RPI Rent Calculator
RPI and Rent Calculator
To calculate the Retail Price Index percentage change and apply the percentage to the rent for the adjusted figure, please visit RPI and Rent Calculator.
How to use the RPI and Rent Calculator:
The pre-set display in each field is for example only. As soon as you click in a field, the preset will disappear.
To calculate the Retail Price Index (RPI) percentage change, enter the RPI figures for the start and end months. The percentage change for that period will be displayed. It's not necessary to also enter either the start month/year or end month/year: that information is simply a reminder, for your convenience.
To find out how much the rent should be to at least keep pace with the Retail Price Index (RPI), enter the rent per annum that you are receiving/paying at present. The adjusted rent will be displayed.
In the 'rent per annum' field, the rent may be entered with or without a £ sign or any commas, but the rent must be rounded to a whole number with no decimal point.
The 'rent per annum' field doesn't only have to be for rent, it may also be used for any figures such as price or cost of product or service where you want to calculate the RPI-adjusted equivalent. Although designed for yearly rent, the rent per month or any other period of time will work as well.
The calculator is for information only: no details will be stored.
To calculate the Retail Price Index percentage change and apply the percentage to the rent for the adjusted figure, please visit RPI and Rent Calculator.
How to use the RPI and Rent Calculator:
The pre-set display in each field is for example only. As soon as you click in a field, the preset will disappear.
To calculate the Retail Price Index (RPI) percentage change, enter the RPI figures for the start and end months. The percentage change for that period will be displayed. It's not necessary to also enter either the start month/year or end month/year: that information is simply a reminder, for your convenience.
To find out how much the rent should be to at least keep pace with the Retail Price Index (RPI), enter the rent per annum that you are receiving/paying at present. The adjusted rent will be displayed.
In the 'rent per annum' field, the rent may be entered with or without a £ sign or any commas, but the rent must be rounded to a whole number with no decimal point.
The 'rent per annum' field doesn't only have to be for rent, it may also be used for any figures such as price or cost of product or service where you want to calculate the RPI-adjusted equivalent. Although designed for yearly rent, the rent per month or any other period of time will work as well.
The calculator is for information only: no details will be stored.
Index-linking - RPI
The Retail Prices Index or Retail Price Index - RPI - is a measure of inflation published monthly by the Office for National Statistics. It measures the change in the cost of a representative sample of retail goods and services. RPI was first calculated for June 1947 and was once the principal official measure of inflation. It has been superseded by the Consumer Price Index (CPI).
For the indices since 1974, please click here.
For the indices since 1974, please click here.
Commercial Property Insurance - Part 2
Whether lawyer or surveyor, we professional advisers to landlords and tenants have a dual-role in the field of business tenancies: to help clients to abide by and comply with the law, and where the client has not sought our advice beforehand to find legitimate ways to wriggle out of liabilities and responsibilities. For further reading please visit LandlordZone.
Commercial Property Insurance - Part 1
Amongst the thorny issues in the relationship between landlord and tenant is the building insurance premium. For further reading please visit LandlordZone.
SDLT Calculator
HMRC has produced a Stamp Duty Land Tax Calculator.
The calculator can be used for residential property or non-residential property.
This reform does not affect commercial properties. The rule that a purchase of 6 or more residential units is treated as a commercial transaction remains unchanged.
The link is http://www.hmrc.gov.uk/tools/sdlt/land-and-property.htm
The calculator can be used for residential property or non-residential property.
This reform does not affect commercial properties. The rule that a purchase of 6 or more residential units is treated as a commercial transaction remains unchanged.
The link is http://www.hmrc.gov.uk/tools/sdlt/land-and-property.htm
Open market rent review
A feature of investing in commercial property is the rent review. With residential BTL, rents can be increased but usually only at the end of the term if the existing tenant would pay more or on a new letting if the market is up to it or, as with ground rents, to pre-set incremental increases. With commercial property, rent reviews can occur at regular intervals throughout the term because the duration of a commercial property letting is often for years: 3 to 5 years is not uncommon, 10 is typical, 15-25 years not unusual, and with ground leases 75-125 years or more. At present, I dealing with a ground lease rent review where the contractual term was extended from 80 years to 150 years.
There are various types of rent review: fixed increases, percentage uplifts, formulaic reviews such as inflation-adjusted index-linked, ground rent reviews geared to open market rent, turnover rent review comprising a base figure plus a percentage of the turnover of the tenant's business, and open market reviews where the rent is assessed by reference to the open market. Turnover reviews are common in factory outlet centres and shopping malls that are owned by a single landlord; in isolation turnover reviews are for the private investor harder to administer, let alone finding a tenant who'd agree. (The turnover is before VAT: in case-law, a tenant got clobbered a while back through overlooking the impact of VAT on the wording of the review and was obliged to pay more rent when the VAT rate went up to 20%.) Fixed increases, common during the 1960s/1970s, are rare nowadays because the amount of increase requires a leap of faith at the onset. Formulaic reviews tend to be found with sale-and-leaseback and where investors are offered a certain or easily calculable income stream, akin to an annuity. Ground rent review is where the land is let, the tenant constructing the building in consideration for which the landlord gets a percentage of the rental value of the building.
Open market review is the most common. The principle is that the rent would be adjusted to the market rent assuming (hypothetically) the premises would be available to let in the open market at the review date or valuation date if different. For the hypothesis, there are matters to be assumed and disregarded and whatever is to be taken into account is to be found in the wording of the rent review clause. There are no set guidelines: it all depends upon what was agreed when the lease was granted and any related documentation. The interpretation the guidelines is another matter entirely which is why to assume literally whatever the review clause says can be a mistake.
For open market review, the rental valuation approach is evidence-oriented. There has to be evidence of a higher rent elsewhere for the rent of the premises under review to increase, either that or informed opinion. Informed opinion is not the same as working out what the actual tenant should be able to afford: that the tenant might be able to afford, for example, ten times more doesn't in itself mean that the rent should increase.
On grant of leases, there are two types of landlord. The landlord for whom the property has always been an investment, and the landlord that previously occupied the property for his own business but is selling up and simultaneously granting a new lease of the property to the buyer. Where the lease is being granted in conjunction with the sale of the business, it is common for the initial rent to be set by reference to what the business could afford. Where that rent is higher than the market rent, it is essential for the wording of the rent review to enable an increase, otherwise all that will happen is that the market rent would prevail. That does not matter if the market rent were higher than the initial rent but, all other factors remaining constant, often it's not. In such cases, the rent currently payable could result in over-renting in the context of the open market rent.
Frequently, I am consulted by landlords who, having granted a new lease in conjunction with sale of their business as a going concern, approach the rent review in the same way of thinking as with the initial rent. A well-advised tenant is likely to opposite any increase on that basis.
The landlord for whom the property has always been an investment will usually agree whatever rent the incoming tenant will agree to pay. Since that rent would normally be based on the asking rent, the agreed rent is likely to reflect the open market rent at the time, presupposing the terms and conditions of the lease reflect that rent.
