Getting smart with commercial rent reviews

Getting smart with commercial rent reviews

When you stepped into 2015… how many of you checked when your rent review on your commercial lease was due? It’s no surprise that this item isn’t at the top of the to-do list and quite often, not even in the calendar. However, ignoring this important date in the diary can cost your business money.

Commercial rent reviews can work in favour for the landlord and/or the tenant – yet often businesses will leave it to the last minute to negotiate, and sometimes without expert advice.

So what do you need to know? We’ve put together some top tips for you to give you the basics. Please feel free to call us on 020 8866 0001 to speak to one of our experts.

How often are rent reviews?

Each rent review is different; however they commonly take place every three to five years. The interval can be negotiated and agreed at the start of the contract and will be stated in the leasehold document under “Rent Review”.

Who starts the rent review?

In order for the rent review to take place, the lease clause will state when a notice can be served by either the landlord or the tenant. Often tenants are unaware that they can also serve notice and be proactive about the review.

The clause will also outline the timings of the notice and response – in most cases, the lease will state that the notice must be given in writing for it to be enforced. The timetables of the notices can be quite strict – for some it can be a matter of weeks so it is important you are prepared and have the resources for negotiations and decision making.

It is also important to note here that if either the landlord or tenant does not respond within the time limits or deadlines they are in breach of the contract and could suffer severe consequences.

How is the rent calculated?

In most instances the rent is calculated by comparing against similar properties within the area – the “market rent”. It is often that both the landlord and tenant appoint a chartered surveyor to advise them.

In some leases, there may be additional information and assumptions that will need considering how to calculate the market rent. For example, some will have clauses for change of property use, or if the rental value has fallen.

When does the new rent come into force?

The tenant continues to pay the existing rent until a new rate is agreed. However, the new amount can be back dated. This means that the tenant may have to pay extra in a lump sum to make up the difference.

What happens if you don’t agree with the market rent?

If you are trying to negotiate your rent review yourself, it would be advisable to get a firm of professional qualified surveyors (like us!) to help you. It is important to be able to have the right evidence to support your desired market rate and to fully understand the lease and clauses you have signed up to.

Failing successful negotiation, you are able to go through a dispute resolution process where a third party will be appointed and decide on the market rent for both the landlord and tenant.

In summary, failing to act on time can cost your business money. By acting early, tenants not only have more time to prepare a thorough market evaluation, they can foresee any potential cash-flow problems and act accordingly.

If you’re unaware of when your rent review is due, or how to deal with an existing issue – please contact one of the team. We have advised many landlords and tenants and successfully helped businesses on commercial rent reviews.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net