The Rent Review Specialist
Index-linked - CPI
The Consumer Price Index (CPI) is the official measure of inflation of consumer prices of the United Kingdom.
“The CPI calculates the average price increase as a percentage for a basket of 700 different goods and services. Around the middle of each month it collects information on prices of these commodities from 120,000 different retailing outlets. Note that unlike the RPI, the CPI takes the geometric mean of prices to aggregate items at the lowest levels, instead of the arithmetic mean. This means that the CPI will generally be lower than the RPI. The rationale is that this accounts for the fact that consumers will buy less of something if its price goes up, and more if its price goes down; it also ensures that if prices go up and then revert to the previous level, the CPI also reverts to its previous level (which is not the case with the calculation method used for the RPI). According to the ONS, this difference in averaging method is the largest contributing factor to the differences between the RPI and the CPI.” (Source: Wikipedia).
For the indices since 1988 and to calculate the CPI percentage change and apply the percentage to the rent for the adjusted figure, please visit CPI and Rent Calculator.
Use Class
- GDPO - Restaurant - NIght Club - Bar - Cafe - Take-away food shops - HMO - Change of Use - General Permitted Development Order - Betting Office - Planning Permission - Pubs - Restaurants - Sui Generis - Town Planning - Use Class - Use Class Order - Use Class A1 - Use Class A2 - Use Class A3 - Use Class A4 - Use Class A5 - Use Class B1 - Use Class B8 - Use Class D1
Use Classes come under Town Planning legislation and usually in a Use Class Order and/or a General Permitted Development Order. Planning permission is normally required for a material change of use. However, to prevent the system from being choked with unnecessary applications, the Town and Country Planning (Use Classes) Order 1987 (“1987 Order”) provides that where a building or land is being used for a purpose within any class specified in that 1987 Order, use for any other purpose within the same class is allowed automatically. The aim is to retain control over changes of use where this is warranted because of potential adverse effects; for example, where it is desirable to retain the old use or undesirable to allow the new one, or to avoid unnecessary arguments over what is "material". The 1987 Order also provides that certain (sui generis) uses do not fall within any use class. So, planning permission would be required for any material change to or from that use.
To allow greater flexibility, The Town and Country Planning (General Permitted Development) Orders (GPDO) grant planning permission for (amongst other things) changes between certain use classes, for example, from A3 to AI use (shops). It is important to remember that many of the changes under a GPDO are one-way only. For example, a change from A3 to A1 is permitted, but not a reversion to A3. That could pose difficulties for premises that change to a restaurant from a wine bar or night-club, even temporarily.
The following list of Orders is not intended to be comprehensive, but only as a guide. Currently, the principal Use Classes set out in the 1987 Order, but it is important to check the various subsequent Orders for any changes to the Use Classes. I have put the amending Order in red type. The explanatory notes, quoted from the Orders, do not form part of the Order.
The Town and Country Planning (Use Classes) Order 1963 - in force 1 May 1963, revoked when the 1972 Order came into force 23 October 1972
The Town and Country Planning (Use Classes) Order 1972 - in force 23 October 1972, revoked when the 1987 Order came into force 1 June 1987.
The Town and Country Planning (Use Classes) (Amendment) Order 1983 - revoked when the 1987 Order came into force.
The Town and Country Planning (Use Classes) Order 1987 - in force 1 June 1987
PART A
Class A1. Shops Use for all or any of the following purposes: —
(a) for the retail sale of goods other than hot food,
(b) as a post office,
(c) for the sale of tickets or as a travel agency,
(d) for the sale of sandwiches or other cold food for consumption off the premises,
(e) for hairdressing,
(f) for the direction of funerals,
(g) for the display of goods for sale,
(h) for the hiring out of domestic or personal goods or articles,
(i) for the reception of goods to be washed, cleaned or repaired, where the sale, display or service is to visiting members of the public.
Class A2. Financial and professional services Use for the provision of: —
(a) financial services, or (Please note 2015 Order)
(b) professional services (other than health or medical services), or
(c) any other services (including use as a betting office) which it is appropriate to provide in a shopping area, where the services are provided principally to visiting members of the public. (Please note 2015 Order)
Class A3. Food and drink Use for the sale of food or drink for consumption on the premises or of hot food for consumption off the premises. (Please note 2005 Order and GPDO (No 2) Order 2017)
PART B
Class B1. Business Use for all or any of the following purposes: —
(a) as an office other than a use within class A2 (financial and professional services),
(b) for research and development of products or processes, or
(c) for any industrial process, being a use which can be carried out in any residential area without detriment to the amenity of that area by reason of noise, vibration, smell, fumes, smoke, soot, ash, dust or grit.
Class B2. General industrial Use for the carrying on of an industrial process other than one falling within class B1 above or within classes B3 to B7 below.
Class B3. Special Industrial Group A Use for any work registrable under the Alkali, etc. Works Regulation Act 1906(5)(a) and which is not included in any of classes B4 to B7 below.
Class B4. Special Industrial Group B
Use for any of the following processes, except where the process is ancillary to the getting, dressing or treatment of minerals and is carried on in or adjacent to a quarry or mine: —
(a) smelting, calcining, sintering or reducing ores, minerals, concentrates or mattes;
(b) converting, refining, re-heating, annealing, hardening, melting, carburising, forging or casting metals or alloys other than pressure die-casting;
(c) recovering metal from scrap or drosses or ashes;
(d) galvanizing;
(e) pickling or treating metal in acid;
(f) chromium plating.
