A lease agreement should include a rent review clause, stating the date rent will be reviewed. It will also state how the review process should be followed and who will initiate the process. Habitually, the landlord will initiate the rent review process. However, both landlord and tenant may be nominated to initiate the process.
Because the rent review is a contractual procedure, the process should be stipulated in the lease and followed accordingly. So if your rent review date is approaching, you first need to have your lease agreement in front of you. You need relevant documentation such as licences, deeds, improvements, disrepair and refurbishment to help assess the rent review. You should get ready to initiate the process a year before the rent review date. The rent review process will normally take months before its final stage.
When you have the lease agreement in front of you, check the following:
In order for rent to be commercially viable, it needs to be reviewed in line with economical climate and how the Open Market Rent valuates rent in a particular area. The upwards/downwards rent review clause empowers the landlord to increase rent periodically. But a tenant might have plausible reasons to request a decrease in rent. This may happen if the economical climate has affected the business or the social and economical environment of the business location has changed. The landlord may be in disrepair and that should count towards the final report when looking for a decrease in rent.
The lease agreement will have a section that works as a guide – a schedule that shows how the review process should be followed. There are key areas to look out for, so do think about areas such as ‘disregards’. A surveyor will likely regard any ‘disregards’ including ‘tenant works’ and ‘good will.
Refurbishment of the property or part of it will be considered as part of tenant works that will count towards the final report. If the tenant works improved the initial state of the property, the surveyor will value it by reference to the older condition. Also, ‘good will’ will be a consideration. If the tenant has profited, the business has built a reputation and profited, the surveyor will use this to calculate an increase in rent.
If you need guidance with your lease agreement and any documentation relevant to a rent review, please contact one of our solicitors. We will give you expert advice on any commercial lease agreement, including rent reviews and a surveyor’s report. SG
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