at a disadvantage if the property market moves in their favour.

With the UK government moving towards banning upwards-only rent reviews, fixed rent increases remain unaffected and continue to be a practical choice.

Before agreeing to any rent review clause, both parties need to consider their long-term financial goals, market risks, and negotiating positions. Seeking professional advice from an expert commercial lease solicitor can ensure the chosen method supports business stability and investment returns.