Unlike the new letting where the landlord can bide his time waiting for an acceptable offer, the open market rent on review is at a fixed date, the valuation date which may or may not be the same as the review date depending upon what the lease says. Regardless of the type of landlord and how the initial rent was set, both become subject to the terminology of the open market rent on review, in particular the valuation basis.
In outline, the leases contains two leases: the lease and the hypothetical lease. The hypothetical lease only applies at rent review. The terms and conditions of the hypothetical lease can be the same as the lease or differ, that's a matter of drafting and approval when the lease was granted. Of the three methods of valuation, the contractor's or costs method, the profits test, and the comparable evidence, the latter is the most common. The profits test may not be admissible evidence: the information would have to be in the public domain and limited to the particular property, rather than the tenant's other interests. The contractor's method tends to be used for buildings that are rarely on the market and for which there is no evidence. The evidence method, based on comparable evidence, is the method in widespread use because the opinions that can cloud the contractor's and profits' method do not apply.
Evidence is what another tenant has agreed to pay for their property. The property may belong to the same of a different landlord. The weight that would be given to the evidence for use as comparable is likely to vary according to the facts and circumstances.
What happens if there's no evidence. The short answer is no increase. Does that make sense? Yes and no. Yes if you accept without question the valuation basis for the rent. No if you wonder why you should lose out just because there's no evidence.
Perhaps it has always been thus but in recent years I've noticed a trend towards reliance on evidence regardless. I suspect it's a product of tenant-resistance to increase. Tenants and surveyors are well aware of the need for evidence for justification. It may not be necessary to give reasons but in the event of dispute it is. In dispute, which is the parameter upon which all reviews are based even if referral were not initiated, the tenant's approach is to require the landlord to justify the proposed increase with supporting evidence. To the inexperienced landlord, it is wearing, often frustrating that the tenant will not play ball. Despite the lease stating the parties are to reach agreement, rarely if ever does the lease prescribe how agreement is to be reached. The landlords thinks the tenant can afford more, the tenant thinks why should he offer more. This is unyielding combat, a battle of wits.
Frequently, I am instructed to take over negotiations where the landlord having reached the end of his tether doesn't want to take the next step of referral but wants me to work wonders. To force the pace, the cost of referral is not a step to be taken lightly. One step at a time maybe but the starting price is £369 for referral to the RICS. After that, the minimum fee could be £500/£750 plus anything between £180 and £350 an hour plus VAT and disbursements merely to get the tenant to concede. Lining the pockets of third parties is not how it should be, but is the price of venturing into the property system.
The standard form of rent review clause to open market rent is rarely thought out in the context of the actual property. In my opinion, there is no benefit to a landlord in going to the expense of a rent review clause drafted if there is any possibility the rent might not increase. To assume that merely because there is a rent review and an open market that the two combine to support an increase is a nonsense. At rent review to open market, a landlord is not in a position to insist upon an increase, nor is there is any justification for an increase merely because at the last rent review there was no increase. In a matter I was dealing with earlier this year, where my instructions were withdrawn despite the landlord concurring with my opinion that the rent would not increase, the fact that it takes time to procure an increase when none is justified seemed to be lost on the landlord. as far as the landlord was concerned merely because I advised no increase, but have a go, and the tenant's surveyor concurred with me did not mean the rent should not increase. You may think the landlord off his rocker but the failing is that the rent review clause to open market was drafted on the assumption that there would be evidence in the open market to support an increase.
Psychologically, the implication in 'upward-only' rent review is that the rent must increase and that if the landlord cannot procure what he wants through his own efforts a surveyor ought to be able to do better. Tough, it's not like that. Sometimes the rent that the parties could agree between themselves would be higher than if surveyors are involved. Hardly surprising therefore that landlords are keen on dissuading tenants from involving surveyors!
There are various types of rent review: fixed increases, percentage uplifts, formulaic reviews such as inflation-adjusted index-linked, ground rent reviews geared to open market rent, turnover rent review comprising a base figure plus a percentage of the turnover of the tenant's business, and open market reviews where the rent is assessed by reference to the open market. Turnover reviews are common in factory outlet centres and shopping malls that are owned by a single landlord; in isolation turnover reviews are for the private investor harder to administer, let alone finding a tenant who'd agree. (The turnover is before VAT: in case-law, a tenant got clobbered a while back through overlooking the impact of VAT on the wording of the review and was obliged to pay more rent when the VAT rate went up to 20%.) Fixed increases, common during the 1960s/1970s, are rare nowadays because the amount of increase requires a leap of faith at the onset. Formulaic reviews tend to be found with sale-and-leaseback and where investors are offered a certain or easily calculable income stream, akin to an annuity. Ground rent review is where the land is let, the tenant constructing the building in consideration for which the landlord gets a percentage of the rental value of the building.
Open market review is the most common. The principle is that the rent would be adjusted to the market rent assuming (hypothetically) the premises would be available to let in the open market at the review date or valuation date if different. For the hypothesis, there are matters to be assumed and disregarded and whatever is to be taken into account is to be found in the wording of the rent review clause. There are no set guidelines: it all depends upon what was agreed when the lease was granted and any related documentation. The interpretation the guidelines is another matter entirely which is why to assume literally whatever the review clause says can be a mistake.
For open market review, the rental valuation approach is evidence-oriented. There has to be evidence of a higher rent elsewhere for the rent of the premises under review to increase, either that or informed opinion. Informed opinion is not the same as working out what the actual tenant should be able to afford: that the tenant might be able to afford, for example, ten times more doesn't in itself mean that the rent should increase.
On grant of leases, there are two types of landlord. The landlord for whom the property has always been an investment, and the landlord that previously occupied the property for his own business but is selling up and simultaneously granting a new lease of the property to the buyer. Where the lease is being granted in conjunction with the sale of the business, it is common for the initial rent to be set by reference to what the business could afford. Where that rent is higher than the market rent, it is essential for the wording of the rent review to enable an increase, otherwise all that will happen is that the market rent would prevail. That does not matter if the market rent were higher than the initial rent but, all other factors remaining constant, often it's not. In such cases, the rent currently payable could result in over-renting in the context of the open market rent.
Frequently, I am consulted by landlords who, having granted a new lease in conjunction with sale of their business as a going concern, approach the rent review in the same way of thinking as with the initial rent. A well-advised tenant is likely to opposite any increase on that basis.
The landlord for whom the property has always been an investment will usually agree whatever rent the incoming tenant will agree to pay. Since that rent would normally be based on the asking rent, the agreed rent is likely to reflect the open market rent at the time, presupposing the terms and conditions of the lease reflect that rent.
Unlike the new letting where the landlord can bide his time waiting for an acceptable offer, the open market rent on review is at a fixed date, the valuation date which may or may not be the same as the review date depending upon what the lease says. Regardless of the type of landlord and how the initial rent was set, both become subject to the terminology of the open market rent on review, in particular the valuation basis.
In outline, the leases contains two leases: the lease and the hypothetical lease. The hypothetical lease only applies at rent review. The terms and conditions of the hypothetical lease can be the same as the lease or differ, that's a matter of drafting and approval when the lease was granted. Of the three methods of valuation, the contractor's or costs method, the profits test, and the comparable evidence, the latter is the most common. The profits test may not be admissible evidence: the information would have to be in the public domain and limited to the particular property, rather than the tenant's other interests. The contractor's method tends to be used for buildings that are rarely on the market and for which there is no evidence. The evidence method, based on comparable evidence, is the method in widespread use because the opinions that can cloud the contractor's and profits' method do not apply.
