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You are here: Home / Commercial Property / Rent Review: What You Need to Know

Sep 18

Rent Review: What You Need to Know

With house prices at an all-time high, renting is fast becoming a more popular and cost effective way to occupy a commercial property.  That being said, you need to be aware of rent reviews and how they can affect you and your business.

 

What is a rent review and what is their purpose?

A rent review is the mechanism which enables rent prices to alter in accordance to the market level at the review date. The reviews typically happen every three to five years, but be sure to check the terms of your lease as the time frame can vary.

How will I know if a rent review is activated?

Usually you will be notified by your landlord who will quote the new figure for the upcoming rent period. If the tenant deems this unreasonable, they must say so in writing as soon as possible and can ask what the grounds for the increase is based upon. It is important that you highlight any queries as soon as possible as there are often strict deadlines to adhere to which, when missed, may result in the tenant having to pay the new price without being able to dispute it.

What is the review based on?

The determining factors should be specified in the lease agreement. Usually, the new rent value is based upon open market rental value which is basically the rent the landlord could reasonably expect to receive for the premises if it were leased to a third party. It will be affected by the general rent levels of similar properties in the area and if your lease allows you to use the premises for a variety of purposes, the open market rental value will be calculated as if it is being used for its most valuable purpose.

What if I can’t afford the new level of rent?

The first step is to try and negotiate with your landlord. If a resolution cannot be found then the lease usually stipulates the involvement of a third party, such as a chartered surveyor, to resolve the disagreement.

If this doesn’t work, check if your lease includes a ‘break clause’ which allows you to surrender the property to the landlord. You may also be able to sell the lease to someone else or sublet part of the premises. Failing that, landlords will often find a compromise rather than chase you for money.

Top tips:

Read your contract! It may sound basic but make sure you read the fine print and find out if and when you will be subject to a rent review. Typically, rent reviews are done every three to five years for long-term leases but there may not be any rent reviews for short-term leases.

Trust the experts – it is someone’s job to deal with these things and they will be able to advise you towards the best solution.

Pay attention to deadlines – you don’t want to miss you time slot to negotiate or dispute a rent review

Document it – once the review has been settled, make sure you have signed documentation to prove that the review has been agreed and formalised.

Category:Commercial Property |

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