Rent Reviews and Lease Renewals - a quick guide
As a consequence of the current economic climate there is no doubt that most tenants would be expecting a nil increase at the time of their rent review. However, landlords may still have ambitions to increase their income.
It is important to remember that at the time of a review the rent will be set in accordance with the terms of the lease. Generally this will be market value as determined by comparison with other similar properties.
Most rent reviews are upward only so the rent can not go down - but it is worth checking the lease to be clear on this point. Despite the economic downturn it may be that the existing rent you are paying is low when compared with others (even if they have come down recently) and an increase may result.
It is vital that properties are compared accurately as there will often be variations in location, size, layout etc all of which can impact on the rent they might achieve. Should the landlord and tenant (or their agents) not be able to agree on an acceptable rent there will most likely be an arbitration clause within your lease that will give a mechanism for the rent to be determined by an independent third party.
If the lease is up for renewal (rather than a periodic review) the mechanism for what happens next will be governed by the Landlord and Tenant Act 1954 (unless specifically excluded) which gives Tenants the right to a new lease on similar terms to the existing lease but with an updated rent. In these circumstances the rent will be able to go down or up depending on market rents at that time. There are strict protocols to follow involving Notices and Court Applications - these are important to follow correctly to protect your rights. Again there will be an arbitration mechanism in the event the Landlord and Tenant cannot agree terms.
The landlord will generally want as long a lease and secure income as possible wheras a tenant will often want the flexibility of a shorter lease to allow an exit route should the business have problems.
A longer lease with break options gives the same effect as a short lease but avoids the expense of regular lease negotiations and drafting. Unfortunately the longer lease will attract higher stamp duty (based on the total rent payable over the term of the lease).
A longer lease and/or with less frequent break options will give the landlord more value. In these circumstances it is not unsual to see the landlord granting a rent free period or a capital contribution as a way of sharing the benefit with the tenant. The terms of the lease are also likely to be significantly more favourable to the tenant.
The obvious downside to a longer lease is that you are tied-in until the end of the term. However, most leases do allow for sub-letting or assignment (i.e. the lease is transfered or sold) although the cost of doing this will remain with you leases are regularly assigned or sub-let as a part of the day-to-day property process. A good agent will be able to advise on the level of risk involved and potential issues should this become necessary
When approaching a rent review or lease renewal it is important to get it right. The investment in professional advice will help you through the complexities of your lease.
Collinson Hall are equipped to represent you and have from working many years in this business a substantial resource of comparable evidence to draw from.
We would be pleased to discuss your requirements.