The essential guide to surviving a rent review

6 October, 2015

Many pharmacists will have a clause in their lease entitling the landlord to review the rent they pay and the receipt of a notice from the landlord that they are going to review the rent can understandably cause a degree of anxiety to tenant pharmacists. However, there are steps you can take to manage the process and get a better outcome.

 

1. Check Your Lease

The landlord can only conduct a rent review if the lease contains a rent review provision. Not all leases do, particularly those for a term of less than 5 years. If your lease does allow the landlord to conduct a rent review, keep a diary note of the times this can be done so you can prepare in advance.

 

2. Don’t ignore an impending review!

Landlords won’t usually forget about a review, but even if the date for the review passes without any contact from the landlord this does not mean the landlord loses his right to review the rent. Most leases allow the rent review process to continue indefinitely during the lease term. In some cases, the parties to a lease can still be arguing over the revised rent several years after the review date has passed. Such a situation rarely favours the tenant as interest is payable from the review date on the difference between the old rent and the revised rent, so this can quickly mount up.

 

3. Understand how your rent review works.

The most common methods of rent review are: by reference to the Retail Price Index (RPI); an open market rent review; or a ‘linked’ rent review. Open market is the most common method of reviewing rent, with both parties, usually via their agents, agreeing on what is considered to be the rent payable on the open market for the pharmacy. Those reviews classified as RPI are relatively straightforward as the old rent is simply multiplied by the percentage by which the RPI has increased over the review period. A small minority of leases include rent review provisions linking the revised rent to either the turnover of the shop or the amount of prescriptions handled by the pharmacy. Known as ‘linked’ reviews, these procedures rely on the disclosure by the tenant of relevant information and the process for review will be set out clearly in the lease.

 

If agreement on the revised rent figure cannot be reached between you and your landlord (and your respective agents) then commercial leases usually provide for the rent to be determined by an independent expert or arbitrator.

 

4. Seek professional advice.

A good chartered surveyor should prove invaluable in any rent review negotiations and could save you considerable time and money. A surveyor will assess the likely level of the revised rent, based on rents payable in similar pharmacies and shops in similar locations, called ‘comparables’. Once they have arrived at an open market rental figure you will be in a much stronger position to either initiate the rent review process yourself or respond to any revised rent proposal made by the landlord. It may well be that the agent decides, based on comparables, that there is no justification for any increase in the passing rent. Without a surveyor’s advice it is much harder to negotiate the proposed revised rent back down to a realistic level.

 

5. Plan ahead

Commercial leases often provide that the revised rent can be agreed between the parties at any time during the six months leading up to a review date. There is nothing to stop you contacting your landlord direct and agreeing the revised rent without recourse to professional advisers. If you wait for your landlord to make revised rent proposals then, in most cases, the revised rent proposed will be significantly higher than the current rent. If you are able to pre-empt the landlord’s rent review proposal by proposing a fair and reasonable revised rent figure based on an open market valuation then your landlord is less likely to want to go to significant time and money in arguing the revised rent figure.

 

6. Record the revised rent.

Finally, make sure the revised rent is recorded by way of a rent review memorandum and that this document is kept safely along with the lease.