Rent Review,
no rhyme nor reason to the
Landlords rent demands
We were instructed to give advice on a rent review for a business owner of a shop recently and were surprised at how a rent review can become so complex. The business owner that called us in was amazed by the informal rent review process that had taken place recently where the end result had been a rise in his rent by approximately twenty five percent. This was in a market where we considered business to be poor to average at best and it would be fair to say there was no love lost between the business owner and the landlord.
All rent reviews are difficult
We have said that all rent reviews are difficult because fundamentally what's happening is there is a change occurring and where there is a change occurring particularly where one party feels it is not fair there can be problems.
The usual situation we have found over the years is where a landlord/property owner/investor calls us in as he feels the rents are too low and where a tenant and business owner calls us in as they inevitably feel the rents are too high. We first of all need to look at how this situation occurs as on day one of the lease it is rarely like this.
Free phone 0800 298 5424
New lease rent negotiations
Where a new lease is being negotiated both parties are free to walk away from the situation; the landlord if he feels that the tenant and business owner won't be able to pay the rent, and the tenant if he feels that the landlord will be unfair in the way he deals with him, perhaps not carrying out repairs on neighbouring properties for example which in turn causes problems.
A situation that we have come across a few times is where there is a shared rear area of the property that is perhaps essential for storage of goods or access to get goods in and out and the landlord simply hasn't repaired it to a standard that the tenant and business owners feel acceptable.
The other thing that is completely negotiable at the start of a lease is the type of lease that it will be although generally today Full Repairing and Insuring Leases are the norm where the tenant and business only gets full use of the property providing they repair and insure it and pay the rent.
All of these things are negotiable at the start of a lease.
Fast forward to the rent review
However, when the rent review clause comes in, in three or five years time much water has passed under the bridge between the landlord and the tenant and business owner and both sides have opinions about the other which unfortunately can very much get in the way of a rent review.
There are typical scenarios if we talk to a landlord that they complain about the tenant always having to be chased for the rent or not paying the rent at all and having to call the bailiffs in and equally the tenant and business owner will complain about the landlord never doing any work on the property or promoting the area and so on and so forth.
What does make things worse is that many times the thoughts and comments can be very personal and to some extent this is no longer a rent review but a personal matter in lots of ways.
What Chartered Surveyors do to help with rent reviews
The benefit you will have from having a rent review carried out by independent chartered surveyors such as ourselves is that they will not have any interest in the property or the landlord or the tenant other than resolving the rent review.
Chartered Surveyors will really read the lease
The huge pile of papers that make up the agreement between the landlord and the business owner will actually be read by the chartered surveyor. We make this comment as people are often surprised that we read the leases as they feel it is a solicitor's job. We would add that whilst it is a solicitor's job we look at the leases not from a legal point of view but from a common sense and business point of view and we can give valuable advice to how best to proceed to get a business decision.
How are rent figures got to as there doesn't seem to be any rhyme or reason to the increase?
Foot square or metre squared method
There are various methods of calculating rents. It is relatively common on medium and large properties as a metre squared rate where the usable area is negotiated on and discussed and argued about and then a rent rate put to this area.
Calculating rents for shops
With shops this gets more specialist:
ITZA
ITZA - in terms of Zone A's is a method whereby you look at the value of certain space and areas being worth more than other areas. There are many arguments as to how valid this is; nevertheless it is a general way of levelling the playing field when valuing a shop with a larger shop front and more value.
Turnover rent
Where the rent is calculated on the turnover, which normally relates to the profit, although some businesses will argue that the profit margin is so low that there is very little profit available. Some businesses believe this is the fairest way when they are making a profit that the landlord is making more profit and incentivises everyone.
Rules on how to serve the notice
There are of course rules on how to serve the notice and right ways and wrong ways. You can get into technical legal arguments with regard to whether the notices have been served or not but we normally say to tenants and business owners where this is the case that sooner or later they will have to pay the rent so we need to look at this and look at how best to carry this work out. It can be used as an element in the poker playing game.
Paying backdated debt
What often happens in the time that is taken to negotiate a lease a back log of unpaid rent can occur, for example if a rent is due in one year and it takes two years to negotiate it then there is a backlog of rent which needs to be paid.
How to move forward with a rent review
We would recommend that you appoint an independent chartered surveyor to look at your various options and give you best business advice which our independent surveyors can provide. For further advice on rent reviews: