Commercial rent raising

[gearoidmm]

A friend of mine has had a business in a small country town for the past 30 years and has been renting the upper two floors of a building in town for his business for the entire time. At the moment the rent is very reasonable but the building has just been sold and the lease is up next July.

The current yield on the property (based on the price paid and the current rent of the upper floors only) is 0.8%. Admittedly this does not include the ground floor of the building which could also be rented out to a new business and therefore the yield would increase. My friend believes that the rent can only be raised by a certain amount but in order to pay the interest on the loan alone, it would have to be doubled at least. Is there any protection afforded to the holders of long term leases with regard to the amount that the rent could be raised in a rent review at the renewal of the lease?

 

[mf1]

My understanding is that, if the Lease is renewed, the rent payable will be the market rent - as in what a willing tenant would pay on the open market. This is not the same thing as what a current tenant feels is acceptable!

From my own family history, I can tell you that when what was a perfectly manageable meagre rent for a family business was reviewed/ renewed it made the whole business unviable. As against that, we were living on borrowed time for as long as we were renting at the meagre rent.

I assume also there will be an option not to renew the Lease? It can come as a dreadful shock to people when they find they have been living on borrowed time.

mf

 

[Lobby]

MF is right, at the time of review the rent will be brought up to the "current open market rent" which is usually established by a valuer.

However, the tenant is just as entitled to employ a valuer to argue their side of the case.

In this situation a negoation process is started, this can be costly and time consuming and ultimately any rent agreed will be back dated to the rent review date.

Having said all that, deductions can be made from the market rent value when other considerations are taken into account. An example might be that the open market rent is based on new premises, whereas the property in question is, say, 50 years old and a bit run down. This is why you would employ a valuer - to argue for deductions on the current market rent.