Class B5. Special Industrial Group C Use for any of the following processes, except where the process is ancillary to the getting, dressing or treatment of minerals and is carried on in or adjacent to a quarry or mine: —
(a) burning bricks or pipes;
(b) burning lime or dolomite;
(c) producing zinc oxide, cement or alumina;
(d) foaming, crushing, screening or heating minerals or slag;
(e) processing pulverized fuel ash by heat;
(f) producing carbonate of lime or hydrated lime;
(g) producing inorganic pigments by calcining, roasting or grinding.
Class B6. Special Industrial Group D
Use for any of the following processes: —
(a) distilling, refining or blending oils (other than petroleum or petroleum products);
(b) producing or using cellulose or using other pressure sprayed metal finishes (other than in vehicle repair workshops in connection with minor repairs, or the application of plastic powder by the use of fluidised bed and electrostatic spray techniques);
(c) boiling linseed oil or running gum;
(d) processes involving the use of hot pitch or bitumen (except the use of bitumen in the manufacture of roofing felt at temperatures not exceeding 220°C and also the manufacture of coated roadstone);
(e) stoving enamelled ware;
(f) producing aliphatic esters of the lower fatty acids, butyric acid, caramel, hexamine, odoform, napthols, resin products (excluding plastic moulding or extrusion operations and producing plastic sheets, rods, tubes, filaments, fibres or optical components produced by casting, calendering, moulding, shaping or extrusion), salicylic acid or sulphonated organic compounds;
(g) producing rubber from scrap;
(h) chemical processes in which chlorphenols or chlorcresols are used as intermediates;
(i) manufacturing acetylene from calcium carbide;
(j) manufacturing, recovering or using pyridine or picolines, any methyl or ethyl amine oracrylates.
Class B7. Special Industrial Group E
Use for carrying on any of the following industries, businesses or trades: —
Boiling blood, chitterlings, nettlings or soap. Boiling, burning, grinding or steaming bones. Boiling or cleaning tripe. Breeding maggots from putrescible animal matter. Cleaning, adapting or treating animal hair. Curing fish. Dealing in rags and bones (including receiving, storing, sorting or manipulating rags in, or likely to become in, an offensive condition, or any bones, rabbit skins, fat or putrescible animal products of a similar nature). Dressing or scraping fish skins. Drying skins. Making manure from bones, fish, offal, blood, spent hops, beans or other putrescible animal or vegetable matter. Making or scraping guts. Manufacturing animal charcoal, blood albumen, candles, catgut, glue, fish oil, size or feeding stufff or animals or poultry from meat, fish, blood, bone, feathers, fat or animal offal either in an offensive condition or subjected to any process causing noxious or injurious effluvia. Melting, refining or extracting fat or tallow. Preparing skins for working.
Class B8. Storage or distribution
Use for storage or as a distribution centre.
PART C
Class C1. Hotels and hostels Use as a hotel, boarding or guest house or as a hostel where, in each case, no significant element of care is provided.
Class C2. Residential institutions Use for the provision of residential accommodation and care to people in need of care (other than a use within class C3 (dwelling houses)). Use as a hospital or nursing home. Use as a residential school, college or training centre.
Class C3. Dwellinghouses Use as a dwellinghouse (whether or not as a sole or main residence): —
(a) by a single person or by people living together as a family, or
(b) by not more than 6 residents living together as a single household (including a household where care is provided for residents). (Please note 2010 Order)
PART D
Class D1. Non-residential institutions
Any use not including a residential use: —
(a) for the provision of any medical or health services except the use of premises attached to the residence of the consultant or practitioner,
(b) as a crèche, day nursery or day centre,
(c) for the provision of education, (Please note GPDO Order 2017)
(d) for the display of works of art (otherwise than for sale or hire),
(e) as a museum,
(f) as a public library or public reading room,
(g) as a public hall or exhibition hall,
(h) for, or in connection with, public worship or religious instruction.
Class D2. Assembly and leisure Use as: —
(a) a cinema,
(b) a concert hall,
(c) a bingo hall or casino,
(d) a dance hall,
(e) a swimming bath, skating rink, gymnasium or area for other indoor or outdoor sports or recreations, not involving motorised vehicles or firearms.”
Explanatory note not part of the 1987 Order: — Various changes are made in this Order to the classes of use specified in the Schedule to the 1972 Order:
Class I of the 1972 Order specified use as a shop (which expression was defined in the Order) subject to specific exclusions. The specific exclusions of tripe shops, cats-meat shops and pet shops are no longer to be found in the new shops class A1. Use for the sale of hot food is now to be found in the new class A3 (food and drink) and is excluded specifically from class A1. The former exclusion of use for the sale of motor vehicles is now in article 3(6)(e). Class A2 is a new class of use for financial, professional and other services. This combines some of the office uses formerly in Class II, and some uses formerly within the definition of “shop” as being uses of buildings for a purpose appropriate to a shopping area. The test of appropriateness to a shopping area governs the whole of class A2. Class A3 (food and drink) is a new class. It combines use for the sale of hot food, which was formerly excluded from Class I, with use as a restaurant or for the sale of drink. Class B1 combines some of the office uses formerly within Class II with uses for light industrial purposes formerly within Class III into a business class. It also includes use for the research and development of products or processes. A test similar to that which formerly applied to Class III —that is a use which could be carried out in any residential area without detriment to the amenity of that area — now governs all the purposes in this class. Class B2 (general industrial) reflects the old Class IV. Classes B3 to B7 reflect old Classes V to IX (Special Industrial Groups (A) to (E)).