Evidence is what another tenant has agreed to pay for their property. The property may belong to the same of a different landlord. The weight that would be given to the evidence for use as comparable is likely to vary according to the facts and circumstances.
What happens if there's no evidence. The short answer is no increase. Does that make sense? Yes and no. Yes if you accept without question the valuation basis for the rent. No if you wonder why you should lose out just because there's no evidence.
Perhaps it has always been thus but in recent years I've noticed a trend towards reliance on evidence regardless. I suspect it's a product of tenant-resistance to increase. Tenants and surveyors are well aware of the need for evidence for justification. It may not be necessary to give reasons but in the event of dispute it is. In dispute, which is the parameter upon which all reviews are based even if referral were not initiated, the tenant's approach is to require the landlord to justify the proposed increase with supporting evidence. To the inexperienced landlord, it is wearing, often frustrating that the tenant will not play ball. Despite the lease stating the parties are to reach agreement, rarely if ever does the lease prescribe how agreement is to be reached. The landlords thinks the tenant can afford more, the tenant thinks why should he offer more. This is unyielding combat, a battle of wits.
Frequently, I am instructed to take over negotiations where the landlord having reached the end of his tether doesn't want to take the next step of referral but wants me to work wonders. To force the pace, the cost of referral is not a step to be taken lightly. One step at a time maybe but the starting price is £369 for referral to the RICS. After that, the minimum fee could be £500/£750 plus anything between £180 and £350 an hour plus VAT and disbursements merely to get the tenant to concede. Lining the pockets of third parties is not how it should be, but is the price of venturing into the property system.
The standard form of rent review clause to open market rent is rarely thought out in the context of the actual property. In my opinion, there is no benefit to a landlord in going to the expense of a rent review clause drafted if there is any possibility the rent might not increase. To assume that merely because there is a rent review and an open market that the two combine to support an increase is a nonsense. At rent review to open market, a landlord is not in a position to insist upon an increase, nor is there is any justification for an increase merely because at the last rent review there was no increase. In a matter I was dealing with earlier this year, where my instructions were withdrawn despite the landlord concurring with my opinion that the rent would not increase, the fact that it takes time to procure an increase when none is justified seemed to be lost on the landlord. as far as the landlord was concerned merely because I advised no increase, but have a go, and the tenant's surveyor concurred with me did not mean the rent should not increase. You may think the landlord off his rocker but the failing is that the rent review clause to open market was drafted on the assumption that there would be evidence in the open market to support an increase.
Psychologically, the implication in 'upward-only' rent review is that the rent must increase and that if the landlord cannot procure what he wants through his own efforts a surveyor ought to be able to do better. Tough, it's not like that. Sometimes the rent that the parties could agree between themselves would be higher than if surveyors are involved. Hardly surprising therefore that landlords are keen on dissuading tenants from involving surveyors!
Business Tenancy Law
A business tenancy is a commercial contract, which means the parties are deemed to know what they are doing. The terms and conditions that the parties agree before the lease is signed and completed are subject to a combination of legislation which may or may not be overriding, and the body of case law for the interpretation of actual wording and phrasing.
Business tenancy law comprises legislation (Acts of Parliament, including Orders and Regulations) and case law derived from court rulings on particular issues which in many instances set a precedent and constitute evidence in support of an opinion.
Case law is the set of existing rulings that have made new interpretations of law and can be cited as precedent. Legal principles are often enunciated and embodied in judicial decisions.
For the most part, the interpretation of the construction of the wording and phrasing in leases, including lease analysis, is based upon an understanding and appreciation of case law. In my computerised law library, I have details of thousands of cases, with information and articles from reputable sources. I also subscribe to leading on-line law resources.
Whether case-law is reported or unreported, it could be binding.
To quote Lord Denning, writing in the foreword to the microfiche edition of The Court of Appeal Transcripts 1951-1980:
… every decision of the Court of Appeal on a point of law is binding on all courts of first instance and on the Court of Appeal itself. No matter whether the decision is reported in the regular series of Law Reports, or is unreported, it is binding. Once you have the transcript of an unreported decision, you can cite it as of equal authority to a reported decision, so it behoves every counsel or solicitor to find, if he can, a case – reported or unreported – which will help him advise or win his case.
Generally, I find Clients are not that interested in the details of a particular case (unless, of course, it's a matter they themselves took to court). Of greater interest and much more importance is how a particular case could and might affect their own situation. With business tenancies, use of and reliable on precedent is not necessarily sacrosanct, because much may depend upon the particular circumstances or facts surrounding the case, and often each new situation has to be assessed on its merits. The interpretation of the construction of leases is fashionable. Literal interpretation may have given way to a presumption in favour of reality, but not necessarily in all instances.
Typical matters where I am consulted on the legal aspects include whether time is of the essence for a rent review, the validity of notices, the wording of Calderbank offers, how best to defeat landlord opposition to renewal of a tenancy, whether better to take a long term lease with a break clause or a short lease with an option to renew, how to obtain more than the statutory compensation on non-renewal, reducing service charges, the effect of the Competition Act on the permitted user clause. Negotiation for rent review, include dispute resolution procedure and lease renewal including expert witness reports is also heavily dependent upon case law.
Business tenancy law comprises legislation (Acts of Parliament, including Orders and Regulations) and case law derived from court rulings on particular issues which in many instances set a precedent and constitute evidence in support of an opinion.
Case law is the set of existing rulings that have made new interpretations of law and can be cited as precedent. Legal principles are often enunciated and embodied in judicial decisions.
For the most part, the interpretation of the construction of the wording and phrasing in leases, including lease analysis, is based upon an understanding and appreciation of case law. In my computerised law library, I have details of thousands of cases, with information and articles from reputable sources. I also subscribe to leading on-line law resources.
Whether case-law is reported or unreported, it could be binding.
To quote Lord Denning, writing in the foreword to the microfiche edition of The Court of Appeal Transcripts 1951-1980:
… every decision of the Court of Appeal on a point of law is binding on all courts of first instance and on the Court of Appeal itself. No matter whether the decision is reported in the regular series of Law Reports, or is unreported, it is binding. Once you have the transcript of an unreported decision, you can cite it as of equal authority to a reported decision, so it behoves every counsel or solicitor to find, if he can, a case – reported or unreported – which will help him advise or win his case.
Generally, I find Clients are not that interested in the details of a particular case (unless, of course, it's a matter they themselves took to court). Of greater interest and much more importance is how a particular case could and might affect their own situation. With business tenancies, use of and reliable on precedent is not necessarily sacrosanct, because much may depend upon the particular circumstances or facts surrounding the case, and often each new situation has to be assessed on its merits. The interpretation of the construction of leases is fashionable. Literal interpretation may have given way to a presumption in favour of reality, but not necessarily in all instances.
