Geared rents
Geared rents

The following Property practice note provides comprehensive and up to date legal information covering:

  • Geared rents
  • Rents 'received'
  • Rents 'receivable'
  • Issues for landlords
  • 'Open market' vs 'rack' rent
  • Issues for tenants
  • Suspension/statutory freezing of underlease rents
  • Underlease rents geared to lease rent
  • Court intervention

Development leases often gear the reviewed rent to the underlease rents. The tenant pays the landlord a defined percentage of the income he derives from underlettings.

Rents 'received'

Geared rents can operate on a side-by-side basis where the percentage payable is calculated by reference to the rents actually received by the tenant. In such cases the landlord should ensure that the tenant is obliged to use best endeavours to underlet.

Rents 'receivable'

Where geared rents operate on a rents receivable basis the calculation is based on the potential return as opposed to the actual return. The tenant takes on the risk of voids

Issues for landlords

A landlord must be sure that the drafting in the lease achieves the desired result. In one case, the rent was to be a percentage of the rack rents receivable by the tenant, but there were no underlettings. Therefore, the tenant argued that there was no rack rent receivable on which to base the calculation so that the rent was to remain at the previous level. However, the Court of Appeal held that the word 'receivable' was to be construed as meaning 'capable of being received' if the property had been underlet.

The use of the term 'fair market rent' was relevant. There would be no need for it if the calculation was simply to be based upon the rents actually received.

However, it was acknowledged

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