Commercial Property Rent Reviews
Commercial property lease rents have been in the news recently with the new House of Fraser owner, Mike Ashley, actively taking landlords to task over (in his opinion) perceived exorbitant or unrealistic rents for some of the House of Fraser stores around the country. He is seeking agreement for rent reductions and if this cannot be achieved, he has threatened to close the store leaving the landlord either to forfeit (if the rents are not paid) or agree to take a surrender of the leases – in both cases the obligation to pay the rent ceases. In some instances, landlords have agreed to revise the rents downwards and keep House of Fraser as tenant. It is usually the case, however, that if a rent is agreed between two consenting parties then there is no obligation on the landlord to review it other than in accordance with and at the times set out in the lease and if the tenant can’t pay or won’t pay then the landlord will use whatever remedies it has to pursue unpaid rents and or recover possession of the premises.
For many landlords and tenants, rents and rent review can be a thorny issue. On one hand, landlords will be looking to maximise their rental income and increase their yield. On the other, tenants will want to minimise their liability, if they can. This means that effective negotiation and representation before the lease is finalised and also at rent review time is vital. So, if you are negotiating the terms of a new lease or embarking on a rent review with your landlord, it is important to be fully aware of the rent review provisions in your commercial lease. Obtaining legal advice from a commercial property solicitor will ensure the rent review provision is fair and reasonable and that you don’t end up paying too much.
How is rent calculated?
There are several types of rent reviews. These include: open market; index linked; stepped increases; turnover and hybrids. The most common types of review are open market rent reviews or index linked rent reviews. In open market arrangements (which tend to be used on longer leases), rent reviews take into account the rents being charged on similar properties in the same or similar areas and reflect the best rate the property could achieve. Open market reviews therefore tend to reflect the state of the economy and (in theory) the fortunes of local businesses. With index linked reviews, any rent increases are linked to increases in the Retail Price Index or Consumer Prices Index. Most commercial leases include an 'upward only' provision, meaning that even if rental values are lower, the rent cannot decrease.
Why is it important to get advice from a solicitor?
When you take on a commercial lease, one of the most complex and intimidating parts of the lease can be the rent review provisions. Getting advice from a specialist commercial property solicitor can help you get a fair, competitive rental rate. A solicitor with extensive knowledge of commercial lease agreements, landlord and tenant issues, case law, rent review negotiations and dispute resolutions will ensure you enter rent review negotiations on an equal footing with your landlord.
If you have a rent review coming up or are considering moving premises and would like to discuss your options with Jan Woodland, please call 01225 485700 or email firstname.lastname@example.org