By Tiffany Wan – Commercial Property Solicitor
Many readers will know that London’s first Chinatown was not based in Soho but located in Limehouse during the 1880s. There was very little encounter with Chinese cuisine at the start, but the picture has changed ever since. According to an online source there are now 4,000 Chinese restaurants in Britain and a further 8,000 Chinese takeaways.
Many restaurateurs and shop owners would be leasing premises from Landlords and most will encounter commercial leases.
At the start of taking on shop lease individuals often approach solicitors after the Heads of Terms have been agreed on a property transaction. However, during negotiations, a pitfall would be to place too much emphasis on the current rent and initial outlays with total disregard to the levels of future rent.
It would be useful if clients had an understanding of rent review and possibly incorporated this into discussions much earlier on.
Rents on commercial properties are typically granted at market rent. Normally an annual figure is paid for in four instalments on quarter days: 25 March, 24 June, 29 September and 25 December.
The Rent recorded could be:
Indexed Rent (a rent that follows inflation; by using factors such as the Retail Price Index published by the Office for National Statistics)
Turnover Rent (rent that is expressed as a percentage of the Tenant’s profit)
Stepped Rent (rent that increases at fixed intervals at prices already established and set out in the Lease)
Rent subject to open market rent reviews
Rent Review Exercise
Within a Lease the initial rent is nearly always subject to review – termed under a Lease as “Rent Review”. Whatever the basis for review, the rent is likely to be on an upwards only basis i.e. it will not go down.
When rent review takes place on an open market review basis this is often an exercise involving a projection of what rent should be based on a hypothetical “made-up” lease.
The terms of the hypothetical Lease depends very much on parties’ negotiating powers. Solicitors should be engaged to negotiate acceptable rent review clauses within the Lease for this type of review or other types as mentioned above. Surveyors are often involved to provide valuations.
The revised figure by practice is recorded within a Rent Review Memorandum which is kept with the Lease.
Disputes during Rent Review
Typically, if both Landlord and Tenant are unable to agree a rent, the Lease often provides for rent to be assessed by an adjudicator or independent surveyor. Following settlement of the new rate, the rent will most likely be backdated with additional interest applied.
I hope the above introduction gives an insight into how rent is illustrated and reviewed within a Lease.
Readers are advised to seek specialist legal advice if they are negotiating the initial Lease and conducting rent reviews.
Tiffany Wan email: [email protected]
Edwards Duthie Solicitors