Typical matters where I am consulted on the legal aspects include whether time is of the essence for a rent review, the validity of notices, the wording of Calderbank offers, how best to defeat landlord opposition to renewal of a tenancy, whether better to take a long term lease with a break clause or a short lease with an option to renew, how to obtain more than the statutory compensation on non-renewal, reducing service charges, the effect of the Competition Act on the permitted user clause. Negotiation for rent review, include dispute resolution procedure and lease renewal including expert witness reports is also heavily dependent upon case law.
Upward only rent review
12May/2014 - LandlordZONE - Index-linked - Market Rent - Negotiation - Open Market Rent - Rent Review
Contrary to popular belief, ‘upward-only’ rent review does not mean the rent must increase. For further reading, please visit LandlordZone
Side-Letter
01January/2014 - Documents - Side Letter
Side-letters are informal agreements by landlords to alter provisions in leases by exchange of correspondence with the tenant and are usually entered into when the parties want to agree some concession or arrangement personal to one or both of the parties. For example, a rent deduction for a period of time, arrangements re building insurance.
Usually, a side-letter issued concurrently with the lease and given to the tenant at the outset is part of entire package and is binding on new landlords, even if new landlord had no knowledge of its existence.
[In System Floors Ltd v Ruralpride Ltd [1994], the Court of Appeal decided that a side letter passing from a landlord to a tenant, the benefit being expressed to be "personal to the tenant" but not "personal to the landlord" was binding on a buyer of the landlord's interest, even though the buyer knew nothing of the letter]
Usually, a side-letter issued concurrently with the lease and given to the tenant at the outset is part of entire package and is binding on new landlords, even if new landlord had no knowledge of its existence.
[In System Floors Ltd v Ruralpride Ltd [1994], the Court of Appeal decided that a side letter passing from a landlord to a tenant, the benefit being expressed to be "personal to the tenant" but not "personal to the landlord" was binding on a buyer of the landlord's interest, even though the buyer knew nothing of the letter]
Service Charge
01January/2014 - Service Charge - Sinking Fund
The idea of a service charge is that the landlord uses the amount of the charge to pay for the costs of repairing, maintaining and decorating all those other parts of the building and land over which the tenant has no legal right of occupation.
The charge is usually rendered in two parts: an interim charge payable in advance at the start of the service charge year, and a final or balancing charge payable in arrear at the end of the service charge year comprising all costs and expenses incurred by the landlord in fulfilling its obligations per the extent of the service charge in the lease.
Whether the service charge includes a sinking fund would depend upon whether there is provision for a sinking fund in the items that comprise the service charge. Often a service will including legal costs and fees payable to Managing Agents, and it may be that where the management is undertaken by the landlord himself, a management fee could be included.
In theory, there should be no profit element; in practice whether there is depends upon how careful the tenant is to ensure that the amount of the charge properly complies with the obligations that the service charge covers.
There is no statutory control of commercial property service charges so tenants cannot look to legislation to curb landlord excess. The only safeguard is the wording and phrasing of terms included in the service charge in the actual lease. Also, there is a voluntary code maintained by the RICS.
The service charge year may not tally with the commencement date of the term of the tenancy. Where a building is let to a number of tenants, it is probable that the service charge would be on-going regardless of the comings-and-goings of the various tenancies. In modern leases, a service charge payment is generally defined as rent; so as to enable the use of bailiffs to collect the charge in the event of tenant non-payment, rather than having to go to court to sue the tenant.
Generally, for a tenant, a service-charge is akin to signing a blank cheque in favour of the landlord, so is a source of friction.
The charge is usually rendered in two parts: an interim charge payable in advance at the start of the service charge year, and a final or balancing charge payable in arrear at the end of the service charge year comprising all costs and expenses incurred by the landlord in fulfilling its obligations per the extent of the service charge in the lease.
Whether the service charge includes a sinking fund would depend upon whether there is provision for a sinking fund in the items that comprise the service charge. Often a service will including legal costs and fees payable to Managing Agents, and it may be that where the management is undertaken by the landlord himself, a management fee could be included.
In theory, there should be no profit element; in practice whether there is depends upon how careful the tenant is to ensure that the amount of the charge properly complies with the obligations that the service charge covers.
There is no statutory control of commercial property service charges so tenants cannot look to legislation to curb landlord excess. The only safeguard is the wording and phrasing of terms included in the service charge in the actual lease. Also, there is a voluntary code maintained by the RICS.
The service charge year may not tally with the commencement date of the term of the tenancy. Where a building is let to a number of tenants, it is probable that the service charge would be on-going regardless of the comings-and-goings of the various tenancies. In modern leases, a service charge payment is generally defined as rent; so as to enable the use of bailiffs to collect the charge in the event of tenant non-payment, rather than having to go to court to sue the tenant.
Generally, for a tenant, a service-charge is akin to signing a blank cheque in favour of the landlord, so is a source of friction.
SDLT
SDLT:
SDLT (replaces Stamp Duty) may become payable when all or part of an interest in land or property is transferred from one person to another if anything of monetary value is given in exchange. Anything of monetary value that is given in exchange for the property is referred to as the 'consideration'. This can be cash or another type of payment. It can also include the value of any outstanding mortgage that the buyer takes over. SDLT may be charged on the consideration.
SDLT may also be payable on the purchase price/lease premium of commercial property. At present, the rate up to £150,000 (rent under £1000 pa), is zero; up to £150,000 (annual rent £1000 or more) rate is 1%, over £150,000 to £250,000, rate is 1%, over £250,000 to £500,000 rate is 3%, over £500,000 rate is 4%
With a new lease, SDLT may be payable either on the amount of the premium or the amount of any rent due (over the term of the lease). Generally, on grant of lease, the tenant pays the SDLT. However, the effect of the amount of SDLT may figure in the negotiations.
Tax relief for capital allowances - plant and machinery, including landlord’s fixtures and fittings - requires specialist advice.
VAT:
Land and buildings, such as freehold sales, leasing or renting, are normally exempt from Value Added Tax (VAT). (For VAT purposes, the definition of “land” includes buildings.)
It is possible to opt to tax a commercial property for VAT, in which case VAT would be added to the rent(s) and any VAT on allowable management expenses reclaimable.
It is not compulsory to opt to tax a commercial property for VAT, but if you do then you would have to keep proper accounting records to satisfy compliance with HMRC. Once registered, it is only possible to deregister after you have owned the property for at least 20 years. If you sell the property then the buyer can deregister if he wants.
Regardless of any VAT registration threshold (based on turnover), some types businesses are unable to recover part or all VAT on their business expenditure: for example, banks, betting offices, funeral directors. If you have a property let to a bank, it is generally better to not opt to tax the property because the tenant would otherwise not be able to recover all the VAT, which means the property would be more expensive to lease.
Residential property is normally exempt from VAT so if for example there is a flat above the shop but the whole of the property is let to the shop tenant then the landlord would have to apportion the amount of rent attributable to the flat and not charge VAT on that amount.
You can find out more about opting to tax land and buildings by visiting HMRC website
SDLT (replaces Stamp Duty) may become payable when all or part of an interest in land or property is transferred from one person to another if anything of monetary value is given in exchange. Anything of monetary value that is given in exchange for the property is referred to as the 'consideration'. This can be cash or another type of payment. It can also include the value of any outstanding mortgage that the buyer takes over. SDLT may be charged on the consideration.
