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Rent Reviews, Lease Renewals & Break Clauses

Wilton Road, SW1

Wilton Road, SW1

Wilton Road, SW1

The length of a lease has shortened on most categories of commercial property since the 1990’s deep recession and tenant only break clauses have become popular. In this fast moving world, tenants prefer to negotiate shorter liabilities and avoid the uncertainty of rent review and the potential burden of disposal. The average lease length is now only 7 years and those that are this length or shorter, invariably exclude the automatic right of statutory renewal given under the Landlord & Tenant Act 1954.

The effect has been that lease renewal or break clauses, come more frequently now and rent reviews are occurring only once during a lease or not at all. Where automatic renewal is excluded, or a break clause has been exercised to effect a re-negotiation, the process of renewal is just an arms length negotiation between the landlord and the tenant. The tenant must agree new terms and sign a new lease by the last day of the existing lease, otherwise may find themselves literally, locked out. Therefore the tenant must be out looking at alternative premises, just in case the landlord finds another tenant instead. It becomes a tactical game for both parties where timing is everything and planning ahead is vital. Contrast this with a protected tenancy where the tenant does have a statutory right of renewal which follows a set Court procedure and new regulations came into effect in June 2004.

Whether to operate a break clause requires careful consideration and so the decision process should start well in advance of the prior written notice period. These are usually around six to twelve months prior to the actual break date and are fixed dates, so must not be missed. They usually come with conditions which can sometimes prevent the successful service of the notice and/or the operation of the break. A break clause may also coincide with a rent review, so extra care on notices is required.

99.9 % of rent reviews are still upwards only and it may need an act of Parliament before this ever changes. In the meantime, leases are probably destined to become even shorter and we may end up following the European format where rents are invariably linked to RPI.

In the meantime, we are stuck with rent reviews which are usually complex, frustrating and time consuming. Beware the lease which imposes a set timetable where time is of the essence in response to notices. Check and check again the lease clauses, as missed notices can result in financial consequences for landlords and tenants. Rent reviews are complex because the rent review clauses in each unique lease, contain varying assumptions and disregards, often worded differently. The result being that the surveyor is in effect being asked to establish a market rent based on a hypothetical lease and notional terms where reality sometimes has to take a back seat.

Assumed vacant possession, willing landlord & willing tenant, repair & condition, fitted out standard, specification, use, alienation, length of term, break clauses, service charge levels, tenant improvements, headline or net effective rent, self-cancelling effects and many other elements including measurement may have an effect on the rent determination.

So, the rent review surveyor needs to be a specialist with a firm grasp of the processes, a detailed knowledge of lease clauses and how they affect each other, the ability to make written or oral submissions to a third party arbitrator or independent expert as necessary, the ability through experience to search out the comparable evidence, interpret & value correctly and secure the final result using tactics relating to market conditions. The rent review surveyor should also be alive to advising the client whether there is an opportunity for other matters or other lease issues to be brought into the rent review discussions to current or future benefit.

For a fuller description of the whole process, please do contact us. Our fees are generally structured to avoid time being wasted and are offered with some flexibility according to client’s preferences. The photographs show some of the properties on which we have advised.