13 Jul Settling a Rent Review Commercial Property
Settling a Rent Review
When it comes to settling a rent review and both sides are unable to agree, there will be provision in the lease to get the rent determined by a third party. Our suggestions if you find yourself in this situation are:
1. Don’t be pushed into agreeing a rent that isn’t viable
- Both sides need to agree, the rent cannot be imposed
- In the Covid-19 future there will be a new level of market rent
2. Read the Lease
- The lease will set out how the rent is determined
- It is likely to be on an “Market Rent” basis
“Market Rent is the estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”- IVS (International Valuation Standards) – 2020
- It may be upwards only, but don’t let this stop trying to agree better terms, Landlords and Tenants are going to have to be more flexible due to effects of Covid-19
3. If both sides cannot agree, there will be provision in the lease to get the rent determined by a third party, this will be in the rent review clause and it will normally be one of two ways:
- Arbitration – The RICS will appoint an Arbitrator to determine the rent after requesting both sides to present a case and evidence. The Arbitrator will favour the strongest case that is presented
- Independent Expert (IE) – Less formal than the above and the IE can use their own judgement in making an award
In both cases the award for rent is final.
4. Cost implications on both of the above is variable, although generally the IE option is more cost effective.
- It is important to take some advice from a Chartered Surveyor as there are ways to minimise the cost implications
- There are a few bodies working on making this process quicker and easier. For pub tenants whose landlords have signed up to the Pub Sector Code of Practice there is PIRRS (Pubs Independent Rent Review Scheme) which offers capped fees and quicker timescales.
The key is to get some advice and not feel pressurised into agreeing a rent that will not be viable in the future. If you need further advice please Contact us