A cap limits the maximum increase permitted under a rent review formula; a collar sets a minimum increase. They are commonly encountered in index-linked provisions but can appear in other mechanisms.
Annual or review-period limits?
The drafting may apply a percentage annually, cumulatively or to the review as a whole. The distinction can materially affect the resulting rent.
Compounding
Where annual increases are compounded, the result differs from multiplying a percentage by the number of years. The contractual formula should always be followed.
Check the formula carefully
Before calculating the reviewed rent, identify whether the cap or collar applies annually, cumulatively or to the review period as a whole, and whether increases compound. The wording of the individual lease controls the calculation.