The traditional five-year gap between property rent reviews is helpful for business planning – but leaves half a decade to rue mistakes if you get it wrong.
Property rent is a huge overhead which can deeply affect a business if the balance isn’t struck correctly, hitting a company’s profits and potential for growth.
For the last five years or so, however – thanks to a flat-lining economy – rent reviews have almost been in the realm of folklore with rental increases rare in most parts of the UK, and particularly in the Midlands.
But as I am sure you will have noticed, the country’s economic situation is starting to improve and this will inevitably lead to a rise in demand for commercial premises.
On a simplistic level, an increase in demand will lead to an increase in market rents, so tenants with rent reviews coming up will no doubt find their landlords starting aggressively to pursue an increase.
One response is to instruct an experienced surveyor with local knowledge to carry out the rent review negotiations on your behalf. It will give you the reassurance that you are paying a rent which is in line with the market and takes account of your building’s unique characteristics, plus any issues that impact on rent within your lease.
Another property overhead which will affect budgets is the service charge. In commercial multi-let premises, this is billed to the occupiers of the property by the landlord to cover spending on maintenance and repairs to the common parts used by all the tenants.
Such areas typically include reception areas, staircases, lifts and also for the costs of security, cleaning, and mechanical and electrical provision (heating and cooling) as well as the structural costs.
It is a charge that is governed by the covenants of the lease and the costs are set by landlords and budgeted on an annual basis. As such, it is often considered the hidden cost of occupation.
However, these areas could be neglected if their management is not undertaken correctly or, conversely, services could be provided to a higher than expected level – and both scenarios will impact on rental levels too.
It is always advisable to have your service charge reviewed by a surveyor to ensure that the landlord is only charging for items he is entitled to bill for as a high service charge impacts on your cost of occupation – and consequently your profit margins.
