The Rent Review Specialist
The Commercial Rent (Coronavirus) Act 2022
27/09/2023
Acting for Mark & Sons Ltd, the Freeholder-Landlord of a public house in London SW19, I have helped achieve its objective for the rent payable for the protected rent debt period defined by The Commercial Rent (Coronavirus) Act 2022. This Act has a short life for the dispute procedure. Application for arbitration had to be made between 25 March 2022 and 24 September 2022. Unusually for arbitration, which is usually private, the award is published on the accredited body’s website, in this case, the RICS
https://www.rics.org/dispute-resolution-service/drs-services/covid-rent-arrears-arbitration
(Gouldbourn 3 - 13/07/2023 (PDF 0.20MB).
The Arbitrator was Simon Gouldbourn BSc MRICS ACIArb of KLM Real Estate, London W1.
Unusually, (the Act permits otherwise), commercially sensitive information is not excluded. If you are interested in reading the award, then you may do so.
https://www.rics.org/dispute-resolution-service/drs-services/covid-rent-arrears-arbitration
(Gouldbourn 3 - 13/07/2023 (PDF 0.20MB).
The Arbitrator was Simon Gouldbourn BSc MRICS ACIArb of KLM Real Estate, London W1.
Unusually, (the Act permits otherwise), commercially sensitive information is not excluded. If you are interested in reading the award, then you may do so.
The Commercial Rent (Coronavirus) Act 2022
28/03/2023
Acting for Yellowdice Limited, the Tenant of a nightclub in London SE11, I have helped achieve its objective for the rent payable for the protected rent debt period defined by The Commercial Rent (Coronavirus) Act 2022. This Act has a short life so far as the dispute procedure is concerned. Application for arbitration had to be made between 25 March 2022 and 24 September 2022. Unusually for arbitration, which is usually private, the award is published on the accredited body’s website, in this case, the Consumer Code for Online Dispute Resolution (CCODR) - https://www.ccodr.com/crcas-awards. If you are interested in reading the award, then you may do so. Still, likely, it won’t tell you anything because, under the Act, commercially sensitive information can be excluded from the Award, as has been done in this case.
Affordability - the big issue
17/11/2016
When a business tenant says they cannot afford more rent, often it’s not a genuine claim. Or not for the right reason. For further reading please visit LandlordZone
Interesting Commercial Property
31/08/2016
Now that the Bank of England Base Rate is at 0.25%, any prospect in the foreseeable future of a rise in interest rates for savers is remote. It therefore pays to look at other interest-producing investments…For further reading, please visit LandlordZone.
Investing in Commercial Property - (1) for Income
18/09/2015
There are probably only three reasons for investing in commercial property, of which one does not apply to most landlords. The exception is…For further reading, please visit LandlordZone
Comparable Evidence
13/03/2015
Amongst the ways to agree or ascertain the (open) market rent at rent review or on renewal of a lease, (per s.34-s35 Landlord and Tenant Act 1954), is the use of comparable evidence. For further reading, please visit LandlordZone.
Rent and Inflation
11/01/2015
Whether landlord or tenant, it might be of interest to check whether the rent you are receiving or paying has kept pace with inflation, as measured by the Retail Price Index.
I have designed a calculator that calculates the percentage change in the RPI and the adjusted rent. It;'s a two stage calculation. You don't have to calculate the adjusted rent. The calculator is free of charge and may be found at Research>Retail Price Index {RPI)
I have designed a calculator that calculates the percentage change in the RPI and the adjusted rent. It;'s a two stage calculation. You don't have to calculate the adjusted rent. The calculator is free of charge and may be found at Research>Retail Price Index {RPI)
Open Market
01/01/2014
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 …"
Economical Rent
01/01/2014
In business tenancy law, the actual tenant’s ability to afford the rent at review is generally considered irrelevant. So, the actual tenant faces a dilemma, because - unless the review goes to ‘arbitration’ - the tenant must decide what rent to agree and no tenant will willingly agree more than they can afford. Since affordability is a big issue, solicitors acting for tenant-retailers can encounter difficulties in obtaining instructions when the client is at a loss to know what to do.
