Are you a London landlord? If so, you’ll want to achieve the right rent for your investment, something both equitable and profitable. As a tenant in the capital, is your rent you’re paying appropriate for the property, its location, facilities and condition?
Commercial property leases can run from a few months to years. As a landlord who wants to keep a lease profitable, you need to make sure the rent can be increased as and when it’s appropriate. As a tenant you’ll want to make sure your rent can’t be increased unreasonably. When two parties’ interests differ this much, you need to formalise things so they’re fair for everyone concerned.
If you haven’t had your rent reviewed by a professional chartered surveyor in London, it’s wise to set a date, and diary future dates in advance for regular reviews. Our independent service will show you exactly where you stand. Here’s what you need to know about rent reviews.
How frequently should you review commercial rent?
The frequency of reviews is down to the landlord and tenant to agree between them, when the lease is signed. Most contemporary leases are rent-reviewed every 3-5 years. The landlord has to strike a balance between making more money from the rental, the cost of the review itself, and the expense you face if the review is disputed or goes to court.
About open market rent reviews
Market rent reviews are the most prevalent type of rent review. It’s all about the rental income achievable on the open market, and is also called ‘rack rent’. If the market goes down, the rent goes down to reflect the lower market value. The opposite applies if the market increases – the rent goes up in line with the market value increase. In real life landlords are in control and most rents go up, not down. In fact most leases only allow for rent rises.
What are assumptions and disregards?
Assumptions and disregards are specified in the lease. They confirm what the surveyor must take into account – or not – when valuing for a rent review.
Here’s an example of an assumption. A lease might assume the tenant has met all their contractual obligations, for example keeping the property in good condition. If they don’t, the property will probably be valued at less as a result of its condition. A reduced rent, of course, wouldn’t be fair for the landlord.
A disregard might ask the surveyor to ignore improvements made by a tenant. If the tenant’s improvements increase the value of the property, the resulting rent increase wouldn’t be fair for the tenant, so the improvements are not taken into account during the rent review.
It’s important for both parties to get professional advice about assumptions and disregards, since they can have a drastic effect on the rent you receive as a landlord or pay as a tenant.
What if there’s a rent review dispute?
A landlord serves a notice on the tenant for the new rent. If the tenant disagrees, they have to act by the deadline set out in the notice. If negotiations fail, the lease should allow either dispute resolution or a second opinion by an independent RICS surveyor, who will give their expert opinion on the market value.
Are there any alternatives to market value rent reviews?
- Turnover rents are based on a percentage of the tenant’s turnover, either with a minimum rent or periodic rent increases
- An RPI rent is common in the retail sector, where tenants pay more rent the better they do. This can feel like a penalty to the tenant, and it’s an extremely admin-heavy task to provide and review the turnover figures
Landlords and tenants – Trust us to get your rent right
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