Although there has been some reorganisation, the content of these classes is the same. Class B8 (storage and distribution) is based on former Class X but extends additionally to use of open land and to use as a centre for distribution. Class C1 (hotels and hostels) largely reflects the former Class XI but makes it clear that this class does not cover any residential establishment where a significant element of care (defined in article 2) is provided. Class C2 (residential institutions) combines the former Classes XII and XIV. Class C3 (dwellinghouses) is a new class which comprises use as a dwellinghouse by an individual, by people living together as a family or by not more than six residents living together as a single household. In the case of people living together as a household rather than as a family, the use will continue to be within the class notwithstanding that an element of care (as defined in article 2) is provided for residents. The intention of this class is to include, for example, use as a dwellinghouse by individuals living together in the community who have formerly been in an institution of some kind.
Class D1 includes the uses formerly contained in Classes XIII, XV and XVI. Dispensaries are no longer included, and these will be either within class A1 (shops) or, where ancillary to a hospital, within class C2 residential institutions. Class D2 (assembly and leisure) includes uses formerly inClasses XVII and XVIII. It has been extended to include use for all indoor or outdoor sports with the exception of motor sports and sports involving firearms. Theatres which were formerly in ClassXVII are no longer included in any of the classes (see article 3(6)). One difference between this Order and the 1972 Order is that in Parts A and B of the Schedule to this Order the uses specified are uses of buildings or land whereas their equivalents in the 1972 Order specified uses of buildings. There are also more uses specifically excluded from the classes, and these are listed in article 3(6) of the Order. Paragraph 1 of Schedule 11 to the Housing and Planning Act 1986 amended section 22(2)(f) of the 1971 Act by providing that a change of use of part of any building or land is not a material change of use where the former use and the latter use of the part are within the same class, subject to the provisions of an order made under that paragraph. Article 4 of the Order provides that use as a separate dwellinghouse of any part of a building or of land used for the purposes of class C3 (dwellinghouses) is not by virtue of this Order to be taken as not amounting to development. “
The Town and Country Planning (Use Classes)(Amendment) (England) Order 2005 - in force 21 April 2005; amendments to the 1987 Order, including splitting the former Use Class A3 into three new classes A3, A4, A5.
Explanatory note not part of the Order - “This Order amends the Town and Country Planning (Use Classes) Order 1987 (“the principal Order”). The principal Order specifies classes for the purposes of section 55(2)(f) of the Town and Country Planning Act 1990, which provides that a change of use of a building or other land does not involve development for the purposes of the Act if the new use and the former use are both within the same specified class. This Order amends the principal Order by excluding from the specified classes use as a retail warehouse club, and use as a night-club . It also has the effect of including in the shops class (Class A1), use as an internet café, and splitting the former A3 use class (food and drink), into three new classes; Class A3 use as a restaurant or café, Class A4, use as a public house, wine-bar or other drinking establishment; and Class A5, use as a hot food takeaway.”
The Town and Country Planning (Use Classes) (Amendment) (England) Order 2010 - in force 6 April 2010, amendments to Use Class C2A, C3, C4 in 1987 Order,
Explanatory note not part of the Order - “This Order amends the Town and Country Planning (Use Classes) Order 1987 (the Use Classes Order) (S.I.1987/764) for England only. The Use Classes Order specifies classes of use of buildings or other land for the purposes of section 55(2)(f) of the Town and Country Planning Act 1990. Section 55(2)(f) provides that a change of use is not to be taken as development where the former use and the new use are both within the same class as specified in an order. Changes of use which are not to be taken as development do not require planning permission. Article 2(2) restates Use Class C2A (secure residential institutions) to clarify that this Class is not confined to Crown land. Article 2(3) amends Use Class C3 (dwellinghouses) to remove from its scope certain small scale houses in multiple occupation. Article 2(4) introduces a new Use Class (houses in multiple occupation) which, subject to an exception, covers use of a dwellinghouse as a house in multiple occupation as defined in section 254 of the Housing Act 2004. In broad terms, this use occurs where tenanted living accommodation is occupied by persons as their only or main residence, who are not related, and who share one or more basic amenities.”
The Town and Country Planning (Use Classes) (Amendment) (England) Order 2015 - in force 15 April 2015, amendments concerning use as a betting office and use as a pay day loan shop per the 1987 Order.
Explanatory note not part of the Order - “This Order amends the Town and Country Planning (Use Classes) Order 1987 (S.I. 1987/764) (“the principal Order”). The principal Order specifies classes for the purposes of section 55(2)(f) of the Town and Country Planning Act 1990 (c. 8), which provides that a change of use of a building or other land does not involve development for the purposes of the Act if the new use and the former use are both within the same specified class. This Order amends the principal Order by providing that use as a betting office and use as a pay day loan shop are in included in article 3(6) of the principal Order: the list of uses excluded from the specified classes.”
The Town and Country Planning (General Permitted Development) (England) (Amendment) Order 2017 - in force 6 April 2017
Explanatory note not part of the Order - “This Order amends the Town and Country Planning (General Permitted Development) (England) Order 2015 (“the General Permitted Development Order”) (SI. 2015/596). Article 3 applies where a proposed enlargement of a dwellinghouse is joined to an existing enlargement pursuant to planning permission granted by Class A of Part 1 of Schedule 2 to the General Permitted Development Order. It amends the wording of that Order to make clear that restrictions apply to the size of the total enlargement (i.e. the proposed enlargement together with the existing enlargement). Article 4 extends from one to two academic years the period for which a building may be used as a state-funded school under Class C of Part 4 of Schedule 2 to the General Permitted Development Order. Article 5 introduces a new permitted development right to provide a temporary state-funded school for up to three academic years on a site which was previously used for specified commercial purposes but on which all buildings have been demolished. Article 6 removes certain restrictions relating to floor space and distance from the boundary of the curtilage where schools are developed under Class M of Part 7 of Schedule 2 to the General Permitted Development Order. Article 7 makes a number of miscellaneous amendments. Article 8 makes transitional purposes where development took place or was notified to the local planning authority before the entry into force of this Order.”
