Rent reviews in Commercial Leases
Rent review for the landlord:
As a landlord, you want to get as much rent as you can for your commercial property. Unfortunately, though it is quite common for landlords not to achieve any increase at rent review as the commercial property is not what it was. If you have spent time and money on a review and ended up with no or a minimal increase, it might be better next time to find some other way to increase the value of your property.
At Burt Brill & Cardens we act for clients in renegotiating the lease terms to re-align them with tenant’s business needs and achieve some value benefit for landlords. For example, if a tenant no longer needs an impending break clause, the parties can agree to remove and if the tenant knows it wants to stay in occupation a little longer, the parties can also add say, two years to the end of the term. This helps both parties and increases the investment value of the landlord’s property.
So, if it’s time for a rent review and you don’t think you’re going to get much more from the tenant, think about other ways to gain value. We can help you negotiate with your tenants, and liaise with a surveyor to accurately assess what rent you can achieve or what other terms can be negotiated. Just because a lease is signed, sealed and delivered, it does not mean it cannot be changed.
If you are granting a new lease, you may want to think about other ways to review the rent rather than the traditional open market review. For example, fixed stepped increases or increases linked to RPI increases allow more certainty for both parties and avoid long drawn out reviews.
How do Rent Reviews Work for Landlords?
Since the recession hit in 2008, short term leases have become much more prevalent.
However where a commercial lease is granted for 10 years or more there will usually be an upward only rent review provision at intervals of 5 years.
The rent is reviewed to the open market value that could be achieved based on a number of assumptions set out in the lease. For advice on the amount of the new rent you will normally have to consult a professional valuer.
The rent review clause will also set out the hypothetical terms to be assumed and both Landlord and Tenant are advised to appoint surveyors early on. The surveyors will negotiate the new rent, taking into account the terms of the lease and comparison properties.
If the parties cannot agree then the lease will normally provide for the matter to be settled by either arbitration or by the appointment of an independent expert to make the final decision.
If you have any questions or would like to book an appointment with us, please do not hesitate to contact us. Call us on 01273 604123 or email us firstname.lastname@example.org
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