February 2, 2023

Rent Reviews: The Pros and Cons

Leasing for the first time? It can be overwhelming and it’s hard to know what the best option is. The ‘best’ option can often mean different things to different people too so, I’ve attempted to explain the different types of rent review below. Hopefully, this well help you choose your preferred review method.

If it is your first time leasing, I have a pdf guide which can help you navigate the commercial real estate market. Please drop me an email at steve.buckley@blackhaus.co.nz to request a copy of my leasing guide.

What is a Rent Review?

Like the residential market, rental prices on commercial properties change. The method and timing of reviews are included in the agreement to lease. The most common rental increases are reflected as either a fixed price, market rent review or in accordance with CPI. Fixed price rent increases are calculated based on the terms written into the agreement to lease, market rent reviews are based on the current market prices at the time of review and CPI rent reviews are based on inflation. CPI is calculated quarterly by Statistics NZ and CPI rent reviews are based on a set formula calculated at the time of review.

What are the Pros and Cons of Rent Reviews?

REVIEW TYPE	PROS	CONS
Market	The price reflects the genuine worth. The rent could reduce or increase.	A ratchet clause in the lease can limit or prevent a decrease in rent which would eliminate the benefit of receiving potential decreases. If you request a rent review, you could be required to pay for the costs of a professional valuer. Valuations can vary allowing potential disagreements to occur.
Consumer Price Index (CPI)	You are provided with some certainty so you can budget and project future expenses. The likelihood of a dispute is diminished. There is no additional cost of hiring a valuer.	Uncertainty still exists as it is dependent on inflation. If inflation increased higher than market rents, did you could pay more than market rent.
Fixed percentage increase	This provides complete certainty as to dates of occurrence and cost. The likelihood of a dispute is diminished. You could pay less than market pricing.	You could end up paying more than market rents if the increases were more than market.

Steve 🙂

NB: This is an opinion piece based on personal experiences and is not a substitute for seeking professional or legal advice.

Rent Reviews: The Pros and Cons

What is a Rent Review?

What are the Pros and Cons of Rent Reviews?

Leave a Comment Cancel Reply