Published: 03 February 2010 in Published 1 September 2009 in Independant Retail News
Rent Review Time
Q "I've just had a letter from my landlord saying he wants to put up my rent by 15% from next month. This seems very short notice and extremely unfair given the current economic market. Is there anything I could have done about it sooner?"
A In the current economic climate it may seem very difficult to justify anything going up by 15%, let alone a cost that chances are already represents the single biggest overhead to your business.
Quite often the first thought is “where am I going to find the money”. Common sense tells us that landlords should take into account factors such as the retail price index and an ability to pay when deciding upon the level of any rent review. Well, many do but many more simply don’t.
Business owners
The commercial property industry generally relies upon a system based on open market values for similar premises in any local geographic area. In general terms though, it may well just depend on who your landlord actually is.
Depending which side of the landlord/tenant fence you sit, it could be argued that this system has worked well for years. Love it or loathe it though the procedure by which a tenant can contest the level of any rent increase can arguably be said to be convoluted and expensive.
Quite often when faced with the cost and apparent complexity of contesting the issue, a large proportion of business owners simply decide it isn’t worth the expense sign the paperwork and send it back.
So when faced with an issue like this, what options are there? Well, there is a good old saying, “If you don’t ask, you don’t get”. First, if you know a rent review is due on your property, don’t wait for the landlord, or their agent to get in touch. Although they do have an obligation to let you know in good time what is being proposed, once any review is agreed, it can be backdated with interest to when it was first due. This could cause obvious financial difficulties.
The best advice therefore is to be proactive. Write to the landlord or agent at least six months before the review date to remind him that you know what’s coming. This is your first chance to communicate your own views on the issue, and should not be missed.
Local market
Landlords vary in size from those that who own one property to pension funds that own hundreds. Size is however no indication as to how as to how you may be treated. At this point, many landlords may well listen to the arguments put to them and be happy to negotiate something reasonable for both parties. There is no guarantee but it can often pay to make the first move.
Should early contact not prove fruitful and the landlord seems intent on pursuing the open market route, or proposes something that you feel is unfair or unaffordable, then it may be necessary to engage the services of a qualified commercial property surveyor. It is though worth considering the likely cost of this. Ensure you ask for a guide as to the likely bill, given the various scenarios before proceeding.
Once you have made the decision to engage somebody, your surveyor should actively research the local market for the same type of property. Once he has done this, he may advise that the landlord is in a strong negotiating position as he has found evidence of rent increases of similar levels within a recent timeframe. It may then be sensible to agree something before the cost of his services overtakes the likely rent increase.
Last resort
If, by a certain stage both parties are unable to agree the figures, or both parties surveyors dispute the figures, then the case may go to arbitration. Explaining this procedure in full would take many pages. It is fair to say, however, that going through this process can cost both parties thousands of pounds and should only be undertaken as a last resort. As a result, the vast majority of landlords will be as keen to avoid this as you are, so negotiation is definitely the name of the game.
Customer retention
Landlords in the UK generally get a very poor press, and with case such as this one it easy to see why. Quite often, though, by being proactive, tenants can persuade landlords that endlessly increasing rents are not necessarily a good idea, but keeping tenants in business is.
The commercial property industry needs to remember that good customer retention policies are as good for landlords as they are for retailers.
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