The Town and Country Planning (General Permitted Development) (England) (Amendment) (No. 2) Order 2017 - in force 23 May 2017
Explanatory note not part of the Order - “This Order amends the Town and Country Planning (General Permitted Development) (England) Order 2015 (“the General Permitted Development Order”) (S.I. 2015/596). It implements the duty set out in section 15 of the Neighbourhood Planning Act 2017. Article 3 removes permitted development rights allowing the change of use of a building falling within Class A4 (drinking establishment) of the Schedule to the Town and Country Planning (use Classes) Order 1987 (S.I. 1987/764) to a building within Classes A1 (shops), A2 (financial and professional services), and A3 (restaurants and cafes) and to a temporary flexible use or a state funded school for up to 2 academic years. Article 3 also introduces a new permitted development right allowing change of use of a building falling within Class A4 (drinking establishments) to a use within Class A4 with a use falling within Class A3 (restaurants and cafes), or from those uses to a use falling within Class A4. Article 4 removes permitted development rights allowing for the demolition of buildings used for a purpose within Class A4 (drinking establishments). Article 5 makes transitional provisions for cases where, following a request for confirmation from the local planning authority as to whether the building has been nominated or listed as an asset of community value (as defined in paragraphs A.3 of Part 3, C.3 of Part 4 or B.3 of Part 11 of Schedule 2 of the General Permitted Development Order, before amendment by this Order), development may begin in accordance with those provisions. The effect is that planning permission in these cases is saved (where the drinking establishment is not nominated or listed) where such a request has been made more than 56 days before 23rd May 2017. In the case of demolition, prior approval must also have been granted, determined not required or deemed granted before 23rd May 2017. This article also postpones by 18 months the application of the new right introduced by article 3, for a building which falls within the scope of a direction under article 4 withdrawing permission to change use from a use falling within Class A4 (drinking establishments) to a use falling within Class A3 (restaurants and cafes).”
Summary: Dale L Ingram MSc CHE FRSA of Planning for Pubs Ltd has kindly provided this for my summary. The General Permitted Development (Amendment)(No 2) Order 2017 removes permitted development (“PD”) rights for demolition and change of use resulting in the loss of the 'drinking' (A4) use of any relevant premises. New PD rights for a mixed use as A4 and A3 pub/restaurant (Class AA) and back again to A4 have been created, effective 23 May 2017. These are the only PD rights now enjoyed by pubs. This replaced a complicated and ineffective series of amendments that were incorporated in the revised GPDO (England) 2015, effective 6 April 2015. These provided protection from PD change of use and demolition where a pub was listed or nominated for listing as an Asset of Community Value (“ACV”). In turn, that replaced/revised the PD rights created in General Permitted Development (Amendment) (England) Order 2013 for A4 premises. These included temporary change of use from A4 to A3, A2, A1, B1 (offices) and state-sponsored school (D1) for a single period of up to 2 years, when the original use A4 would resume (whether occupied or traded or not). In short, the present planning position is that A4 pubs can only be used as pubs or pub/restaurants and any other use or demolition requires full planning permission. The ACV status of pubs no longer has any relevance in PD terms; but it can be a 'material consideration' in the refusal of permission or dismissal of an appeal of a refusal to the Inspectorate.
To allow greater flexibility, The Town and Country Planning (General Permitted Development) Orders (GPDO) grant planning permission for (amongst other things) changes between certain use classes, for example, from A3 to AI use (shops). It is important to remember that many of the changes under a GPDO are one-way only. For example, a change from A3 to A1 is permitted, but not a reversion to A3. That could pose difficulties for premises that change to a restaurant from a wine bar or night-club, even temporarily.
The following list of Orders is not intended to be comprehensive, but only as a guide. Currently, the principal Use Classes set out in the 1987 Order, but it is important to check the various subsequent Orders for any changes to the Use Classes. I have put the amending Order in red type. The explanatory notes, quoted from the Orders, do not form part of the Order.
The Town and Country Planning (Use Classes) Order 1963 - in force 1 May 1963, revoked when the 1972 Order came into force 23 October 1972
The Town and Country Planning (Use Classes) Order 1972 - in force 23 October 1972, revoked when the 1987 Order came into force 1 June 1987.
The Town and Country Planning (Use Classes) (Amendment) Order 1983 - revoked when the 1987 Order came into force.
The Town and Country Planning (Use Classes) Order 1987 - in force 1 June 1987
PART A
Class A1. Shops Use for all or any of the following purposes: —
(a) for the retail sale of goods other than hot food,
(b) as a post office,
(c) for the sale of tickets or as a travel agency,
(d) for the sale of sandwiches or other cold food for consumption off the premises,
(e) for hairdressing,
(f) for the direction of funerals,
(g) for the display of goods for sale,
(h) for the hiring out of domestic or personal goods or articles,
(i) for the reception of goods to be washed, cleaned or repaired, where the sale, display or service is to visiting members of the public.
