For many Landlords and Tenants the only point of contact during a lease is when the rent comes to be renegotiated and during recessionary times the matter is all the more contentious and difficult. Generally, Rent Review Surveyors are having a tough time trying to set rents in the latter part of 2008 and 2009, the public view being that overall, values have fallen, but it is the role of the Surveyor to determine the extent of the decline and arrive at a figure based on market evidence. It is the lack of evidence in the market place that makes establishing and supporting a revised rent particularly difficult.

It is clear that rent reviews falling due between the end of the first quarter of 2008 and now are being fiercely fought.  This is not only because money is tight but also because comparable market evidence is hard to find. In any property market cycle a decrease, or for that matter any increase in value first shows itself in a rise or fall in enquiry levels with the actual transactional evidence that supports the trend lacking some way behind. In this cycle rents peaked towards the end of 2007 reflecting the hitherto booming economy, notwithstanding the banking crisis that was then becoming increasingly evident. For all subsequent rent reviews, the question is where were rents in this particular cycle at the review date the lease has set? Rising, certainly not. Falling? Probably, but when did they begin to fall and how dramatic is the slump? What reliance can be given to evidence on either side of the actual rent review date?

Naylors are currently involved in negotiating rent reviews on a number of properties in the Region with rent review dates falling due over the last year. In cases without the benefit of any directly comparable evidence it is therefore a matter of judgment, gained from an understanding of the market and the type of asset being valued to interpret how the market value has shifted since the rent was previously set. 

A tenant will argue that the drop in rental value has been dramatic and the landlord will argue that rent has actually risen since the last review, often five years ago. We can see this point being particularly contentious leading to an increased number of Arbitration proceedings.  Parties should be cautious taking the third party route as they will have less control on the outcome and we believe a more sensible approach would be for landlords and tenants to reach a common ground, after all each rent review instruction is largely a process of negotiation!”

By Tim Rodgers,

Associate Director, Naylors Chartered Surveyors