The commercial property market is again experiencing rental growth and many landlords are now finding it economical to implement rent reviews and lease renewals.
Therefore more transactions are taking place and both tenants and landlords need to employ trusted surveyors to make sure the process is done effectively.
Collinson Hall act for landlords and tenants in undertaking this specialised work. These settlements can have a substantial effect on the freehold value and the tenants business and so it is important that both sides employ professionals to handle this important work for them.
It is wise to have a trusted person look at the situation before deciding whether to proceed or not and rather than trying to handle it alone, or assume that no increase can be achieved. Landlords, perhaps surprisingly, can worry about implementing such processes and sometimes feel they don’t want to upset tenants or endanger the tenants business. We appreciate the need to be sensitive to the tenant’s circumstances and can work to understand the tenant’s true position and advise landlords accordingly. We appreciate that essentially the parties both need a good relationship and work to maintain that throughout the process.
Likewise, when acting for tenants we can explain the circumstances of the tenant and influence the landlord to take a longer-term view of the situation if the tenant will have difficulty in paying the new rent.
Most rent reviews are upward only so that the rent cannot go down - but it is worth checking the lease to be clear on this point. 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. Collinson Hall manages a substantial number of properties within St Albans, Harpenden and surrounding areas and maintains a database of comparable properties that can establish the rental level when properties are up for review. In the fairly unusual event that the parties cannot agree on a new rent, then the lease will have a mechanism – usually a third party expert – that determines the rent.
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. Collison Hall has recently been involved in a P.A.C.T. third party court-appointed experts who can act much like an arbitrator and as surveyors themselves know a great deal about commercial property- unlike the court officials! We can more cheaply and quickly deal with any disputes on renewals that may arise and thus avoid expensive court processes.
These days most tenants will not want a lease of longer than 10 years and usually 5. This will need to be carefully considered by the owner but the courts are sympathetic to such need for flexibility. A longer lease with break options gives the same effect as a short lease but avoids the expense of regular lease negotiations and drafting. The downside for the tenant is that a longer lease will attract 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 terms of their freehold valuation. Another potential downside to a longer lease for tenants is that may be tied-in until the end of the term and a downside for landlords is that they cannot gain vacant possession if they need or want it except under the lease terms and within the Landlord and Tenant Act 1954. However, most leases do allow tenants to sublet or assign (i.e. the lease is transferred or sold). 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.