SDLT may also be payable on the purchase price/lease premium of commercial property. At present, the rate up to £150,000 (rent under £1000 pa), is zero; up to £150,000 (annual rent £1000 or more) rate is 1%, over £150,000 to £250,000, rate is 1%, over £250,000 to £500,000 rate is 3%, over £500,000 rate is 4%
With a new lease, SDLT may be payable either on the amount of the premium or the amount of any rent due (over the term of the lease). Generally, on grant of lease, the tenant pays the SDLT. However, the effect of the amount of SDLT may figure in the negotiations.
Tax relief for capital allowances - plant and machinery, including landlord’s fixtures and fittings - requires specialist advice.
VAT:
Land and buildings, such as freehold sales, leasing or renting, are normally exempt from Value Added Tax (VAT). (For VAT purposes, the definition of “land” includes buildings.)
It is possible to opt to tax a commercial property for VAT, in which case VAT would be added to the rent(s) and any VAT on allowable management expenses reclaimable.
It is not compulsory to opt to tax a commercial property for VAT, but if you do then you would have to keep proper accounting records to satisfy compliance with HMRC. Once registered, it is only possible to deregister after you have owned the property for at least 20 years. If you sell the property then the buyer can deregister if he wants.
Regardless of any VAT registration threshold (based on turnover), some types businesses are unable to recover part or all VAT on their business expenditure: for example, banks, betting offices, funeral directors. If you have a property let to a bank, it is generally better to not opt to tax the property because the tenant would otherwise not be able to recover all the VAT, which means the property would be more expensive to lease.
Residential property is normally exempt from VAT so if for example there is a flat above the shop but the whole of the property is let to the shop tenant then the landlord would have to apportion the amount of rent attributable to the flat and not charge VAT on that amount.
You can find out more about opting to tax land and buildings by visiting HMRC website
Rent Deposit
A rent deposit is a sum of money that is provided by the tenant to the landlord as security for payment of the rent and other moneys per the covenants in the lease. The rent deposit deed records the circumstances in which the landlord can draw against this money and the conditions that must be satisfied for the deposit to be repaid to the tenant. The rent deposit deed is generally made between landlord and tenant only. Occasionally a guarantor may join in the deed
A rent deposit is attractive to landlords because it is an immediately accessible source of money that can be withdrawn as soon as the tenant is in breach of a relevant covenant in the lease. There is no need to take legal proceedings to recover the debt or secure performance of the obligation.
The amount of deposit can vary depending upon the circumstances, but is commonly equivalent to at least 3 months or 6 months rent. There are three types of structure for rent deposits:
1) the charge - a deposit is held in a separate account and is charged by the tenant to the landlord, and the account is usually administered by the landlord or its agent. Provided the charge has been registered at Companies House within 21 days of its creation, the landlord has security the landlord has security upon the tenant's insolvency, but the landlord cannot withdraw from the account without leave of the court if the tenant is in administration. The tenant is protected from the landlord's insolvency as the money remains the tenant’s property.
2) the trust - the deposit is paid to the landlord who agrees to hold the deposit on trust for the tenant. The tenant is usually protected if the landlord becomes insolvent, but the deposit must be paid into a separate identifiable account.
3) landlord's property - the deposit is paid over to the landlord and becomes the landlord's property to be held in an account with other monies, typically to be used for certain purposes and expressed to be repayable in certain circumstances. A rent deposit does not belong to the landlord, but remains the property of the tenant and can only be used by the landlord in the event of tenant’s default per the terms of the rent deposit deed. (Consequently, well-advised tenants will want to avoid this kind of deposit arrangement because it is vulnerable to landlord insolvency so could be used to pay the landlord’s other creditors.)
The deposit amount may be free of interest so not necessarily held in an interest-bearing account. Where interest is paid, the amount of interest would accrue to the principal and (depending upon what is agreed) either not repaid to the tenant until ending of the deposit arrangement or whenever the amount of interest that is accumulated exceeds an administrative realistic sum.
The terms and conditions for the deposit are normally recorded in a separate deed, the costs of which would be borne by the tenant, the costs should include administration of the deed. Generally, the deposit would be refundable either after a period of time, perhaps 3 years, or assignment or termination of the tenancy.
Since the object of a rent deposit is to protect the landlord in the event of tenant non-payment of rent and other monies properly payable under the lease, there is often a condition in the deposit deed that in the event the landlord needs to use the deposit the tenant would top-up the deposit to its full (original) amount. Similarly, since the amount of deposit at the onset would normally be related to the initial or passing rent payable, (such as 3 or 6 months’ rent) there is often a requirement for the tenant to top up the amount of deposit within a specified period to take account of any increase in rent at review so as to maintain that rental relationship.
Whether the amount of deposit would be topped up following increase in rent at review depends upon the landlord’s memory and the tenant’s conscientiousness. Often the requirement is overlooked: in any event since tenants normally only part with capital when required to, and may not have the money to spare later, it may be too much to expect voluntary compliance with the terms of the deposit deed.
A rent deposit may be obtained either on a new letting or from the (proposed) assignee on assignment of an existing tenancy. Interestingly, where the outgoing tenant, on assignment, completes an Authorised Guarantee Agreement (AGA), rarely is there any requirement in the terms of the AGA for the outgoing tenant to deposit any funds in connection with the AGA.
A rent deposit is attractive to landlords because it is an immediately accessible source of money that can be withdrawn as soon as the tenant is in breach of a relevant covenant in the lease. There is no need to take legal proceedings to recover the debt or secure performance of the obligation.
The amount of deposit can vary depending upon the circumstances, but is commonly equivalent to at least 3 months or 6 months rent. There are three types of structure for rent deposits:
1) the charge - a deposit is held in a separate account and is charged by the tenant to the landlord, and the account is usually administered by the landlord or its agent. Provided the charge has been registered at Companies House within 21 days of its creation, the landlord has security the landlord has security upon the tenant's insolvency, but the landlord cannot withdraw from the account without leave of the court if the tenant is in administration. The tenant is protected from the landlord's insolvency as the money remains the tenant’s property.
2) the trust - the deposit is paid to the landlord who agrees to hold the deposit on trust for the tenant. The tenant is usually protected if the landlord becomes insolvent, but the deposit must be paid into a separate identifiable account.
3) landlord's property - the deposit is paid over to the landlord and becomes the landlord's property to be held in an account with other monies, typically to be used for certain purposes and expressed to be repayable in certain circumstances. A rent deposit does not belong to the landlord, but remains the property of the tenant and can only be used by the landlord in the event of tenant’s default per the terms of the rent deposit deed. (Consequently, well-advised tenants will want to avoid this kind of deposit arrangement because it is vulnerable to landlord insolvency so could be used to pay the landlord’s other creditors.)
The deposit amount may be free of interest so not necessarily held in an interest-bearing account. Where interest is paid, the amount of interest would accrue to the principal and (depending upon what is agreed) either not repaid to the tenant until ending of the deposit arrangement or whenever the amount of interest that is accumulated exceeds an administrative realistic sum.
