Rent Reviews - emerging from hibernation?

Following difficult market conditions since the credit crunch, when rent reviews all but disappeared, improved letting activity - in addition to taking the surplus stock out of the market - is, in certain sectors and locations, starting to demonstrate rental growth reports commercial property agent, Prop-Search, which looks set to continue.

One direct consequence is that savvy landlords are once again on the back of increasing economic confidence, contemplating invoking rent reviews due under leases, rather than merely being grateful for an existing rental income stream.

Ian Harman MRICS, a Director of Prop-Search, said: “Some landlords are also contemplating their position in respect of rent reviews which may have passed, but where the lease does not contain any clear provisions that time is of the essence, preventing matters from being re-visited retrospectively - although the valuation itself date will invariably be fixed.  To a great many tenants the ability to invoke a rent review which may be two or three years past, comes both as a nasty surprise and frequently gives rise to an unplanned financial liability.”

From a landlord’s perspective, care needs to be taken to ensure that the lease terms to be assumed for valuation purposes are consistent with the market and that the lease does not contain any restrictions, sufficient to impact on value and also that sufficient contemporary evidence exists to support their case.  In this respect, whilst post valuation date lettings are admissible as evidence, they will generally not be attributed the same level of weight as pre-rent review date transactions and will normally become less reliable the further away the date of the transaction is from the rent review date.

From tenant’s perspective, it is not always safe to automatically assume a rent review will be waived by the landlord.  It could be that securing professional advice is going to become an increasingly worthwhile investment, relative to the possible cash flow implications of having to fund a retrospective and unexpected rental increase.

Ian Harman adds: “Whilst locations and sectors are not performing in exactly the same way and properties need to be considered on a case by case basis, recent experience suggests that both landlords and tenants may both be missing out by not taking appropriate advice when rent reviews start falling due.”

Further information or advice can be obtained from Prop-Search - Tel: 01604 492000 / 01933 223300 or its website: www.prop-search.com