An Introduction to Commercial Property Rent Reviews

7 Nov,2016Rent Reviews

An Introduction to Commercial Property Rent Reviews

Most Commercial property leases stipulate that there is to be a rent review to open market rent at regular intervals of usually 3 or 5 years. Typically a 6 year Commercial property lease would have a rent review at the end of the third year and a 10 year lease would have a rent review at the end of the fifth year, although there are variations on this. There are other methods that rent can be reviewed, including stepped rental increases agreed at the outset, and RPI (Retail Price Index) reviews, but for the purposes of this article we will focus purely on Open Market Rent Reviews.

The reason for the need for commercial property rent reviews is largely because Commercial property leases are granted for a number of years certain, unlike residential shorthold tenancy agreements which are typically renewed on a 6-12 month review pattern. In years gone by it was not uncommon to see commercial leases granted for 25-40 years plus, however these days the average commercial lease length is somewhere in the region of 5-6 years.

As a landlord or tenant of commercial property it is important that you fully consider the implications of rent reviews and plan your best position well in advance. The lease will usually provide directions on how the rent is to be reviewed, including a number of assumptions and disregards that are used to ensure that a consistent and accurate open market rental figure is arrived at.

Appointing a Commercial Property Rent Review Surveyor

Often time is not of the essence, which means that there is not a fixed date when the rent must be reviewed by, save that it must be reviewed before the next rent review date. That said a commercial property lease will normally afford either the landlord or the tenant the opportunity to apply for third party determination, and the lease will usually dictate that this be either in the form of an independent expert appointed by the RICS, or an Arbitrator. This application to third party can be done as early as six months before the actual rent review date if either party feel that it is in their interests to go down this route. Third party determinations can be costly however, and often are not cost effective on smaller commercial premises where the proposed increase in rent is lower than the cost of the third-party determination.

Before going down the route of third party determination, and ideally before the rent review date, it is advisable for both the landlord and tenant to each appoint a suitably qualified Chartered Surveyor to establish the market rent and act on their behalf in negotiating the new rent.

Gifford Dixon Commercial Property have an excellent record of being able to exceed client’s expectations in commercial property rent reviews, by combining an in depth knowledge of the commercial property market with a pragmatic and hands on approach to negotiations.

Contact us now to take advantage of our free initial consultation to see if we can help you maximise your position at rent review.

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