Managing the Rent Review Process

1 March, 2019

Increasing rents are amongst the top concerns for many in the quick service food industry, with reports that in some areas reviews are leading to increases of 50%[1].  Emily Wright, Senior Associate with Cripps, incorporating Pemberton Greenish, has guidance to help you get a better outcome from your next review.

The landlord has no right to review the rent if it is not written into the lease, so check this first.

If the lease does contain rent review provisions (which it almost certainly will in leases for five years or more), check how often the rent may be reviewed (usually every five years), how the review is to be conducted, and make a diary note a few months before each review date to allow time to prepare. The landlord will seldom lose the right to undertake the review if it misses the dates set out in the lease, and interest payable on any increased rent will be back-dated. 

The method of rent reviews vary. Some provide for set changes over the lease term (known as ‘stepped rents’), while others require rent to be reviewed periodically in line with inflation (usually by reference to the Retail Price Index). There may also be a maximum and minimum figure (or ‘cap and collar’) preventing the rent rising above or falling below set limits. The most common type of review for fast food operators in retail units is an ‘open market review’, which sets the new rent at the rental value of the property if it were to be let on the open market at the date of the review. Usually these are ‘upwards-only’, meaning the rent will never be reduced.   These have been criticised by tenants as being susceptible to distortion if traders in the area have paid a premium to secure a desirable site and because in a falling market, a tenant could be paying much more than the market rate.  

Consider engaging a rent review surveyor to assess the current value of the premises and help with negotiations.  Knowing the likely level of any increase should help put you in a stronger position to either initiate the rent review, or to respond to the landlord’s proposals for the new rent.

If you are able to pre-empt your landlord by proposing a fair revised rent, they may be less inclined to incur significant time and money in arguing for a higher figure. Also, it may be that there is no justification for the landlord to seek an increase in rent at review time (known as a ‘nil review’), but without a surveyor’s advice you might not be aware of this.  Involving a professional can also help keep negotiations less emotional, particularly the landlord is also the franchisor.

Once concluded, the outcome should be recorded in a rent review memorandum which should be signed by both landlord and tenant and kept with the lease.

This article first appeared in Out of Home magazine in March 2019. 

 

[1] 2018 Cedar Green Report on The Impact of Rocketing Restaurant Rents on London Leisure Operators