The terms and conditions for the deposit are normally recorded in a separate deed, the costs of which would be borne by the tenant, the costs should include administration of the deed. Generally, the deposit would be refundable either after a period of time, perhaps 3 years, or assignment or termination of the tenancy.
Since the object of a rent deposit is to protect the landlord in the event of tenant non-payment of rent and other monies properly payable under the lease, there is often a condition in the deposit deed that in the event the landlord needs to use the deposit the tenant would top-up the deposit to its full (original) amount. Similarly, since the amount of deposit at the onset would normally be related to the initial or passing rent payable, (such as 3 or 6 months’ rent) there is often a requirement for the tenant to top up the amount of deposit within a specified period to take account of any increase in rent at review so as to maintain that rental relationship.
Whether the amount of deposit would be topped up following increase in rent at review depends upon the landlord’s memory and the tenant’s conscientiousness. Often the requirement is overlooked: in any event since tenants normally only part with capital when required to, and may not have the money to spare later, it may be too much to expect voluntary compliance with the terms of the deposit deed.
A rent deposit may be obtained either on a new letting or from the (proposed) assignee on assignment of an existing tenancy. Interestingly, where the outgoing tenant, on assignment, completes an Authorised Guarantee Agreement (AGA), rarely is there any requirement in the terms of the AGA for the outgoing tenant to deposit any funds in connection with the AGA.
Rent
Rent is a system of payment for the temporary use of something owned by someone else; the payments for such use are typically referred to as "rent".
In the open market, rent is a product; it does not occur naturally, as in, ‘this is the rent for the premises’. To value rent, all the terms and conditions of the tenancy must be known, stated in advance or defined. However, because the rent at a new letting is often agreed before the lease is drafted and/or approved, it is possible for a completed lease to contain terms and conditions that could produce a different rent to what was agreed. The test of efficacy is whether the rent would be identical if there were a rent review on the same date as the term commencement.
Whether the parties agree the rent and other outline terms between themselves, or with the help of surveyors, the precise wording and phrasing of the terms and conditions is not generally discussed and agreed before lawyers are instructed.
Sometimes, with a new letting, a draft lease will be available beforehand upon which the tenant’s rental offer would be based. On renewal involving LTA54 a draft lease for uncontentious matters would normally be agreed integral to proceedings, the amount of rent and other contentious items to be agreed thereafter or left blank pending court order. Even so, because there are cost consequences the parties are unlikely to want their lawyers to engage in detailed negotiations for finalising the renewal lease before the main terms are agreed in principle. It is only usually when the matter is actually likely to end up in court that it makes sense for the parties’ surveyors to delay the question of rent and other main terms until a draft lease has been finalised. Either that, or for each agreed item to be incorporated in the draft lease, with the other matters checked to ensure no conflict between what has been agreed previously and each new item.
In the open market, rent is a product; it does not occur naturally, as in, ‘this is the rent for the premises’. To value rent, all the terms and conditions of the tenancy must be known, stated in advance or defined. However, because the rent at a new letting is often agreed before the lease is drafted and/or approved, it is possible for a completed lease to contain terms and conditions that could produce a different rent to what was agreed. The test of efficacy is whether the rent would be identical if there were a rent review on the same date as the term commencement.
Whether the parties agree the rent and other outline terms between themselves, or with the help of surveyors, the precise wording and phrasing of the terms and conditions is not generally discussed and agreed before lawyers are instructed.
Sometimes, with a new letting, a draft lease will be available beforehand upon which the tenant’s rental offer would be based. On renewal involving LTA54 a draft lease for uncontentious matters would normally be agreed integral to proceedings, the amount of rent and other contentious items to be agreed thereafter or left blank pending court order. Even so, because there are cost consequences the parties are unlikely to want their lawyers to engage in detailed negotiations for finalising the renewal lease before the main terms are agreed in principle. It is only usually when the matter is actually likely to end up in court that it makes sense for the parties’ surveyors to delay the question of rent and other main terms until a draft lease has been finalised. Either that, or for each agreed item to be incorporated in the draft lease, with the other matters checked to ensure no conflict between what has been agreed previously and each new item.
Real Estate
The definition of 'property' encompasses more than just real property, also known as real estate, but in British usage, "real property", often shortened to "property", generally refers to land, buildings and fixtures, while the term "real estate" is used mostly in the context of probate law, (and means all interests in land held by a deceased person at death, excluding interests in money arising under a trust for sale of or charged on land.) In some situations, the correct use of the terminology is important, but for ease of understanding popular usage prevails; hence whenever I use the word property' and unless otherwise stated please assume I'm talking about land, buildings and fixtures.
Quiet Enjoyment
01January/2014 - Quiet Enjoyment
A lease of either residential or commercial premises will usually contain an express covenant for quiet enjoyment and, if no such covenant is present in the lease, one will be implied. The covenant for quiet enjoyment is, in essence, an assurance against interruption in possession of the demised premises.
Property Market (Real Estate)
The property market, sometimes known as "real estate”, comprises the human-made surroundings that provide the setting for human activity, ranging from individual buildings, to villages, towns and cities with supporting infrastructure.
Property is product that is constructed of human-made and/or natural materials: for example, stone, clay, brick, slate, timber, steel, plastic, etc. Building construction disciplines include architecture, civil engineering, building contracting, surveying, energy performance advisers, interior designers and so on. For purpose of this website, the definition of property includes undeveloped land and parts of the building.
A property can last for years - built in the 1130s the Manor at Hemingford Grey is one of the oldest continuously inhabited houses in Britain and much of the original house remains intact; in Herefordshire, Hellens Manor was granted in 1096 and is a living monument to much of England's history - but whilst there are many ancient properties around the country still standing and in regular use, the notable building booms include the Tudor period (1485-1603) (on vast tracts of land following dissolution of the monasteries); Elizabethan (1533-1603) (early Renaissance); Georgian (1720-1840); Regency early-19th century; Victorian (1827-1901) with expansion brought about by the Industrial Revolution, railway network, trams; Edwardian (1901-1918), and particularly in Greater London and provincial cities, during the 1930s, 1950s, 1970s-2000s, and the present day.
The individual character and street-scape of cities, towns and villages is personified by the dominant architectural styles and age of their properties. There is also sometimes a marked difference between the public sector and private sector properties, particularly in residential property. During the 1920s and 1930s, the demolition of old 'slum' properties and the moving of tenants onto new Council estates led to the construction of large tower blocks of flats for social housing. The development and expansion of towns and cities is reflected in the story of shopping throughout the ages.
The main attraction of the UK property market, particularly for overseas investors, is its organisation, sophistication and transparency: the choice of property available, the supply of buyers and the legal and property valuation system; also the UK is well served by domestic and international banks, creating a competitive environment for funding.
Although many reputable organisations carry out research into the state of the property market at any time, in fact there is no single property market as such. Since property is an illiquid asset, the market value of each property depends upon much the actual buyer would pay and saleability upon finding one buyer to become the legal owner (albeit the actual buyer is not necessarily just one person or entity). So, when you invest in the property market, it is wrong to try to assess the direction of the market as a whole, there is no level playing-field: property is not homogeneous, everything that can be known about a particular property is not necessarily available, all buyers and sellers do not have complete information on the prices being asked and offered in other parts of the market, barriers to entry or leaving are restricted.
