An open market rent review recalculates commercial rent by reference to the property's open market rental value on the review date. This guide explains how the valuation actually works, what the hypothetical lease and disregards really mean, and how the 2026 rent review reforms change the position for tenants and landlords in England and Wales.
An open market rent review is a commercial lease mechanism that adjusts the rent by reference to the property's rental value on the open market at a specified review date. The lease sets out the hypothetical letting, assumptions, disregards and other valuation rules that determine how the new rent is calculated.
In practice, that sentence hides a great deal of detail. Two leases on the same building can produce very different reviewed rents simply because one assumes a five year term and the other assumes fifteen. One disregards tenant improvements and the other does not. This is why reading the rent review clause properly matters far more than reading a general guide to rent reviews.
Suppose a tenant takes a ten year commercial lease at £40,000 per year with a rent review in year five. At the fifth anniversary, the parties consider what rent the property would command on the open market using the valuation framework contained in the lease. That might produce a market rental value of £47,500 per year. The reviewed rent is then determined according to the lease terms and the law applicable to that particular rent review.
An open market rent review is a valuation exercise conducted on a contractual basis. The valuer is not generally being asked what the current tenant would pay. The valuer is being asked what the hypothetical tenant described in the lease would pay, on the hypothetical terms the lease sets out.
If you are getting to grips with how rent sits within the wider structure of a lease, it helps to understand how base rent works in a commercial lease before turning to the review mechanism itself.
An open market rent review takes place on the review date specified in the commercial lease. Reviews have traditionally been common every three to five years in longer leases, but there is no universal review interval. Some shorter leases have no review at all, while others use stepped or index linked rent mechanisms instead.
RICS guidance continues to describe commercial rent reviews as typically occurring every three to five years, but the interval is whatever the lease says it is. There is no statutory default that inserts a review into your lease.
| Lease term | Possible rent structure |
|---|---|
| 3 years | No review, rent fixed for the term |
| 5 years | No review, or one agreed review mechanism |
| 10 years | Review around year five |
| 15 years | Reviews potentially every three to five years |
These are illustrations, not mandatory rules. A fifteen year lease could perfectly well contain a single review, and a five year lease could contain an annual index linked increase. Everything turns on the drafting.
If your lease needs to be reviewed before you sign it, our solicitors for rent review services advise landlords and tenants on every type of commercial rent review, including open market, indexed, turnover and hybrid arrangements.
Open market rent is normally calculated by applying the valuation assumptions in the lease and considering appropriate market evidence. A surveyor may examine comparable lettings of similar commercial properties and adjust for factors such as location, size, condition, permitted use, lease length and other relevant lease terms.
Comparable evidence might include another recently let office, retail unit, warehouse, industrial unit, restaurant or workshop. However, simply finding another property with a similar floor area is not enough. A valuer may need to consider differences in:
RICS recognises open market or rack rent reviews based on relevant comparable evidence as an established commercial rent review method. But the arithmetic is rarely the hard part. The hard part is deciding which comparables genuinely support the figure being argued for, and what adjustment each one needs.
A nearby shop may have been let at a headline £50,000 per year, but if that tenant received twelve months rent free, a landlord contribution to fit out, more flexible assignment rights and lighter repairing obligations, the headline figure may not be a genuine like for like comparison. Effective rent and headline rent are not the same thing.
The hypothetical lease is the assumed letting used to calculate open market rent at the review date. The actual rent review clause defines its terms, which may include an assumed lease length, permitted use, repairing obligations and other conditions. These assumptions can materially affect the resulting rental valuation.
This is one of the most important concepts in commercial rent review, and one of the most frequently misunderstood. The surveyor is not necessarily valuing the tenant's actual business. Instead, the lease may require the valuer to imagine a transaction between a hypothetical willing landlord and a hypothetical willing tenant on specified terms.
The wording therefore matters enormously. If the hypothetical lease assumes a fifteen year term, the market rent may be lower than if it assumes a three year term, because tenants generally pay less per year for longer commitments. If the hypothetical lease assumes a full repairing and insuring basis, the rent will reflect that too.
