Rent Reviews Explained

Rent Reviews Explained

Oct 19, 2015

A rent review is the landlord’s opportunity to increase the rent being paid by its tenant during the term of a lease. This normally occurs every 5 years. A typical lease will provide as follows

The amount of Annual Rent shall be reviewed on each Review Date to equal:

(a) the Annual Rent payable immediately before the relevant Review Date; or, if greater;

(b) the open market rent agreed or determined pursuant to this clause.

This is called “an upward only rent review clause” which is very standard and means that even if the market rent has gone down, the rent cannot.

As the tenant is already in occupation surveyors cannot value the property to the tenant in situ. This is because it would be unfair on the tenant as they would undoubtedly pay more than a typical prospective tenant with no ties to a building having already spent money to move in and fit out their property. Therefore, the lease will provide that it should be valued on certain assumptions and disregards. These give the surveyors the parameters to work to and will include details of the number of years to be valued and what terms of the existing lease would be included hypothetical lease for valuation purposes.

A rent review will go through various stages before the new rent is agreed.

1. The landlord’s surveyor initiates the negotiations by quoting a rent. This is normally on the high side to allow for negotiations. More often than not substantially higher.

2. At this point the surveyor acting for the tenant requests that the landlord’s surveyor provides the rental evidence of transactions on which they have based their proposal.

3. The tenant’s surveyor has to ascertain whether the evidence is genuine and whether certain facts have been omitted. This is done by either contacting the tenants directly or most of the time, their surveyors.

4. These properties are then inspected to see how they compare with the subject unit. This would include all the amenities such as:

•  Lifts
•  Natural light
•  Air conditioning
•  The main reception to the building
•  Security
•  Raised floors / permiter trunking
•  Ceiling Height
•  Lighting
•  Bicycle storage
•  Showers
•  Natural light etc.

5. The rental value of the subject unit is not only established by comparing it with the physical attributes of the comparables but also comparing various clauses in the leases of the comparables with the subject lease which means considering things such as:

•  The length of the lease
•  The rent free period
•  Whether the lease has a break option and at what point(s)
•   Service charge cap provisions
•  The repairing obligations etc.

6. Having also researched the market the tenant’s surveyor then provides the landlord’s surveyor with its rental evidence and analysis.

7. Negotiations continue and in approximately 95% of cases, an agreement is reached without the matter being settled by an independent surveyor.

Some tenants want to negotiate a rent review directly with the landlord but landlords will have a firm of surveyors acting for them and the individual surveyor will be one with many years of experience whose job is to secure the highest possible increase in your rent.  Under the circumstances it is advisable to instruct a surveyor

It is therefore very difficult for a tenant to know what the market rent is unless it can thoroughly investigate the comparable properties and their leases. It is therefore advisable for a tenant to instruct its own surveyor to negotiate as the additional saving will far outweigh the cost of taking professional advice.

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