Rent reviews are a common occurrence in commercial property leases.
Whether you’re a landlord or tenant, you’ll have to deal with them at some point during your contract.
To help you negotiate the best possible outcome from a rent review, this guide will explain:
• What a rent review actually is
• The reason why they exist
• When they take place
• How rent increases are calculated
• The process for resolving disagreements
• How a rent review advisor can help you
If you’d benefit from some professional advice, contact our lease advisory team - we’ll be happy to assist with your rent review.
What is a rent review?
Every commercial property lease will be subject to a rent review at regular agreed intervals, usually every three to five years.
The reason for a rent review is to allow the landlord to value the premises and review how much they charge for it, usually with a view to increasing the rent.
Why do rent reviews exist?
Basically, rent reviews are carried out so the figure the tenant is charged can be adjusted in line with current market conditions and the state of the property.
Most commercial property leases contain an ‘upwards only’ rent review clause, meaning the rent can only increase or stay the same – even if market prices are falling.
When will I have a rent review?
In most cases, a commercial lease will contain a clause outlining when a rent review will take place. This has to be agreed upon by both parties involved.
Due to leases becoming shorter, the intervals between rent reviews are now more frequent.
Typically, a rent review is conducted every three to five years, which is the most common amount of time.
How is the new rent calculated?
Rent review negotiations usually take into account the following factors:
• Rental price charged on similar nearby properties
• Deteriorating buildings and infrastructure
• Potential uses & tenant mix
• Location & demand
• Improvements
• Market data
• Profitability
In our experience, the best way to conduct a successful rent review is for the landlord and tenant to appoint their own Chartered Surveyors to act on their behalf.
Having acted for thousands of landlords and tenants throughout the Yorkshire and Lincolnshire area, we find this often prevents issues from becoming too complicated or heated.
What if the landlord and tenant cannot reach agreement?
If the landlord and tenant cannot agree on a suitable new rental figure during the review process, the existing lease will usually stipulate what the dispute resolution process which should be followed.
If you’re caught up in a dispute, it’s likely an arbitrator or independent expert will be appointed. In most instances, this is a third-party surveyor who must try to negotiate a new rental figure which both parties agree to.
At Garness Jones, we can provide professional submissions and representation to deal with issues like this should they arise.
When providing this advice, we take into context the terms of the lease and use our extensive knowledge of the commercial property market across Yorkshire and Lincolnshire.
When you choose us to manage your property, we plan ahead and schedule all rent reviews and lease renewals on our commercial property database.
If you are already in a commercial property and need a current rental valuation, we can provide this and negotiate any rent reviews on your behalf.
For the most serious disputes where it is impossible to agree on a new rental rate, the worst-case scenario would require a court to deliver a judgement.
In our experience, this should be avoided at all costs as it is usually a very lengthy and expensive process.
When will the new rent begin?
If there is a delay when trying to agree on a new rental rate, tenants should be extra cautious.
Most rent reviews can be dealt with retrospectively – and the issue will NOT disappear.
If a lease has a time limit or deadline written into the rent review clause, missing this date could have serious consequences as it constitutes a breach of contract.
While negotiations are taking place, a tenant MUST continue to pay their current rental rate – rather than any new amount suggested.
But once the rent is finally agreed, the landlord is allowed to backdate this to the review date outlined in the original lease.
If the rent has gone up, the tenant MUST pay the landlord the difference and, potentially, any accrued interest.
Should negotiations last for months or years, this could prove to be a significant amount.
In our experience, this is the main reason why it’s wise to consider the rental value in advance of the scheduled ‘review’ date.
Whether you are a tenant or landlord, it’s also important to consider what the rental value could be at the time of the rent review date so you can think about your strategy in advance and decide what action to take as early as possible.
Should you hire a rent review advisor?
You don’t actually need a professional advisor or chartered surveyor to conduct a rent review.
But in our experience, negotiating can be a stressful process and enlisting some professional help could help you seal a much more competitive deal.
At Garness Jones, we remove the stress and hassle associated with rent reviews by valuing your property and researching the local market on your behalf.
We can then provide an objective and detailed assessment on the ‘fair’ amount of rent you should be willing to pay.
According to the feedback we receive from clients, seeking professional advice at the earliest opportunity often delivers the best chance of a successful outcome.
If you’d like more detailed advice about rent reviews or commercial leases, call 01482 564564 – our experienced property management and professional services experts can assist on premises of all sizes.
