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Understanding rent reviews in commercial leases.
What rent reviews are, how they work, and why the review mechanism in your lease matters more than you might think.
A rent review in a commercial lease allows the landlord to reassess and adjust the rent at set times during the lease term. Done properly, rent reviews help landlords protect their investment and help tenants avoid paying rent that has fallen out of step with the market.
Understanding the rent review provisions in your lease is essential. The type of review, the frequency, and any restrictions on how rent can move all affect what you will pay over the duration of your tenancy. Small differences in wording can lead to significant financial implications.
Four ways rent can be reviewed.
Different review methods shift risk between landlord and tenant in different ways.
Market Rent Review
Compares the current rent to what a willing tenant would pay a willing landlord for similar premises. The most common type in New Zealand.
Balanced risk sharing when no ratchet applies
CPI Review
Adjusts rent in line with the Consumer Price Index, tracking general inflation rather than property market conditions.
Tenant favoured in rising markets; landlord favoured in downturns
Fixed Increases
Pre-determined increases at set intervals. For example, "rent increases by 2% each anniversary" or by a fixed dollar amount.
Depends on how the fixed rate compares to actual market movement
Mixed Structures
Combinations of review types over the lease term. Often used to balance certainty with market alignment.
Balances tenant certainty with landlord market exposure
How a market rent review works.
Notice Given
One party gives notice starting the review process, triggering the timeline set out in the lease.
Negotiation
The parties (often through valuers) try to agree on the new market rent, considering comparable properties and market conditions.
Resolution
If agreement cannot be reached, an independent valuer or arbitrator makes a binding decision.
What valuers consider
Location and profile
Size, layout and condition
Car parking, signage, storage
Comparable rents nearby
Interim rent during reviews
Many leases provide for interim rent while a market rent review is underway. Commonly, the tenant will keep paying the old rent, or pay an interim amount (often the landlord's proposed rent).
Reconciliation
Once the final rent is decided, the interim payments are reconciled. If the tenant has overpaid, they receive a credit. If they have underpaid, they make up the difference.
Ratchet clauses: can rent go down?
A ratchet clause limits how far the rent can fall at a review, or whether it can fall at all. Without a ratchet, a market rent review can move rent up or down. With a ratchet, downward movement is restricted.
Read our detailed ratchet clauses articleHard Ratchet
Rent cannot reduce on review. If market rent is lower, rent stays the same.
Soft Ratchet
Rent can go down, but only to a set minimum floor level.
Caps and Collars
Limits on how much rent can increase or decrease on any single review.
Key Takeaways
Rent reviews keep commercial rent in line with market conditions, inflation, or pre-agreed increases
Different review methods (market, CPI, fixed, or mixed) shift risk between landlord and tenant
Ratchet clauses can limit or prevent rent reductions and are often financially significant
Getting the rent review and ratchet provisions right at the start prevents disputes later
Always model different scenarios to understand what you might pay over the lease term
Related Guide
Rent reviews are just one part of understanding your lease. Our guide covers negotiating terms and getting the right deal.
Read the Commercial Lease GuideRelated Reading
Ratchet clauses in commercial leases: What they really mean
Ratchet clauses are among the most important and overlooked parts of a commercial lease. Understanding how they work can save you significant money over your tenancy.
Commercial lease review: What tenants must check
Commercial leases have no consumer protections. Before you sign, understand what you are committing to and the clauses that could cost your business.