RICS guidance stresses that each rent review clause is different and that the hypothetical review basis, assumptions and disregards must be analysed carefully rather than assumed. Our commercial lease review service exists precisely because those clauses reward careful reading.
Assumptions tell the valuer to treat particular circumstances as true when determining market rent. Disregards tell the valuer to ignore specified matters. The exact provisions vary between leases but commonly address vacant possession, compliance with tenant obligations, property condition, tenant goodwill and qualifying tenant improvements.
Disregards commonly seek to prevent the rent being distorted by value generated through the sitting tenant's business, occupation or qualifying improvements. This matters because a tenant should be cautious about paying increased rent simply because its own investment has made the premises more valuable. Typical disregards concern:
These provisions should not be treated as standard boilerplate. A disregard worded poorly can leave a tenant paying rent on value it created itself. By contrast, a well drafted disregard can make a material difference over a fifteen year lease.
The RICS Code for Leasing Business Premises in England and Wales recommends that an open market review formula disregards added value from tenant improvements, except where those improvements were undertaken pursuant to an obligation, and disregards value arising from the tenant's business. If your lease does not reflect that recommendation, it is worth asking why.
The lease normally specifies the procedure for initiating and conducting a rent review. Historically, this could give particular rights to the landlord. However, the 2026 legislation introduces provisions giving tenants additional rights to trigger qualifying rent reviews once the relevant statutory provisions apply to the tenancy.
Under the new framework, Schedule 7A inserted into the Landlord and Tenant Act 1954 provides that tenants within its scope must be able to trigger a rent review by written notice. It also provides rights for tenants to take action necessary to make a qualifying rent review operate effectively. The commencement and transitional rules therefore need to be checked for the particular lease.
If agreement is not reached, the route is usually:
The actual procedure must always be checked against the lease. A well drafted clause tells you who does what, by when, and what happens if they do not. A clause missing those details is where disputes begin. Our 2026 commercial rent review changes guide looks at the new framework in more depth.
If landlord and tenant cannot agree the open market rent, the commercial lease will commonly provide a dispute resolution mechanism. This may involve referring the valuation to an independent expert or arbitrator, often a specialist chartered surveyor, whose role and decision making process depend on the particular mechanism selected by the lease.
RICS operates a Commercial Rent Review Appointment Service for disputes where a lease provides for third party determination, and maintains professional standards for surveyors acting as arbitrators and independent experts. You can read more on the RICS Commercial Rent Review Appointment Service.
An independent expert and an arbitrator perform different legal roles. An independent expert generally uses their own expertise to determine the issue under a contractual expert determination procedure, while an arbitrator determines the dispute through an arbitration process. The lease should identify which mechanism applies and how appointment takes place.
The distinction can materially affect the procedure, the evidence, the submissions, the costs, the decision making and any challenge to the outcome. It should not be assumed that the two processes are interchangeable.
| Feature | Independent expert | Arbitrator |
|---|---|---|
| Role | Reaches own view using expertise | Determines the dispute judicially |
| Procedure | Often informal, governed by the clause | Formal, following arbitration rules |
| Evidence | Written submissions typically | Wider evidential process possible |
| Challenging outcome | Limited grounds | Statutory appeal routes may apply |
A delayed rent review does not necessarily mean the review has been lost. The consequences depend on the wording of the lease, including whether time is expressly or legally treated as essential. Where a higher rent is eventually determined retrospectively, the tenant may face a substantial balancing payment together with interest if the lease provides for it.
The lease may require the tenant to pay the additional rent attributable to the period since the review date. Tenants should therefore budget for possible arrears while a review remains unresolved.
Traditional upwards only rent review clauses generally provided that the reviewed rent could not fall below the existing passing rent. If open market rental value increased, the rent increased. If market value fell below the passing rent, the contractual mechanism ordinarily kept the rent at its existing level.
| Passing rent | Market rent | Traditional upwards only result |
|---|---|---|
| £50,000 | £60,000 | £60,000 |
| £50,000 | £50,000 | £50,000 |
| £50,000 | £42,000 | £50,000 |
This traditional model is now particularly important to distinguish from the new 2026 statutory framework, which is a significant shift in the law of the Landlord and Tenant Act 1954 and the market rent commercial property landscape.