Class A2. Financial and professional services Use for the provision of: —
(a) financial services, or (Please note 2015 Order)
(b) professional services (other than health or medical services), or
(c) any other services (including use as a betting office) which it is appropriate to provide in a shopping area, where the services are provided principally to visiting members of the public. (Please note 2015 Order)
Class A3. Food and drink Use for the sale of food or drink for consumption on the premises or of hot food for consumption off the premises. (Please note 2005 Order and GPDO (No 2) Order 2017)
PART B
Class B1. Business Use for all or any of the following purposes: —
(a) as an office other than a use within class A2 (financial and professional services),
(b) for research and development of products or processes, or
(c) for any industrial process, being a use which can be carried out in any residential area without detriment to the amenity of that area by reason of noise, vibration, smell, fumes, smoke, soot, ash, dust or grit.
Class B2. General industrial Use for the carrying on of an industrial process other than one falling within class B1 above or within classes B3 to B7 below.
Class B3. Special Industrial Group A Use for any work registrable under the Alkali, etc. Works Regulation Act 1906(5)(a) and which is not included in any of classes B4 to B7 below.
Class B4. Special Industrial Group B
Use for any of the following processes, except where the process is ancillary to the getting, dressing or treatment of minerals and is carried on in or adjacent to a quarry or mine: —
(a) smelting, calcining, sintering or reducing ores, minerals, concentrates or mattes;
(b) converting, refining, re-heating, annealing, hardening, melting, carburising, forging or casting metals or alloys other than pressure die-casting;
(c) recovering metal from scrap or drosses or ashes;
(d) galvanizing;
(e) pickling or treating metal in acid;
(f) chromium plating.
Class B5. Special Industrial Group C Use for any of the following processes, except where the process is ancillary to the getting, dressing or treatment of minerals and is carried on in or adjacent to a quarry or mine: —
(a) burning bricks or pipes;
(b) burning lime or dolomite;
(c) producing zinc oxide, cement or alumina;
(d) foaming, crushing, screening or heating minerals or slag;
(e) processing pulverized fuel ash by heat;
(f) producing carbonate of lime or hydrated lime;
(g) producing inorganic pigments by calcining, roasting or grinding.
Class B6. Special Industrial Group D
Use for any of the following processes: —
(a) distilling, refining or blending oils (other than petroleum or petroleum products);
(b) producing or using cellulose or using other pressure sprayed metal finishes (other than in vehicle repair workshops in connection with minor repairs, or the application of plastic powder by the use of fluidised bed and electrostatic spray techniques);
(c) boiling linseed oil or running gum;
(d) processes involving the use of hot pitch or bitumen (except the use of bitumen in the manufacture of roofing felt at temperatures not exceeding 220°C and also the manufacture of coated roadstone);
(e) stoving enamelled ware;
(f) producing aliphatic esters of the lower fatty acids, butyric acid, caramel, hexamine, odoform, napthols, resin products (excluding plastic moulding or extrusion operations and producing plastic sheets, rods, tubes, filaments, fibres or optical components produced by casting, calendering, moulding, shaping or extrusion), salicylic acid or sulphonated organic compounds;
(g) producing rubber from scrap;
(h) chemical processes in which chlorphenols or chlorcresols are used as intermediates;
(i) manufacturing acetylene from calcium carbide;
(j) manufacturing, recovering or using pyridine or picolines, any methyl or ethyl amine oracrylates.
Class B7. Special Industrial Group E
Use for carrying on any of the following industries, businesses or trades: —
Boiling blood, chitterlings, nettlings or soap. Boiling, burning, grinding or steaming bones. Boiling or cleaning tripe. Breeding maggots from putrescible animal matter. Cleaning, adapting or treating animal hair. Curing fish. Dealing in rags and bones (including receiving, storing, sorting or manipulating rags in, or likely to become in, an offensive condition, or any bones, rabbit skins, fat or putrescible animal products of a similar nature). Dressing or scraping fish skins. Drying skins. Making manure from bones, fish, offal, blood, spent hops, beans or other putrescible animal or vegetable matter. Making or scraping guts. Manufacturing animal charcoal, blood albumen, candles, catgut, glue, fish oil, size or feeding stufff or animals or poultry from meat, fish, blood, bone, feathers, fat or animal offal either in an offensive condition or subjected to any process causing noxious or injurious effluvia. Melting, refining or extracting fat or tallow. Preparing skins for working.
Class B8. Storage or distribution
Use for storage or as a distribution centre.
PART C
Class C1. Hotels and hostels Use as a hotel, boarding or guest house or as a hostel where, in each case, no significant element of care is provided.
Class C2. Residential institutions Use for the provision of residential accommodation and care to people in need of care (other than a use within class C3 (dwelling houses)). Use as a hospital or nursing home. Use as a residential school, college or training centre.
Class C3. Dwellinghouses Use as a dwellinghouse (whether or not as a sole or main residence): —
(a) by a single person or by people living together as a family, or
(b) by not more than 6 residents living together as a single household (including a household where care is provided for residents). (Please note 2010 Order)
PART D
Class D1. Non-residential institutions
Any use not including a residential use: —
(a) for the provision of any medical or health services except the use of premises attached to the residence of the consultant or practitioner,
(b) as a crèche, day nursery or day centre,
(c) for the provision of education, (Please note GPDO Order 2017)
(d) for the display of works of art (otherwise than for sale or hire),
(e) as a museum,
(f) as a public library or public reading room,
(g) as a public hall or exhibition hall,
(h) for, or in connection with, public worship or religious instruction.
Class D2. Assembly and leisure Use as: —
(a) a cinema,
(b) a concert hall,
(c) a bingo hall or casino,
(d) a dance hall,
(e) a swimming bath, skating rink, gymnasium or area for other indoor or outdoor sports or recreations, not involving motorised vehicles or firearms.”
