Upward only rent reviews versus indexation: an investigation into the impact of differing mechanisms upon market efficiency within the commercial real estate sector

SEIBEL, Caroline and CHEETHAM, Tony (2011). Upward only rent reviews versus indexation: an investigation into the impact of differing mechanisms upon market efficiency within the commercial real estate sector. Sheffield Hallam University Built Environment Research Transactions, 3 (1), 30-39.

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Official URL: http://research.shu.ac.uk/ds/bert/

Abstract

The purpose of this study was to investigate whether the traditional, upward-only rent review clauses in English commercial leases can be replaced by rent indexation. Analysis of the existing literature found widespread criticism of upward-only rent reviews. Most importantly, they represent a disadvantage for tenants and an advantage for landlords. Contrary to this, analysis of the qualitative data, gathered through semi-structured interviews with professionals, showed that property market forces have shifted. This leaves tenants in a stronger negotiation position. A clear trend towards shorter leases and break options as opposed to rent review mechanisms. The evidence within the study suggests that the Codes of Leasing Practice have not had a significant impact on the flexibility of commercial leases. The findings of the study indicate that the Government should not legislate against upward-only rent reviews as this could have major negative impacts on the property market. Indexation was found to be a fair and reasonable option for both landlords and tenants. However, the exclusive use of indexation in commercial leases would lead to a distortion of the property market as the determination of market rents and values would be impossible. The principal conclusion of this dissertation was that the self-adjustment of the market, which led to a higher flexibility in commercial leases, made a restriction of upward-only rent reviews unnecessary. Moreover, rent indexation is a well-established rent review mechanism in England – a tool whereby both parties can benefit. An exclusive use of indexation in commercial leases though seems most unlikely.

Item Type: Article
Research Institute, Centre or Group: Built Environment Division Research Group
Depositing User: Helen Garner
Date Deposited: 03 Jan 2014 14:09
Last Modified: 20 Aug 2015 13:36
URI: http://shura.shu.ac.uk/id/eprint/7584

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