Time Can Be of the Essence

One of the most punitive clauses found within commercial leases is one that makes time of the essence for rent review notices served upon a Tenant or Landlord.

What does “time is of the essence” mean in a rent review?

It means the deadlines in the rent review clause are strict, and missing one has consequences. The vast majority of leases state that time is not of the essence, which allows flexibility in when and how a rent review occurs. However, every so often, when a rent is proposed by a Landlord, there will be a time limit in the lease within which a Tenant can object to the proposal by serving a formal counter-notice.

What happens if a counter-notice is missed?

The Landlord’s proposed rent becomes final. If the counter-notice is not correctly served according to the terms set out in the lease, the proposed rent stands and no rent review negotiation will occur. If it is not handled efficiently, a clause such as this can put a huge strain on a business’s finances, or even ruin a business, should an artificially high rent be agreed because a counter-notice was mishandled.

How short can the deadline be?

As short as 21 days. Despite a year passing without coming across a time-of-the-essence clause whilst analysing hundreds of leases, twice in the space of two weeks leases were passed to me where counter-notices had to be served within twenty-one days. In one instance, a counter-notice objecting to the Landlord’s proposed rent was not enough on its own: a specified rent also had to be offered within the counter-notice.

Why does an artificially high rent matter beyond one lease?

Because it becomes evidence for other rent reviews. Artificially high rents can create valuable evidence for future rent reviews (it is debatable how reliable this evidence is, given the circumstances in which such a rent was agreed), which has a knock-on effect, causing rents to rise, much to the advantage of Landlords (what counts as evidence).

What should you do when you receive a rent review notice?

Act on it straight away. When served with a rent review notice, do not ignore it or decide to deal with it at a later date. Ensure a competent surveyor is appointed immediately to check your lease and its rent review procedures, in particular:

• whether time is of the essence
• the deadline for a counter-notice
• whether the counter-notice must name a rent

That way the correct process is followed and unwanted stress and worry are avoided, as sometimes, time really can be of the essence.