Explanatory note not part of the 1987 Order: — Various changes are made in this Order to the classes of use specified in the Schedule to the 1972 Order:
Class I of the 1972 Order specified use as a shop (which expression was defined in the Order) subject to specific exclusions. The specific exclusions of tripe shops, cats-meat shops and pet shops are no longer to be found in the new shops class A1. Use for the sale of hot food is now to be found in the new class A3 (food and drink) and is excluded specifically from class A1. The former exclusion of use for the sale of motor vehicles is now in article 3(6)(e). Class A2 is a new class of use for financial, professional and other services. This combines some of the office uses formerly in Class II, and some uses formerly within the definition of “shop” as being uses of buildings for a purpose appropriate to a shopping area. The test of appropriateness to a shopping area governs the whole of class A2. Class A3 (food and drink) is a new class. It combines use for the sale of hot food, which was formerly excluded from Class I, with use as a restaurant or for the sale of drink. Class B1 combines some of the office uses formerly within Class II with uses for light industrial purposes formerly within Class III into a business class. It also includes use for the research and development of products or processes. A test similar to that which formerly applied to Class III —that is a use which could be carried out in any residential area without detriment to the amenity of that area — now governs all the purposes in this class. Class B2 (general industrial) reflects the old Class IV. Classes B3 to B7 reflect old Classes V to IX (Special Industrial Groups (A) to (E)).
Although there has been some reorganisation, the content of these classes is the same. Class B8 (storage and distribution) is based on former Class X but extends additionally to use of open land and to use as a centre for distribution. Class C1 (hotels and hostels) largely reflects the former Class XI but makes it clear that this class does not cover any residential establishment where a significant element of care (defined in article 2) is provided. Class C2 (residential institutions) combines the former Classes XII and XIV. Class C3 (dwellinghouses) is a new class which comprises use as a dwellinghouse by an individual, by people living together as a family or by not more than six residents living together as a single household. In the case of people living together as a household rather than as a family, the use will continue to be within the class notwithstanding that an element of care (as defined in article 2) is provided for residents. The intention of this class is to include, for example, use as a dwellinghouse by individuals living together in the community who have formerly been in an institution of some kind.
Class D1 includes the uses formerly contained in Classes XIII, XV and XVI. Dispensaries are no longer included, and these will be either within class A1 (shops) or, where ancillary to a hospital, within class C2 residential institutions. Class D2 (assembly and leisure) includes uses formerly inClasses XVII and XVIII. It has been extended to include use for all indoor or outdoor sports with the exception of motor sports and sports involving firearms. Theatres which were formerly in ClassXVII are no longer included in any of the classes (see article 3(6)). One difference between this Order and the 1972 Order is that in Parts A and B of the Schedule to this Order the uses specified are uses of buildings or land whereas their equivalents in the 1972 Order specified uses of buildings. There are also more uses specifically excluded from the classes, and these are listed in article 3(6) of the Order. Paragraph 1 of Schedule 11 to the Housing and Planning Act 1986 amended section 22(2)(f) of the 1971 Act by providing that a change of use of part of any building or land is not a material change of use where the former use and the latter use of the part are within the same class, subject to the provisions of an order made under that paragraph. Article 4 of the Order provides that use as a separate dwellinghouse of any part of a building or of land used for the purposes of class C3 (dwellinghouses) is not by virtue of this Order to be taken as not amounting to development. “
The Town and Country Planning (Use Classes)(Amendment) (England) Order 2005 - in force 21 April 2005; amendments to the 1987 Order, including splitting the former Use Class A3 into three new classes A3, A4, A5.
Explanatory note not part of the Order - “This Order amends the Town and Country Planning (Use Classes) Order 1987 (“the principal Order”). The principal Order specifies classes for the purposes of section 55(2)(f) of the Town and Country Planning Act 1990, which provides that a change of use of a building or other land does not involve development for the purposes of the Act if the new use and the former use are both within the same specified class. This Order amends the principal Order by excluding from the specified classes use as a retail warehouse club, and use as a night-club . It also has the effect of including in the shops class (Class A1), use as an internet café, and splitting the former A3 use class (food and drink), into three new classes; Class A3 use as a restaurant or café, Class A4, use as a public house, wine-bar or other drinking establishment; and Class A5, use as a hot food takeaway.”
The Town and Country Planning (Use Classes) (Amendment) (England) Order 2010 - in force 6 April 2010, amendments to Use Class C2A, C3, C4 in 1987 Order,
Explanatory note not part of the Order - “This Order amends the Town and Country Planning (Use Classes) Order 1987 (the Use Classes Order) (S.I.1987/764) for England only. The Use Classes Order specifies classes of use of buildings or other land for the purposes of section 55(2)(f) of the Town and Country Planning Act 1990. Section 55(2)(f) provides that a change of use is not to be taken as development where the former use and the new use are both within the same class as specified in an order. Changes of use which are not to be taken as development do not require planning permission. Article 2(2) restates Use Class C2A (secure residential institutions) to clarify that this Class is not confined to Crown land. Article 2(3) amends Use Class C3 (dwellinghouses) to remove from its scope certain small scale houses in multiple occupation. Article 2(4) introduces a new Use Class (houses in multiple occupation) which, subject to an exception, covers use of a dwellinghouse as a house in multiple occupation as defined in section 254 of the Housing Act 2004. In broad terms, this use occurs where tenanted living accommodation is occupied by persons as their only or main residence, who are not related, and who share one or more basic amenities.”
The Town and Country Planning (Use Classes) (Amendment) (England) Order 2015 - in force 15 April 2015, amendments concerning use as a betting office and use as a pay day loan shop per the 1987 Order.
