The usual object of a rent review provision is to adjust the rent payable to take account of fluctuations in the market value of the property. Such fluctuations result from changes not only in the value of money, but also in the value of the property. In a period of increasing property values, landlords are unwilling to bind themselves to a particular rent for a long period.
Many rent review clauses set out a timetable for implementing the review. They often require a service of an initial notice specifying the amount of rent claimed by the landlord. Thereafter the tenant is on notice to agree or disagree with this, and if agreement is not reached by a certain date the matter is then may be referred to arbitration or to an expert valuer, as the case be.
North East & Yorkshire Commercial (NEY Commercial) will ensure the serving of, and adhering to, any conditions of the lease that may be applicable to an individual case and are more than capable of professionally representing landlord or tenant if the rent review dispute is referred to an independent third party.
NEY Commercial will ensure as an essential preliminary step in advising either a landlord or a tenant about the rent payable under a rent review that the terms of the lease are clearly understood, and that a thorough inspection of the premises is carried out. This will entail measuring the premises, noting their condition and ensuring that any clauses as to user, improvements etc have been complied with, and whether actual use, and use in the lease, match the planning permission.
Once this has been completed, the gross internal or net floor areas (whichever is relevant) of each part of the building will be ascertained and then used as a basis for computing the revised rent. This is a vital step, and can be a cause of dispute, so it needs careful attention. All measurements will be carried out in accordance with the latest RICS Code of Measuring Practice.
Unlike the case of an open market letting, when advising on the appropriate rent for the review a hypothetical basis for assessment is adopted having regard to the review clause and its relationship to the rest of the lease. Modern leases often incorporate a closely worded review clause, set out in a schedule to the lease, which specifies a large number of terms regarding the premises, length of lease etc, which have to be taken in to account when the review is undertaken. Other clauses merely state that the review is to be on the basis of the existing lease and then it is necessary to examine the terms already in operation and their possible effect on the rent review clause. Thus if there is a strict user clause in the lease, it may or may not depress the rent, depending on whether review is on the actual terms of the lease or other stated assumptions.
It is essential to read through the lease, including any licences and deeds of variation, to ascertain the possible impact of any restrictive or onerous clauses on the reviewed rent. The main factors affecting the rent are:
- Valuation dates: The reviewed rent has to be ascertained as at the review date, but in many cases negotiations and any necessary arbitration and any necessary arbitration take place many months or years after this. There has been much discussions as to whether 'post-review' or 'hindsight' evidence can be taken in to account in these circumstances. It was confirmed in Seagma NV v Penny Le Roy Ltd (1984) that an arbitrator can give such weight as he thinks fit to comparable evidence after the review date, the less cogent it will be, but it may indicate continuation of a trend if similar evidence is available before the review date.
- Basis of Valuation: This depends on the lease itself. Reference in the lease may be to open market rental value, between willing lessor and willing lessee, reasonable rent for the demised premises, or numerous other expressions. The lease could incorporate the definition from the 1954 Landlord and Tenant Act, or the RICS model clause.
- Length of lease and review periods: A long lease (or the assumption of a longer lease where the actual residue is not to be the basis) may in some instances increase rental value (eg a large retail store or office building where the tenant requires a term justifying substantial fitting-out costs). However, nowadays it is generally considered to be a disadvantage if more than five years.
- User Clause: Whether there is a very restricted use to be taken into account.
- Whether a special provision regarding use is to be assumed for valuation purposes.
- Whether the value for rent is to be on the assumption of vacant possession and how this interacts with other conditions.
- Special provision for upper parts of shops.
- Restrictions on assignment and subletting.
- Disregard of tenant's improvements.
If you would like to discuss an impending rent review or lease renewal, contact a member of our professionally qualified team, who will be pleased to meet with you and advice without any obligation on a complimentary basis.