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ADVICE
Dealing with a
rent review With costs a key business concern, Ed Auger of Kings Hill based Vertex Law examines how to save money if your landlord presents you with a rent review
Do you need to do anything? Check your lease. Short leases are unlikely to contain any rent review provisions, so the rent should not change during the lease term. However, leases for four or more years will probably include provisions allowing the rent to be reviewed, generally every third or fifth year. Once you know the review date, adopt a reminder system giving you advance warning of an impending review. Calculating the new rent The three most widespread review methods are an open market rent review, a ‘linked’ rent review, or reference increases in the Retail Price Index (RPI). Open market is the most common, with both parties, usually via agents, agreeing the rent payable on the open market for the premises. For RPI reviews, the old rent is simply multiplied by the relevant RPI figure. A small minority of leases, mostly affecting retailers, link the revised rent to, typically, the shop’s turnover. These ‘linked’ reviews rely on disclosure by the tenant of relevant information. The process for review will be set out in the lease.
In summary: ■ Don’t ignore a rent review date; ■ Familiarise yourself with the rent review provisions, if any, contained in your lease. Seek legal advice if you have any questions; ■ Instruct an agent to determine a reasonable revised rent figure; ■ Make sure the revised rent is recorded by way of a rent review memorandum.
52 March 2010 SANDWICH & SNACK NEWS
Plan ahead Commercial leases often provide that the revised rent can be agreed during the six months leading up to a review date. If the revised rent has not been agreed by the review date then the passing rent usually continues until the revised rent has been agreed. Most leases allow the rent review process to continue indefinitely during the lease term. Such a situation rarely favours the tenant because commercial leases usually state that the tenant will pay the difference between the passing rent and the revised rent from the review date until the date on which the rent is agreed together with interest – usually the base rate – on the balancing figure. Seek professional advice There is nothing to stop you contacting your landlord direct but having a good chartered surveyor assess the likely revised rent, based on the amount being paid for similar premises (called ‘comparables’), is invaluable. Once you have an open market figure you will be in a much stronger negotiating position. If you wait for your landlord to make the first move, the proposed rent is often significantly higher than the passing rent. Without a surveyor’s advice it is much harder to agree a more realistic level. If you pre-empt the process by proposing a reasonable figure of your own then the landlord may well accept to save the trouble of contesting it. If agreement cannot be reached, commercial leases usually provide for an independent arbitrator to determine the rent. Once agreement is reached, or a determination made, both parties should sign a rent review memorandum, as evidence of the agreement. Ed Auger can be contacted at ed.auger@vertexlaw.co.uk or 01732 224010