Top 19 Tenant Questions.
03 January 2012 By Administrator
Landlord & Tenant specialists, Robert Paine MRICS and Neil Cooper MRICS from Graves Jenkins, attended the Subway South East Franchise Meeting, by invitation, at the new Amex Stadium recently and were asked to carry out a 'Question and Answers' session with the franchisees who held leases on retail units in the area.
The franchisees found the talk most informative and a brief synopsis of the talk is outlined below.
As always, it is imperative that the tenant calls for advice at the earliest possible stage in negotiations and GJ are well placed with the depth of knowledge we hold on retail rents in all areas of the region.
Typical tenant questions.
1. When will the rent on my lease be reviewed?
The fixture of the rent review will be included in the lease agreement. These are typically every 3-5 years with short term leases not having any rent review clause at all.
2. How will the new rent be determined?
The determination of the new rent is specified within the lease agreement and usually refers to the open market rental value of the premises as at the date of the rent review.
3. What is open market rental value?
The open market rental value is the rent the landlord could reasonably expect to receive if the premises were released to a third party tenant on similar terms to the existing lease.
4. What are the main factors which affect open market rental value?
The main factor to affect the rent is the general level of rents (tone) for similar premises within the area. The use of the premises can have a significant effect on the open market rental value as a restricted use will have the effect of reducing the rental value with an open user reflecting the full market rental value of the premises for the highest value use.
5. Will rent reviews take into account any improvements made to the premises?
The rent review will normally be based on the condition of the premises when the lease was originally signed. Improvements made by a tenant will not be taken into account in calculating the rent until some 21 years after the improvement was carried out. However, landlord improvements during the term of the lease will be taken into account in the new reviewed level of rent.
6. What will happen if the premises are being used for a different purpose?
If you negotiate a change to the allowed use then this could increase the rent. If the tenant uses the premises in a way which is not permitted within the lease, this in itself will not increase the rent. However, the tenant will, of course, be in breach of the lease and could face legal action.
7. Will the new rent be affected by any initial discounted rental or rent-free period?
Once the discount or rent-free period expires, rent reviews will not be affected.
8. If the open market rental value has fallen, will the rent be decreased at the rent review?
This depends on the terms of the lease; many leases include an upward only rent review clause which means the rent can only ever be increased at a review. If the market rent has fallen the rent stays at the same level rather than be reduced.
9. Who determines the new rent?
The landlord will inform you of the proposed new rent within a formal notice. You will have the opportunity to object if you feel the new rent is unreasonable.
10. How much notice will I be given of the new rent?
The lease will usually specify what notice you have been given at any review. Typically the landlord is required to give you 3 months written notice. Leases can be very specific about deadlines by which the landlord and you must give notices and so on. If deadlines are missed the consequences can be high, for example if the landlord misses the deadline for giving the tenant notice he may no longer be entitled to impose an increased rent. However, in some cases, if a tenant does not respond to an initial rent review notice from the landlord then the rent within that notice is set as the new rent. These time restrictions are known as “time of the essence”.
11. What can I do if I disagree with the new rent?
If you think the new rent is unreasonable you should inform the landlord in writing immediately.
12. What factors will help me negotiate a lower rent?
Any evidence that the market rent is lower than what is proposed, will help.
13. How should I handle a rent review negotiation?
Expert advice from a surveyor is essential. The surveyor will compile evidence of what the rent should be and handle the negotiations. The surveyor acting will aim to settle with the landlord at an early stage in order to reduce costs.
14. Can a rent review include a change to the terms of the lease?
A rent review does not include any changes to the terms of the lease. However, a tenant can change the terms of the lease by negotiating with the landlord at any stage.
15. What happens if the landlord and I cannot agree on a new rent?
The lease will usually specify that a third party should resolve this disagreement. A third party surveyor acts as an Independent Expert or an Arbitrator and, in the absence of agreement between the two parties, be appointed by the RICS. The lease also usually sets out the procedure for both the landlord and tenants to put forward their arguments with the final decision to be published. If you are unhappy with the decision it may be possible to appeal to Court; this is usually on a legal point.
16. How much is resolving a dispute likely to cost and how long will it take?
It is usual for the landlord and tenant to pay their own advisers costs.
17. Do I have to pay rent while the level of rent is being disputed?
The tenant must continue to pay the rent at the old rate while the new rent is being disputed. Once agreement is reached the tenant will have to make up the difference owed and may have to pay interest on the overdue rent.
18. What should I do if I can’t afford the new level of rent?
The lease may allow you some way of exiting, for example the lease may include a break clause allowing you to surrender it to the landlord or you may be able to sell the lease to someone else or sub-let part of the premises.
19. How do rent reviews affect sub-tenants?
Sub-tenancy is a separate agreement and it is therefore not usually directly affected by the rent review on the superior lease. However, it is a standard practice to ensure that sub-tenancy agreements match the terms of the superior lease. For example, if the sub-tenant with a long-term agreement, your agreement, this sub-lease will provide rent reviews at the same date as the superior lease.
Call Robert Paine MRICS at the Brighton office or Neil Cooper MRICS at the Crawley office in the strictest of confidence.