Rent Reviews and Professional Advice

This month we are taking a look at the benefits of getting professional advice when you have a rent review due.

If you are either the tenant or landlord with a commercial rent review due in the future, it is a good time to assess both the rent payable but also to give your business a health check.

When it is time for your rent to be reviewed which is generally every 3 years or 5 years. The lease that was signed when you took the property or unit has the details for:

• The basis of the rent review
• Timings
• The next steps if both sides cannot agree the new rent

As ever the devil is in the detail. The lease will, or should contain the mechanism to agree terms. Generally, the rent will be reviewed to market levels, this is the rent people are willing to pay for a similar space at the date of the rent review.

Click on the link to find the RICS International Valuation Standards definition of  Market rent

The rent review process seems to encourage an adversarial situation, with both sides trying to achieve the opposite result. The landlord wants the highest rent and the tenant the lowest.

If you are being presented with a rent that:

• Is unviable for your business
• You believe is higher than the alternatives in the same area

It would be best to get some initial professional advice from an RICS Registered valuer. The rent agreed will be for the next 3-5 years depending on your lease. Professional advice  could save you both time and money.

Rent review outcome 1

We received a call from an existing client who had a rent review due. Their landlord was demanding a rent increase on a commercial property in Bristol at a £5,000 per annum increase. We provided a valuation report to determine the market rent and to negotiate the new rent. The landlord then instructed a surveyor to negotiate with us.  After a couple of meetings with the landlords surveyor the landlord agreed a £5,000 decrease in the rent.  This is a saving of £10,000 per annum over a period of 5 years (£50,000). Not every case will have such a good outcome, but at the very least a professional RICS surveyor will fight your corner subject to the structure of the lease agreement.

Rent review outcome 2

In this recent case between landlord and tenant, we negotiated on behalf of the tenant. We provided a valuation report to determine the market rent and to assist our negotiations with the landlords surveyor. The rent stayed the same, however there was a significant relaxation of the trading terms that enabled the business to operate more profitably.

If you have a rent review due it is important to remember that most leases have an “upwards only” clause meaning that the rent cannot go down. With the issues around the Covid-19 pandemic and the current economic issues, landlords are having to re-think clauses and tend to be more flexible. It may be that the rent stays the same but they are able to offer another benefit in kind, this could be a relaxation of trading, payment, insurance or offering additional space.

Our advice is to check your lease and start preparing for the rent review 6 months before it is due.

For more articles like this, go to our Articles page.

If you need any advice Contact us.