Coffee Shop Innovation Expo logo

15 & 16 JUNE 2021

ExCeL LONDON

How Hard Can It Be? – How much is the rent going to be now?

 

Modern leases usually assume at the review date the rent is the higher of the market rent or the rent passing with no unusual assumptions or disregards to consider.

 

The problem – What is the market rent when there is a very limited market to refer to? What about turnover rents? Good idea or not? What about at renewal? Can you change things?

 

This year at best most businesses have traded with a lot of restrictions. Rent review due this year? Taking a new lease? What’s the rent? Do I have to pay the rent? There are no easy answers to these and similar questions asked this year.

 

What about market comparable evidence to refer to in considering rental value? Is there anything to refer to? Are deals carried out six to nine months before lockdown still relevant as rental evidence at review or renewal?

 

What relevance are letting's, rent reviews, lease renewals or acquisitions from within the same locality or a wider marketplace? Is ‘Material valuation uncertainty’ still as relevant?  Will landlords accept that the market has shifted and so quickly? 

 

This applies to rent reviews, lease expiries or acquisitions. It not just the catering sector too, but anyone who leases a commercial property. The market is considerably more challenging now and was uncertain before ‘lockdown’ (remember Brexit anyone?).

 

Following the 2008 recession incentive packages increased to encourage tenants back into the market. Although then it was still ‘legal’ to trade unencumbered where it would not have been legal to do so during a large part of 2020. Any assumed incentives appropriate before the pandemic need to be reconsidered to compensate a tenant so they could trade unencumbered when the restrictions ended.  How do you price into the appropriate rent to pay for the property at the valuation date with these artificial considerations? We have not experienced such a variance in approach before transactions will be unusual, interpreting them will be challenging.

 

The ‘hypothetical’ lease terms a rent review clause assumes do not change regardless of the pandemic, but how they are considered in any rental bid in the market at that time should be. Would you acquire a unit that you couldn’t legally trade and pay full asking rent for it? Same applies at rent review. Without agreement it will get referred to a third-party surveyor under most leases where a comprehensive case needs to be proved to support any increase. 

 

Disputes on rent levels at renewal can be more complex, with moving valuation dates, ADR (alternative dispute resolution), court hearings all a possibility.  What rent was “appropriate for the tenant to pay” and what constituted the lockdown is yet to be tested in the courts. It could result in interim rents set way below the previous passing rent or rent agreed under the renewed lease terms.

 

Any questions? Give, me a call to discuss how we can help you out now

020 3727 5024

www.kaleidoscope-property.co.uk

alan@kpcl.co.uk

 

Or book a call back with me

https://app.hubspot.com/meetings/alan-rawlins/30-minute-initial-call

 

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