It is vital the tenant understands the review process. When premises are offered to let in the open market, as well as negotiating the best deal it can, a tenant will do one or both of two things. All tenants decide whether, on their projected figures, the rent would be affordable. The second thing, which is not something all tenants do, is to check whether the proposed rent is realistic, compared with what other tenants nearby pay for their premises. Ascertaining what others pay for their premises helps avoid a hike in the rental benchmark, which can happen if the transaction were cited as evidence for nearby reviews. With shop property, for example, the Zone A value could destabilise the cost of the trading position for those retailers whose established presence is one attraction of the position in the first place. Few tenants care about the wider long-term consequences of their business expansion plans and most are single-minded. Some deliberately pay top rents to ingratiate themselves with landlords, whilst others agree what they can afford at the time, expecting future rent reviews also to be based on affordability.
As soon as the lease is completed, affordability and business tenancy law part company. At rent review, it is assumed the actual tenant can afford, pro-rata, the same as everyone else, because the purpose of a review is to enable the landlord to receive the market rent. However, although each new letting reflects that particular tenant’s affordability, the profit margin and rate of stock-turn mean not all tenants can afford the same as everyone else. Furthermore - and this point is frequently overlooked - because rent is payable regardless of the profitability of the business, it is assumed the tenant is of independent means, even though most tenants rely entirely on business cash-flow.
Although retailers in trouble are managing to persuade landlords to accept rents paid monthly, a growing number of retailers that are not in any difficulty are expecting the same treatment.
Some landlords can afford to be accommodating, but many cannot. Landlords that themselves are borrowing money are likely to be paying their interest quarterly, so accepting rents monthly from the tenant will mean the landlord subsidising the tenant.
In any event, such an arrangement, where it is a departure from the terms and conditions of the lease, should only be temporary, and subject to notice to end the arrangement if the landlord should so desire. Landlords should also put the agreement in writing, in a side-letter with the lease, setting out clearly the terms and conditions of the arrangement.
To avoid problems should the landlord want to sell the investment, the arrangement should be personal to the tenant and landlord and non-transferable.
In my opinion, the investment value of a property where the tenant is being allowed to pay monthly could well be lower than where payments are quarterly.
It is vital the tenant understands the review process. When premises are offered to let in the open market, as well as negotiating the best deal it can, a tenant will do one or both of two things. All tenants decide whether, on their projected figures, the rent would be affordable. The second thing, which is not something all tenants do, is to check whether the proposed rent is realistic, compared with what other tenants nearby pay for their premises. Ascertaining what others pay for their premises helps avoid a hike in the rental benchmark, which can happen if the transaction were cited as evidence for nearby reviews. With shop property, for example, the Zone A value could destabilise the cost of the trading position for those retailers whose established presence is one attraction of the position in the first place. Few tenants care about the wider long-term consequences of their business expansion plans and most are single-minded. Some deliberately pay top rents to ingratiate themselves with landlords, whilst others agree what they can afford at the time, expecting future rent reviews also to be based on affordability.
As soon as the lease is completed, affordability and business tenancy law part company. At rent review, it is assumed the actual tenant can afford, pro-rata, the same as everyone else, because the purpose of a review is to enable the landlord to receive the market rent. However, although each new letting reflects that particular tenant’s affordability, the profit margin and rate of stock-turn mean not all tenants can afford the same as everyone else. Furthermore - and this point is frequently overlooked - because rent is payable regardless of the profitability of the business, it is assumed the tenant is of independent means, even though most tenants rely entirely on business cash-flow.
Although retailers in trouble are managing to persuade landlords to accept rents paid monthly, a growing number of retailers that are not in any difficulty are expecting the same treatment.
Some landlords can afford to be accommodating, but many cannot. Landlords that themselves are borrowing money are likely to be paying their interest quarterly, so accepting rents monthly from the tenant will mean the landlord subsidising the tenant.
In any event, such an arrangement, where it is a departure from the terms and conditions of the lease, should only be temporary, and subject to notice to end the arrangement if the landlord should so desire. Landlords should also put the agreement in writing, in a side-letter with the lease, setting out clearly the terms and conditions of the arrangement.
To avoid problems should the landlord want to sell the investment, the arrangement should be personal to the tenant and landlord and non-transferable.
In my opinion, the investment value of a property where the tenant is being allowed to pay monthly could well be lower than where payments are quarterly.