Explanatory note not part of the Order - “This Order amends the Town and Country Planning (Use Classes) Order 1987 (S.I. 1987/764) (“the principal Order”). The principal Order specifies classes for the purposes of section 55(2)(f) of the Town and Country Planning Act 1990 (c. 8), which provides that a change of use of a building or other land does not involve development for the purposes of the Act if the new use and the former use are both within the same specified class. This Order amends the principal Order by providing that use as a betting office and use as a pay day loan shop are in included in article 3(6) of the principal Order: the list of uses excluded from the specified classes.”
The Town and Country Planning (General Permitted Development) (England) (Amendment) Order 2017 - in force 6 April 2017
Explanatory note not part of the Order - “This Order amends the Town and Country Planning (General Permitted Development) (England) Order 2015 (“the General Permitted Development Order”) (SI. 2015/596). Article 3 applies where a proposed enlargement of a dwellinghouse is joined to an existing enlargement pursuant to planning permission granted by Class A of Part 1 of Schedule 2 to the General Permitted Development Order. It amends the wording of that Order to make clear that restrictions apply to the size of the total enlargement (i.e. the proposed enlargement together with the existing enlargement). Article 4 extends from one to two academic years the period for which a building may be used as a state-funded school under Class C of Part 4 of Schedule 2 to the General Permitted Development Order. Article 5 introduces a new permitted development right to provide a temporary state-funded school for up to three academic years on a site which was previously used for specified commercial purposes but on which all buildings have been demolished. Article 6 removes certain restrictions relating to floor space and distance from the boundary of the curtilage where schools are developed under Class M of Part 7 of Schedule 2 to the General Permitted Development Order. Article 7 makes a number of miscellaneous amendments. Article 8 makes transitional purposes where development took place or was notified to the local planning authority before the entry into force of this Order.”
The Town and Country Planning (General Permitted Development) (England) (Amendment) (No. 2) Order 2017 - in force 23 May 2017
Explanatory note not part of the Order - “This Order amends the Town and Country Planning (General Permitted Development) (England) Order 2015 (“the General Permitted Development Order”) (S.I. 2015/596). It implements the duty set out in section 15 of the Neighbourhood Planning Act 2017. Article 3 removes permitted development rights allowing the change of use of a building falling within Class A4 (drinking establishment) of the Schedule to the Town and Country Planning (use Classes) Order 1987 (S.I. 1987/764) to a building within Classes A1 (shops), A2 (financial and professional services), and A3 (restaurants and cafes) and to a temporary flexible use or a state funded school for up to 2 academic years. Article 3 also introduces a new permitted development right allowing change of use of a building falling within Class A4 (drinking establishments) to a use within Class A4 with a use falling within Class A3 (restaurants and cafes), or from those uses to a use falling within Class A4. Article 4 removes permitted development rights allowing for the demolition of buildings used for a purpose within Class A4 (drinking establishments). Article 5 makes transitional provisions for cases where, following a request for confirmation from the local planning authority as to whether the building has been nominated or listed as an asset of community value (as defined in paragraphs A.3 of Part 3, C.3 of Part 4 or B.3 of Part 11 of Schedule 2 of the General Permitted Development Order, before amendment by this Order), development may begin in accordance with those provisions. The effect is that planning permission in these cases is saved (where the drinking establishment is not nominated or listed) where such a request has been made more than 56 days before 23rd May 2017. In the case of demolition, prior approval must also have been granted, determined not required or deemed granted before 23rd May 2017. This article also postpones by 18 months the application of the new right introduced by article 3, for a building which falls within the scope of a direction under article 4 withdrawing permission to change use from a use falling within Class A4 (drinking establishments) to a use falling within Class A3 (restaurants and cafes).”
Summary: Dale L Ingram MSc CHE FRSA of Planning for Pubs Ltd has kindly provided this for my summary. The General Permitted Development (Amendment)(No 2) Order 2017 removes permitted development (“PD”) rights for demolition and change of use resulting in the loss of the 'drinking' (A4) use of any relevant premises. New PD rights for a mixed use as A4 and A3 pub/restaurant (Class AA) and back again to A4 have been created, effective 23 May 2017. These are the only PD rights now enjoyed by pubs. This replaced a complicated and ineffective series of amendments that were incorporated in the revised GPDO (England) 2015, effective 6 April 2015. These provided protection from PD change of use and demolition where a pub was listed or nominated for listing as an Asset of Community Value (“ACV”). In turn, that replaced/revised the PD rights created in General Permitted Development (Amendment) (England) Order 2013 for A4 premises. These included temporary change of use from A4 to A3, A2, A1, B1 (offices) and state-sponsored school (D1) for a single period of up to 2 years, when the original use A4 would resume (whether occupied or traded or not). In short, the present planning position is that A4 pubs can only be used as pubs or pub/restaurants and any other use or demolition requires full planning permission. The ACV status of pubs no longer has any relevance in PD terms; but it can be a 'material consideration' in the refusal of permission or dismissal of an appeal of a refusal to the Inspectorate.
