Read the lease.
I often get asked for tips on how to manage a rent review to achieve the best outcome and my answer usually starts and finishes with the advice; read the lease.
Rent review disasters include having to pay an unbudgeted rent increase, an over-rented lease that cannot be disposed of, or an under-rented lease that deflates the freehold value. How can you avoid this?
Of course, you should appoint a rent review consultant. That consultant should be experienced in the sector in which you operate; there is no point in appointing a surveyor who specialises in factories in the Midlands to negotiate your rent review on a pub in Soho.
That consultant should also work in a business that undertakes letting transactions in your sector - they need an up to date understanding of what is going on in the market in order to properly advise on market value.
If your business operates over a broad geographical region, then that consultant should also be able to draw on regional expertise as well.
But what about the more technical details?
- What is the rent review valuation date? It’s in the lease.
- Should tenant’s improvements be disregarded? Usually, but it depends upon what your lease says.
- Are there onerous lease terms that should reflected in the rent agreed? Read the lease.
- What hypothetical lease terms should be assumed? You guessed it.
- How is a dispute resolved? Usually by either an arbitrator or an independent expert, it’s in the lease.
- Can I challenge the outcome? Sometimes, but what does the lease say?
Having specialised in this field for 35 years, I have witnessed most things that can go right or wrong in a rent review negotiation, and they haven't always been my fault. However, I am sure that in almost every case that a disaster has occurred, it could have been averted by following this advice - read the lease.
