How to Effectively Navigate Commercial Rent Reviews
In a commercial lease, the provision of a rent review can be very complicated - with careful consideration needed from both sides to meet an amicable resolution. Of course, there are two sides to any rent review. Which is why, here at Roger Hannah, we have presented the best ways to deal with a commercial rent review, both for the tenant and landlord.
Why Review?
Commercial leases, as a standard, tend to be longer than your typical residential tenancy. With a business staying in the same place for many years. As such, many commercial landlords will choose to include a rent review provision in the lease terms. This is so that, over the course of the tenancy, they are able to assess a number of changing factors which may require the rent to change from its original amount.
Typically, these reviews take place every three to five years, with five years being the typical length of time. A notice of rent review typically has to be given in writing. A valuation will then take place and the new rent will be payable from that date forward, if the tenant agrees.
For Tenants
The procedure and steps taken during your rent review is generally governed by your lease, so always be sure to read this thoroughly in order to ensure that you know what’s coming and when. Being caught off-guard can be terrible, but easily avoided if you take the time to understand your lease fully. If you do, then you can ensure that you have a strong position when it comes to the review. Here are a few things you should take into consideration beforehand:
Have all lease documents on hand to help you in proceedings.
Know the rent review date.
Understand that you may be faced with an upward-only review, so you will not be able to negotiate for a lower rent.
Take time to research the market around you in order to help you understand what changes your rent review may entail, as if the market is strong it could be considerable.
Prolonged negotiation may lead to late fees and back charges.
Document everything, creating a memoranda which you can attach to your lease in order to ensure proof that the review has been settled and agreed upon.
For Landlords
As a landlord, a rent review is the best way to ensure that your property is making the right amount of money and it is sticking with the current market in terms of revenue. But, it is also important to consider your tenant during this process. As, if they are a good and reliable tenant, then it may be more worthwhile to increase minimally in order to retain them. As you may find that a large rent hike is unsustainable no matter how good a tenant they may be.
On average, rent rises in London 6.2% every year. It may be worthwhile searching out a similar statistic for your own region and applying this to your rent review, as this can be seen as a fair and objective strategy to an otherwise contentious issue. Offering a notice period, even if the rent review is stated in the lease, can also help to reduce stress and anger over the review. The risk of your tenant moving is there when it comes to rent reviews and cannot be avoided, unless you want to sacrifice the revenue.
When an agreement suitable to both tenants cannot be reached, further dispute resolution and arbitrations will need to be employed. In this case, you will need the advice of a solicitor or even commercial property agents, as having property management Manchester involved in the first place could avoid this situation entirely. If you cannot find a resolution in a timely manner, then you may be forced to vacate the premises and find another as a result of too much of a breakdown between yourself and the other party.