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Use classes in leases:
Leases will often define the permitted use by reference to a use class. Generally, the drafting will ensure that the use class is frozen as at the date of the lease, so that the landlord does not lose control over changes if a use class were widened or narrowed. Occasionally, the drafting requires all statutory references in the lease to be updated as they change from time to time. Sometimes it can be difficult to work out what is the equivalent provision in the latest legislation. The sale of food and drink faces the greatest changes. Take, say, a lease granted in 2000 with any use within A3. The lease preserves the meaning that A3 had in 2000. The tenant will be able to choose between the new A3, A4 and A5 without having to obtain landlord's consent, since all came within the old A3. However, some of the changes between the new use classes require planning permission (for example, a change from a cafe in the new A3 to a hot food takeaway in the new A5), and leases usually require a tenant to obtain the landlord's consent to any planning application. Thus, the change in the Use Class Order has not altered the scope of the permitted use under the lease, but it may have given the landlord a new degree of control over changes to it. At rent review, a lease with a permitted use of the old A3 might be more valuable than a modern lease, which is likely to have a narrower permitted use, defined by reference to one of the new classes A3, A4 or A5. Faced with this argument, the tenant should look at the lease provisions on obtaining planning permission: has the landlord acquired a new control that might depress the rent?
Agreement for Lease
An agreement for lease is entered into by the parties where the grant of a lease is subject to condition(s) that have to be satisfied prior to grant of that lease. For example, where a property is to be redeveloped, the landlord may pre-let the property on condition that on completion of the development the tenant enters into the lease.
An agreement for lease comprises at least two documents: a contract for the arrangement, and an agreed form of lease that takes effect on completion of the conditions in the agreement.
An agreement for lease comprises at least two documents: a contract for the arrangement, and an agreed form of lease that takes effect on completion of the conditions in the agreement.
Assignment
- Alienation - Assignment
An assignment is a transfer of an interest from one person to another - for example, lease or goodwill for a business sale. An assignment will constitute a legally- binding agreement and will need to be in writing.
Affidavit
An Affidavit is a written statement of evidence confirmed on oath or by affirmation to be the truth.
An affidavit is a written statement of facts or events as they happened, and which has been sworn to be true.
The affidavit should be completed using plain English and should be a true account of the facts, personal comments or remarks should not be included.
The affidavit will need to be witnessed or 'sworn', it can be signed before a solicitor, a barrister, or a notary public or some other judicial officer who has administered the oath. It can be sworn under oath, which is a religious pledge, or affirmed, which is a non religious commitment.
The person making the affidavit is known as the 'affiant'. Any one can make an affidavit as long as they are able to understand the implications of the statement and how serious the statement.
An affidavit is a written statement of facts or events as they happened, and which has been sworn to be true.
The affidavit should be completed using plain English and should be a true account of the facts, personal comments or remarks should not be included.
The affidavit will need to be witnessed or 'sworn', it can be signed before a solicitor, a barrister, or a notary public or some other judicial officer who has administered the oath. It can be sworn under oath, which is a religious pledge, or affirmed, which is a non religious commitment.
The person making the affidavit is known as the 'affiant'. Any one can make an affidavit as long as they are able to understand the implications of the statement and how serious the statement.
Act of God
An Act of God is an event outside of human control. For example, natural disasters such as floods, fires caused by lightning, storm at sea, extraordinary snowfall and earthquake.
An Act of God is a general defence in tort actions and may be used in claims under Rylands v Fletcher and nuisance. The use of the defence has its difficulties and uncertainties. The starting point is the definition of an Act of God which, by its nature, is an event which 'no human foresight can provide against, and of which human prudence is not bound to recognise the possibility' - Tennent v Earl of Glasgow (1864).
An Act of God is a general defence in tort actions and may be used in claims under Rylands v Fletcher and nuisance. The use of the defence has its difficulties and uncertainties. The starting point is the definition of an Act of God which, by its nature, is an event which 'no human foresight can provide against, and of which human prudence is not bound to recognise the possibility' - Tennent v Earl of Glasgow (1864).
Tenant
- Tenant
'The term 'tenant' originates from the feudal system.
Under the feudal system, all land belonged to the king and was lent out to the lords. The lords did not own the land but held tenure in the land.
A tenant is a person to whom the landlord grants temporary and exclusive use of land or building in exchange for a consideration, usually a rent.
Under the feudal system, all land belonged to the king and was lent out to the lords. The lords did not own the land but held tenure in the land.
A tenant is a person to whom the landlord grants temporary and exclusive use of land or building in exchange for a consideration, usually a rent.
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-linked - 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 and to calculate the RPI percentage change and apply the percentage to the rent for the adjusted figure, please visit RPI and Rent Calculator.
For the indices since 1974 and to calculate the RPI percentage change and apply the percentage to the rent for the adjusted figure, please visit RPI and Rent Calculator.
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.
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
- LandlordZONE - Index-linked - Market Rent - Negotiation - Upward-only Review - 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
- 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
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 (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.
HMRC has produced a Stamp Duty Land Tax Calculator. The calculator can be used for residential property or non-residential property.
The link is http://www.hmrc.gov.uk/tools/sdlt/land-and-property.htm
Effective 1 April 2018 (not an April Fool joke), Wales has Welsh Land Transaction Tax (LTT) instead of SDLT. Similar to SDLT, the tax (applying to transactions of Welsh land with an effective date on or after 1 April 2018) has some key differences. In addition to rates and bands being slightly different, there are differences in detail so it is important to check the LTT legislation when dealing with land in Wales.
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 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.
HMRC has produced a Stamp Duty Land Tax Calculator. The calculator can be used for residential property or non-residential property.
The link is http://www.hmrc.gov.uk/tools/sdlt/land-and-property.htm
Effective 1 April 2018 (not an April Fool joke), Wales has Welsh Land Transaction Tax (LTT) instead of SDLT. Similar to SDLT, the tax (applying to transactions of Welsh land with an effective date on or after 1 April 2018) has some key differences. In addition to rates and bands being slightly different, there are differences in detail so it is important to check the LTT legislation when dealing with land in Wales.
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.