The English Devolution and Community Empowerment Act 2026 introduces a statutory prohibition on specified upwards only rent review provisions in qualifying business tenancies in England and Wales. Broadly, where the statutory regime applies, provisions preventing the rent falling to the amount produced by the relevant objective review mechanism can be ineffective.
The legislation inserts new section 54A and Schedules 7A and 7B into the Landlord and Tenant Act 1954. The statutory framework is designed to address mechanisms where a rent is calculated using matters such as open market rent, inflation or another index, or tenant turnover, but another term prevents the resulting rent from falling in the way the objective mechanism would otherwise allow.
Application depends on matters including:
You can read the English Devolution and Community Empowerment Act 2026 explanatory notes on legislation.gov.uk, although the application of the framework to your particular tenancy is a matter of legal analysis rather than simply reading the Act. Existing leases and proposed renewals therefore require individual review. Our 2026 commercial lease changes article covers what the new Act means in broader terms.
Where the new statutory regime applies to a qualifying open market rent review, a contractual provision designed to prevent the reviewed rent falling below the amount produced by the objective review mechanism can be ineffective. For leases outside that regime, the existing lease wording and applicable law must still be considered.
This makes it particularly important not to rely on older online guidance stating simply that commercial rent reviews are upwards only. That statement no longer provides a complete explanation of the developing law in England and Wales.
Before agreeing an open market rent review, a tenant should understand the review dates, hypothetical lease, assumptions, disregards, permitted use, valuation methodology, dispute procedure and treatment of tenant improvements. The tenant should also establish how the 2026 statutory regime may affect the proposed rent review wording.
If you are taking your first commercial lease, this checklist is best read alongside our wider commercial lease checklist before signing. If you would like a solicitor to run through these points with you, our commercial lease advice for tenants team deals with rent review wording every week.
Landlords should ensure the rent review mechanism is clear, commercially workable and compatible with the current statutory framework. Ambiguous assumptions, disregards, review dates or dispute procedures can create expensive disagreements and valuation uncertainty. The 2026 reforms make specialist review of new and varied rent review clauses particularly important.
The objective should be a clause that can actually operate when the review date arrives. A provision that is unworkable in practice creates uncertainty for landlords, tenants, surveyors, lenders, purchasers and property investors alike, and uncertainty has a habit of reducing the value a property commands on sale.
Our commercial lease advice for landlords service covers drafting, rent review strategy and enforcement of lease terms.
Rent review mechanisms are often agreed in principle at commercial lease Heads of Terms stage, long before the clause is drafted.
General questions about how a commercial lease works are answered in our wider resource library.
An open market rent review is not simply a landlord choosing a new rent. It is a contractual valuation process governed by the rent review provisions in the commercial lease and, increasingly, by the statutory framework introduced in 2026.
The hypothetical lease, the assumptions, the disregards, the comparable evidence and the dispute procedure can all materially influence the result. Two clauses that look similar on a quick read can produce very different outcomes when the review date arrives.
For tenants, understanding those provisions before signing can help prevent unexpected rental liabilities later. For landlords, precise drafting helps protect the investment value of the property and reduces the likelihood of disputes.
Following the 2026 reforms, both parties should be particularly careful about relying on older precedent wording designed around traditional upwards only reviews. If a clause has been reused for years without review, now is the time to check it.
Every type of commercial rent review, negotiated and determined.
What base rent is, how it is calculated and how it differs from other rent.
What the English Devolution and Community Empowerment Act 2026 means.
Negotiating leases, challenging unfair terms and protecting your position.
Drafting, reviewing and negotiating commercial lease agreements.
Thirty points to check before signing a business lease.
Our commercial lease solicitors advise landlords and tenants on open market rent reviews, rent review clauses, new commercial leases, lease renewals, 2026 rent review reforms, rent review notices, Heads of Terms, lease negotiations, rent review disputes and independent expert and arbitration provisions.
Contact Commercial Lease Specialists for advice on an existing rent review, or before agreeing rent review provisions in a new or renewed commercial lease.