The property market is not a ‘perfect’ market, and that is just as well, because the purpose of a perfect market is not to make profits, but to efficiently allocate resources. In a perfect market, profit is a sign of inefficiency, whereas in an imperfect market, profit arises in direct proportion to the imperfections. In a perfect market, there is a large number of buyers, a large number of sellers, the quantity bought by any individual so small relative to the total quantity traded that individual trades leave the market unaffected; the product is homogeneous (the same property for all buyers and sellers), all buyers and sellers have complete information on the prices being asked and offered in other parts of the market; and there is perfect freedom of entry to and exit from the market.
Although property transactions are independent of one another, the legislation, rules, regulations and the interpretation of transactions between owners/vendors (sellers), purchasers (buyers), landlord and tenants, and mortgagees, comes under property law, an area of law that governs the various forms of ownership in real property (land and immoveable property).
Property is product that is constructed of human-made and/or natural materials: for example, stone, clay, brick, slate, timber, steel, plastic, etc. Building construction disciplines include architecture, civil engineering, building contracting, surveying, energy performance advisers, interior designers and so on. For purpose of this website, the definition of property includes undeveloped land and parts of the building.
A property can last for years - built in the 1130s the Manor at Hemingford Grey is one of the oldest continuously inhabited houses in Britain and much of the original house remains intact; in Herefordshire, Hellens Manor was granted in 1096 and is a living monument to much of England's history - but whilst there are many ancient properties around the country still standing and in regular use, the notable building booms include the Tudor period (1485-1603) (on vast tracts of land following dissolution of the monasteries); Elizabethan (1533-1603) (early Renaissance); Georgian (1720-1840); Regency early-19th century; Victorian (1827-1901) with expansion brought about by the Industrial Revolution, railway network, trams; Edwardian (1901-1918), and particularly in Greater London and provincial cities, during the 1930s, 1950s, 1970s-2000s, and the present day.
The individual character and street-scape of cities, towns and villages is personified by the dominant architectural styles and age of their properties. There is also sometimes a marked difference between the public sector and private sector properties, particularly in residential property. During the 1920s and 1930s, the demolition of old 'slum' properties and the moving of tenants onto new Council estates led to the construction of large tower blocks of flats for social housing. The development and expansion of towns and cities is reflected in the story of shopping throughout the ages.
The main attraction of the UK property market, particularly for overseas investors, is its organisation, sophistication and transparency: the choice of property available, the supply of buyers and the legal and property valuation system; also the UK is well served by domestic and international banks, creating a competitive environment for funding.
Although many reputable organisations carry out research into the state of the property market at any time, in fact there is no single property market as such. Since property is an illiquid asset, the market value of each property depends upon much the actual buyer would pay and saleability upon finding one buyer to become the legal owner (albeit the actual buyer is not necessarily just one person or entity). So, when you invest in the property market, it is wrong to try to assess the direction of the market as a whole, there is no level playing-field: property is not homogeneous, everything that can be known about a particular property is not necessarily available, all buyers and sellers do not have complete information on the prices being asked and offered in other parts of the market, barriers to entry or leaving are restricted.
The property market is not a ‘perfect’ market, and that is just as well, because the purpose of a perfect market is not to make profits, but to efficiently allocate resources. In a perfect market, profit is a sign of inefficiency, whereas in an imperfect market, profit arises in direct proportion to the imperfections. In a perfect market, there is a large number of buyers, a large number of sellers, the quantity bought by any individual so small relative to the total quantity traded that individual trades leave the market unaffected; the product is homogeneous (the same property for all buyers and sellers), all buyers and sellers have complete information on the prices being asked and offered in other parts of the market; and there is perfect freedom of entry to and exit from the market.
Although property transactions are independent of one another, the legislation, rules, regulations and the interpretation of transactions between owners/vendors (sellers), purchasers (buyers), landlord and tenants, and mortgagees, comes under property law, an area of law that governs the various forms of ownership in real property (land and immoveable property).
Presumption of Reality
It has long been recognised that too literal an approach is to be avoided in the interpretation of contracts.
The reason for that was explained thus by Lord Reid in Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235: "No doubt some words used by lawyers do have a rigid inflexible meaning. But we must remember that we are seeking to discover intention as disclosed by the contract as a whole … The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result, the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear."
On the same theme, in Antaios Compania Naviera SA v Salen Rederierna AB (“The Antaios”) [1985] AC 191, Lord Diplock famously stated that:"… if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense."
The ways in which the process of interpretation can be made to accommodate such common sense have varied, with the battle lines being drawn between (a) those judges who are reluctant to allow the business common-sense of the contract to cause them to depart from the natural meaning of the words used; (b) those who strain the meaning of words in order to arrive at what they consider to be a commercial outcome that best expresses the perceived intention of the parties while avoiding absurdity; and (c) those who feel able to disregard or even rewrite the parties’ words to achieve the same effect.
In Westpac Banking Corporation v Tanzone Pty (2000) , the New South Wales Court of Appeal held that, literally construed, an indexation provision in a rent review clause produced such dramatic cumulative increases as to amount to an absurd result, and was able to construe the clause by reading in words that must have been accidentally omitted. In other cases, although it may be possible to detect absurdity, it may be less easy to divine what the parties must have intended their bargain to be instead.
The reason for that was explained thus by Lord Reid in Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235: "No doubt some words used by lawyers do have a rigid inflexible meaning. But we must remember that we are seeking to discover intention as disclosed by the contract as a whole … The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result, the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear."
On the same theme, in Antaios Compania Naviera SA v Salen Rederierna AB (“The Antaios”) [1985] AC 191, Lord Diplock famously stated that:"… if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense."
The ways in which the process of interpretation can be made to accommodate such common sense have varied, with the battle lines being drawn between (a) those judges who are reluctant to allow the business common-sense of the contract to cause them to depart from the natural meaning of the words used; (b) those who strain the meaning of words in order to arrive at what they consider to be a commercial outcome that best expresses the perceived intention of the parties while avoiding absurdity; and (c) those who feel able to disregard or even rewrite the parties’ words to achieve the same effect.
In Westpac Banking Corporation v Tanzone Pty (2000) , the New South Wales Court of Appeal held that, literally construed, an indexation provision in a rent review clause produced such dramatic cumulative increases as to amount to an absurd result, and was able to construe the clause by reading in words that must have been accidentally omitted. In other cases, although it may be possible to detect absurdity, it may be less easy to divine what the parties must have intended their bargain to be instead.
Planning Permission
01January/2014 - Planning Permission - Town Planning
Town planning is a function of Central and Local Government and is a democratic process. Since 1948, planning permission has been required for all new development. The person wanting permission makes an application to the appropriate planning authority, the application is publicised, and interested parties notified and objections invited during the consultation period. The planning officer makes a recommendation to the planning committee which decides whether to grant the permission. Having obtained permission, the applicant does not have to implement the permission, but the life of a permission normally expires after 3 years. If the application were refused then the applicant may appeal, in which case the matter would be considered by the Planning Inspectorate for England and Wales, an executive agency of the Department for Communities and Local Government, under the auspices of the Secretary of State.
