RENT REVIEWS

NEGOTIATING A MARKET RENT

A rent review will mean that your landlord will seek to increase your rent. By gathering good quality evidence, Fusion Estates can show that a proposed rent increase is too extreme. This is achieved by comparing rents charged on similar premises in the same area using local knowledge, expertise and business connections. Although it is difficult to gain knowledge of rents that have been agreed, it is critical in terms of the quality of comparable evidence. We will estimate the open market value of your premises by evaluation of the evidence we have obtained and by use of our commercial experience.

As a part of analysing rents on other premises, we will make those adjustments for incentives or premiums to try and reach a settlement with your landlord at this stage. Should rent levels in the local area be declining, we may feel it is prudent to proceed at a slower rate notwithstanding any time limits contained in the lease.

Rent reviews are the means of adjusting a tenant’s rent to reflect the current market level. If your lease provides for them, rent reviews should be a negotiation between yourself and your landlord. The main questions are if an increase is reasonable and whether you should challenge it.

Your lease agreement will detail your landlord’s right to increase the rent and also your right to contest the increase. A tenant should therefore read the lease and engage a professional adviser. Fusion Estates are expert in this field.

Rent reviews usually occur every three to five years, however as a tenant, you will naturally want the reviews to be as far apart as possible. In these circumstances the rent you pay will lag behind any general increase in rents. The new rent is commonly the open market rental value at the date of a rent review, which is the rent the landlord would expect to realise should the premises be leased to a third party on similar terms. Although a low rent may have been agreed with regard to the original lease, there is no entitlement for such terms to continue. In some cases a lease may contain fixed increases or be linked to indices such as the Retail Price Index. ‘Upward only’ rent reviews mean that the rent cannot go down at a review even there is a lower open market value of the rent is lower than the existing rent you are paying. The lease will contain assumptions with a view to making comparisons with other premises simpler when setting the open market rental value. The assumption regarding ‘use of premises’ may increase or decrease rental value. A building that can be either used as a high value office space or low value storage space will have it’s rent valued on the assumption that a tenant will use the premises as an office. The tenant may only be using it as storage but this is irrelevant.

If the rent is to be reviewed, the landlord is usually required to give you notice - typically three months, which will give you a chance to decide if the proposed increase is fair and reasonable. Should you consider an increase is unreasonable, inform the landlord in writing straight away giving your reasons. As there might be a deadline for replying to the landlord, missing it may render you liable to paying the rent at the new level.

USE OF A THIRD PARTY

If a new rent cannot be agreed, it is usual for the lease to specify that a resolution is arrived at by using a third party, also setting out the procedure to be followed in respect of the dispute.

In the first instance Fusion Estates will strive to agree on engaging the services of an independent third party, usually a local chartered surveyor. We can, of course, object to the landlord’s third party suggestion should it be thought such a person would be biased toward him/her. In the event of not being able to agree the appointment, the President of the Royal Institution of Chartered Surveyors will be requested to assist in this matter. The arbitrator’s decision will be arrived at by evidence gleaned from both yourself and the landlord. Fusion Estates will assist you to prepare and present a strong case. The arbitrator also apportions fees and costs between the parties. Should there be an outright ‘looser’ whose conduct was deemed to be unreasonable, then that party may be ordered to pay the full costs. The decision the independent expert arrives at will be based on his or her knowledge and investigations. It should be noted that the independent expert does not have to consult either yourself or the landlord. The usual circumstances will see the fees paid equally by you and the landlord – you will be responsible for your own costs even if the appeal is successful. The main drawbacks of using a third party are cost and time expended, the fees will be agreed by you and the landlord, with the third party, at the time of appointment – expect to pay at least £1,000 (plus the cost of engaging your own professional advisors). The third party will announce their decision once the fees have been paid. Engaging a third party may not be the correct course of action especially if the rent is low, but there may not be another way to arrive at an agreement.

Upon the decision of the third party, any rent owed is immediately payable and the new rent is backdated to the date of the rent review. It is also likely to attract interest. If allowed by your lease, an alternative way to settle rent disputes is to use a mediator. You should agree with your landlord who the mediator should be. Although this could be a quick and cost effective solution, it should be remembered that a mediator has no authority to impose a rent on either party.