Commercial leases and rent reviews
If you own or rent commercial property and a rent review is approaching, or was due to take place during the lockdown, how should you now deal with the review at this time?
The purpose of a rent review is to allow for the adjustment of rent to the current market level at the date of the review and if there is a break clause, to allow the tenant to terminate the lease early. However, with there being so much uncertainty within the business community as it emerges from the lock down, there is an argument that rent shouldn’t be increased and in some instances, rent might be decreased or a rent holiday offered if it hasn’t been already, especially to those sectors struggling such as retail.
There are certainly concerns about what many high streets, shopping centres and business parks will look like over the next 12 months. Issues such as whether there will be an over-supply of space and whether many tenants will look to make significant changes to the amount of space they lease, perhaps seeking to reduce it to allow more staff to work from home.
There are clearly many questions to be answered and the starting point within the lease is the rent review clause which sets out when the review will take place, how it will be conducted and also assumptions and disregards to be made when a surveyor is valuing the premises for the purpose of the review. It will also set out the procedures to be followed and also provisions for dealing with any disputes.
If the new rent cannot be agreed then the rent review clause should have a procedure for a third-party dispute resolution.
Landlords should be aware of the high number of Company Voluntary Arrangements (CVAs) which have been used recently to reduce lease liabilities.
Where both parties are keen to maintain a good relationship and to work through the difficulties it may be preferable to reach a flexible agreement. However it is important that both parties fully understand their legal responsibilities and that any agreement is fully documented to reflect the understanding and the intentions of all parties.