A planning permission attaches to the property and does not belong to the applicant personally, although the applicant may be the only person able to comply with any conditions attached, or to implement the permission. Anyone can make a planning application and they do not have to be the legal owner of the property.
Whether a property can be used as a shop, office, factory, warehouse, or for any other type of business depends on the planning permission.
In England and Wales, the legislation governing planning use is the Town and Country Planning (Use Classes) (Order 1987. [Applicable in England only is the Town and Country Planning (Use Classes) (Amendment) (England( (Order 2005) which redefined Use Class A3 as A3, A4 and A5] Some uses are considered to be sui generis, which means they are outside the existing uses classes.
The default Use Class for shop property is A1, but the type of business carried out by the occupant at the premises will determine the required use for planning purposes. For example, banks, financial services, and betting offices are Class A2 users, restaurants, cafes, take-away hot food come under Classes A3 and A5.
County Councils will have a Core Strategy Plan (or similar) that is updated every 10 years or so. For each town in the county, shopping areas are defined and there may be a quota of permitted uses. Generally, planning authorities oppose the loss of local shopping facilities (A1 use), even if there could be more demand from other use class businesses. Since planning permission for some uses can be more difficult or impossible to obtain, the existence of or potential for that use can enhance the value of the property. Also, the permitted use in the lease might include uses which would justify a greater rent, even though the tenant might not want to use the property for that particular use.
As well as planning permission obtained or on appeal, the actual use of the property may be established use. An established use is a use that has been in continuing existence for a long period of time (at least 4 years and up 10 years depending upon the use) and the right to obtain a "certificate of lawfulness of existing use or development" is not something the planning authority can oppose, but the applicant must be able to prove conclusively the established use.
Certain types of development are excluded from the definition of development, such as routine building maintenance and repair. Many categories of minor development are classified by law as permitted development and that grants an automatic planning permission, rather than requiring any specific application.
A planning permission attaches to the property and does not belong to the applicant personally, although the applicant may be the only person able to comply with any conditions attached, or to implement the permission. Anyone can make a planning application and they do not have to be the legal owner of the property.
Whether a property can be used as a shop, office, factory, warehouse, or for any other type of business depends on the planning permission.
In England and Wales, the legislation governing planning use is the Town and Country Planning (Use Classes) (Order 1987. [Applicable in England only is the Town and Country Planning (Use Classes) (Amendment) (England( (Order 2005) which redefined Use Class A3 as A3, A4 and A5] Some uses are considered to be sui generis, which means they are outside the existing uses classes.
The default Use Class for shop property is A1, but the type of business carried out by the occupant at the premises will determine the required use for planning purposes. For example, banks, financial services, and betting offices are Class A2 users, restaurants, cafes, take-away hot food come under Classes A3 and A5.
County Councils will have a Core Strategy Plan (or similar) that is updated every 10 years or so. For each town in the county, shopping areas are defined and there may be a quota of permitted uses. Generally, planning authorities oppose the loss of local shopping facilities (A1 use), even if there could be more demand from other use class businesses. Since planning permission for some uses can be more difficult or impossible to obtain, the existence of or potential for that use can enhance the value of the property. Also, the permitted use in the lease might include uses which would justify a greater rent, even though the tenant might not want to use the property for that particular use.
As well as planning permission obtained or on appeal, the actual use of the property may be established use. An established use is a use that has been in continuing existence for a long period of time (at least 4 years and up 10 years depending upon the use) and the right to obtain a "certificate of lawfulness of existing use or development" is not something the planning authority can oppose, but the applicant must be able to prove conclusively the established use.
Certain types of development are excluded from the definition of development, such as routine building maintenance and repair. Many categories of minor development are classified by law as permitted development and that grants an automatic planning permission, rather than requiring any specific application.
Periodic Tenancy
A periodic tenancy - also known as a tenancy from year to year, month to month, or week to week - is a tenancy that exists for some period of time determined by the term of the payment of rent. Periodic tenancies may qualify for renewal rights under Landlord and Tenant Act 1954, particularly where the landlord has demanded and accepted rent for at least 12 months after the expiry of a contractual tenancy.
Open Market
The open market is made up of different ‘afford-abilities’, so, in linking the review to “open market rent” (OMR) ‘open’ means everyone and anyone (A).
As indicative or comparable evidence, a new letting to an inexperienced first-time tenant at a rent that might amaze is as valid as any hard-driven bargain by a multiple retailer with hundreds of branches. So, since rents in the open market are unregulated, any tenant committing to a review to OMR is exposing its business to all manner of risks beyond its control (a situation that can strain compliance with the Turnbull report on internal control and risk management, to safeguard shareholders' investment and the company's assets). That is the nature of the system; and when tenants choose to agree to a rent review to the open market rent it is implicit the tenant is agreeing to the underlying purpose and overriding objective: namely to enable the landlord to obtain the open market rent at the valuation date per terms of the tenancy, not for the tenant to expect to pay any less.
Similarly, since, in the open market, different landlords are likely to have different investment performance strategies, risks also apply to the landlord’s investment. Hence, the only way the actual landlord and actual tenant can have any control over the direction of the rental relationship is by recording their requirements in the lease, per the rent review guidelines.
Hoffmann LJ commented on the concept of the open market in a capital transfer tax case, IRC v Gray [1994] STC 360:
"It cannot be too strongly emphasised that although the sale is hypothetical, there is nothing hypothetical about the open market in which it is supposed to have taken place. The concept of the open market involves assuming that the whole world was free to bid, and then forming a view about what in those circumstances would in real life have been the best price reasonably obtainable …"
As indicative or comparable evidence, a new letting to an inexperienced first-time tenant at a rent that might amaze is as valid as any hard-driven bargain by a multiple retailer with hundreds of branches. So, since rents in the open market are unregulated, any tenant committing to a review to OMR is exposing its business to all manner of risks beyond its control (a situation that can strain compliance with the Turnbull report on internal control and risk management, to safeguard shareholders' investment and the company's assets). That is the nature of the system; and when tenants choose to agree to a rent review to the open market rent it is implicit the tenant is agreeing to the underlying purpose and overriding objective: namely to enable the landlord to obtain the open market rent at the valuation date per terms of the tenancy, not for the tenant to expect to pay any less.
Similarly, since, in the open market, different landlords are likely to have different investment performance strategies, risks also apply to the landlord’s investment. Hence, the only way the actual landlord and actual tenant can have any control over the direction of the rental relationship is by recording their requirements in the lease, per the rent review guidelines.
Hoffmann LJ commented on the concept of the open market in a capital transfer tax case, IRC v Gray [1994] STC 360:
"It cannot be too strongly emphasised that although the sale is hypothetical, there is nothing hypothetical about the open market in which it is supposed to have taken place. The concept of the open market involves assuming that the whole world was free to bid, and then forming a view about what in those circumstances would in real life have been the best price reasonably obtainable …"