Leases signed in the aftermath of the economic recession 2012/2013 are now coming up for Rent Review.
Rent Reviews, some with a vast disparity between Tenant’s expectations and Landlord’s rental demands, require an experienced Rent Review Surveyor who has specialist knowledge of the market place, to negotiate and justify a fair compromise. Without expert advice, there is a threat of a Tenant being out manoeuvred by a Landlord who is well represented, or unrepresented Tenants and Landlords agreeing terms which do not reflect the fair market rent. Perhaps, even worse, the parties can be embroiled in costly and avoidable legal battles.
Bridge that gap
We, at The Lorenz Consultancy, are here to bridge that gap. The good news is that the majority of our Rent Review and Lease Renewal cases are settled by negotiation, without litigation. This leads to a smoother, shorter negotiating period, lower client expenses, and often forges a better relationship between Landlord and Tenant. It is important to try and avoid litigation, as harmony between Tenant and Landlord often leads to mutually beneficial Lease restructuring. This does not mean a high proportion do not embark on initial confrontation, but on a long term average, 7% of our Rent Review cases were litigated, and we now expect this to increase to 12% over the next 12 months.
We make the complex world of Rent Reviews and Lease Renewals more transparent, and show how an experienced team, in most cases, save considerably more than they cost.
What is a rent review?
A Rent Review allows the periodical adjustment of commercial rents to the market level current at the date of review and take place at whatever intervals are agreed in the Rent Review clause in the lease. Whilst there are several different types of commercial lease, most use an open market rental valuation and have an ‘upwards only’ Rent Review clause, usually every 5 years.
At review, the parties should agree the market rental value which a Tenant would pay for the premises. The test being that if, the Tenant is paying market rent and wishes to move, they can dispose of the premises at, or near market value.
1. Get to know your lease. How is your rent determined? Is it based on an open market valuation or linked to the Retail Price Index (RPI)? Is it valued on a turnover rent basis? Most importantly, is there a Rent Review clause, if so, what date does it become active?
2. Notify your Landlord. It might sound counterproductive to be paying less rent, but if your Landlord forgets your Rent Review, it is advisable to tell them before the clause becomes active. Sometimes interest is payable from the Rent Review date and thus proactivity can avoid a sizeable back-payment. Another advantage of being proactive is that you may be able to agree a fair market rental value early, thus avoiding comparables in a rising market.
3. Seek professional advice.
If you need help, it is time to contact a consultant like The Lorenz Consultancy. We are permanently dealing with at least 50 cases in the Central London market at any one time, so we have up to date comparable evidence at our fingertips for most locations. We also have a full understanding of case law, which is so important in driving home the effect of Lease terminology on rental value. Once you have appointed a Specialist Rent Review Surveyor, they will define a fair market value for your commercial rental property.