What to do if you have a rent review coming up?
By Andrew Cooper
2023 was a busy year for me, with much of my professional time spent negotiating rent reviews on behalf of both landlord and tenant clients, with some very pleasing outcomes in terms of rental increases achieved and savings made respectively.
It is fair to say that rent reviews are viewed by many as something of a dark art i.e. “techniques or practices that are regarded as mysterious or dishonourable”. This definition is perhaps a little harsh; however it is usually advisable for a landlord or tenant to take professional advice to help them navigate through what can be a minefield.
The purpose of a rent review is to adjust the rent payable under the terms of a lease to reflect changes in the value of a property during a long term. Historically, this could have been on the basis of 5 yearly rent reviews during a 20 or 25 year lease term. However, the lengths of leases are now usually much shorter, with terms of 3, 5 or 10 years most common, with a corresponding reduction in the number of rent reviews if there is indeed one at all. Despite much discussion over the years, upwards only rent reviews are still the norm with upwards/downwards reviews being very rare.
The rent review clause within a lease will set out hypothetical lease terms for the new rent to be based upon, with a series of assumptions and disregards including for example the assumed lease term. Comparable evidence in the form of open market lettings, rent reviews and lease renewals concerning similar properties will need to be considered and analysed before making adjustments to reflect differences such as the size, location, user clause, specification, lease term and break options, parking provisions, ability to sublet etc. Incentives such as rent free periods also need to be taken into account. The parties will also have to agree floor areas, which should in theory be straightforward, however is often subject to much debate.
If the parties cannot reach a negotiated agreement, then the lease will normally provide that the matter can be referred to an arbitrator or independent expert to determine the new rent.
Personal highlights for me in 2023 were a rental increase negotiated in respect of a trade counter unit in Watford where a 58% increase was agreed with the tenant’s surveyor and also an 86% saving achieved from a landlord’s proposal in relation to a car repair workshop in Enfield for a tenant client.
If you are a landlord or tenant who has a rent review coming up in 2024 and would like some initial advice then please do get in touch with Andrew Cooper for an informal discussion.