Commercial property rent reviews - new lease

Buzwaldo

I am in the process of negotiating a lease on a commercial property.
The lease will be for a defined period, probably four or five years.
I want to include an option to renew at the end of the term, and prospective LL is ok with this.
The question is, how can we define a guide for a rent review? I don’t want the renewal option to trigger a huge rent increase after me establishing business here, and my LL wants some framework to ensure that the rent can be reviewed at that stage. We would both be anxious for a framework, as negiotiating the current rent has been a bit of an ordeal and we don’t want to have to repeat it all again in a few years, and would be happier to have some ground rules. (bearing in mind that having negiotiated the rent, we still haven’t fixed definitely on a term). Obviously nobody knows what economic conditions will be like in a few years hence need for guidelines.
TIA.

davo10

I'm not sure that you can dictate ground rules 5 years in advance unless the Lankord agrees to them and agrees to be bound by the lease agreement. Most commercial leases set down a time frame for rent review, this is typically 5 years, but I doubt any landlord would agree to be bound by a percentage/amount by which the rent would increase. The market conditions at the time would set the new rental rate, that may be an increase or decrease. This also works in your favour if rents decrease, you don't want to commit to an inflation linked, or percentage increase in advance, if at the time of renewal the local rents have dropped.

The fact that no one can predict conditions in 5 years, should preclude any mechanism being agreed to now.

Fian

Put yourself in prospective landlord's shoes - from that perspective you appear to want a one way bet. you want an option to renew at a predetermined or quasi - predetermined rent, with no obligaion to renew if it doesn't suit you.

You do have statutory rights of renewal for a business tenancy after 5 years though. Is that not sufficient protection for you?

http://www.irishstatutebook.ie/eli/2008/act/14/section/47/enacted/en/html#sec47

- follow the links back - section 17 of teh 1980 act as amended by various enactments.

Buzwaldo

Both my landlord and I are looking for a framework, but neither of us are that familiar with commercial rental procedures, hence asking here. I’m not looking for any guarantees, but similarly want to avoid a hike above market rates.
I may be somewhat captive in a few years, having developed footfall for my particular type of business to his premises (which is not in standard commercial area) and having staff employed etc.

We had kinda agreed a five year lease, but he now wants to leave it at four ( and I knew five years offered some protection, but wasn’t sure what exactly - thanks for the link).

I suppose I was looking for an index of commercial rents ( kinda like the consumer price index, or rate of inflation) where we could say that any rent increase would have to be broadly in line with such. Or knowledge of what might be standard in such cases.
Thanks for the replies.

davo10

Standard in such cases is for a landlord to either check with an EA or online what the going rate is for commercial property in your area. I really can't see what you are looking for here, there is at least an equal chance of you tying yourself into an index linked increase as there is of commercial rental rates going down. It would be fair to both you and the LL for rent to increase/decrease to market at the time of renewal, why should he accept anything less, why should you pay anything more? You seem to want to insulate yourself against an increase in rent in a few years, I just can't see what incentive there is for the LL to agree. The market will set the rate at renewal.

CeilingFly

Surely you are using a solicitor.

1. You need a 5 year lease without a renunciation clause. This gives you a legal right to a new lease. A 4 year 11month lease does not give any rights

2. Commercial rents can go up or down. If you can't agree on a rent in 5 years you can opt for arbitration.

3. All leases are listed on propertypriceregister.ie. This gives you a guide line to what similar properties are leased for.

happyfriday74

If your only taking a 5 year view the landlord will offer you a 4 year 9 month lease. You will negotiate any further term as if it were a brand new lease and terms will be guided by whatever the market dictates in 4 years 9 months time.

5 year lease will give you renewal rights unless you sign a Deed of Renunciation- much easier for the landlord to get you to sign up the a 4 year 9 month lease.

If you want to consider lease in 5 years why not a ten year lease with an break option at year 5?

Regarding getting surprised by sudden jump in rent....all commercial leases now have upward or downward reviews and the rent decided will be guided by market evidence on the street or area- recent lettings, rent reviews etc.

antoinolachtnai

What you want is very feasible. You need the advice of at the very least of solicitors versed in landlord and tenant law and you may need the advice of estate agents.

There is really no shortcut on this. Neither you or your landlord are knowledgeable enough for you to sort this out without this specialists’ advice.

There is no commercial property index that would be any use for your purposes. Commercial property is just too diverse to generalize about.

All this costs money. Arbitrators and the like also cost money if they are required. But it really is part and parcel of dealing in commercial property.

davo10

The ops solicitor will not be able to dictate to the LL what terms and conditions are in the lease, including anything to do with rent review. At best the solicitor will be able to advise if any of the terms contravene commercial tenancy legislation.


What the op wants isn't difficult to understand, he wants to limit any rent increase in 5 years times, and it is only easy to do, if the LL agrees to the limit. I just don't see what the benefit of this would be to the LL.

Whatever t&cs are in the lease the LL offers, the op can accept or reject them, that's about it unless the LL agrees to negotiate. I wouldn't say the LL doesn't know what he is doing, he knows enough to have a term short of 5 years.

CeilingFly

antoinolachtnai wrote: »

What you want is very feasible. You need the advice of at the very least of solicitors versed in landlord and tenant law and you may need the advice of estate agents.

There is really no shortcut on this. Neither you or your landlord are knowledgeable enough for you to sort this out without this specialists’ advice.

There is no commercial property index that would be any use for your purposes. Commercial property is just too diverse to generalize about.

All this costs money. Arbitrators and the like also cost money if they are required. But it really is part and parcel of dealing in commercial property.

Any solicitor will know the basics of the landlord & tenant act. but estate agents are just sales people looking for the highest commission and would not be reliable.

Propertypriceregister.ie has details under "commercial leases" of all leases created - they appear fairly quickly after lease signing and give a good indication if a similar property has been let.

Arbitrators do cost money, but most people are reasonable and in many cases there will be knowledge of other local deals

antoinolachtnai

Many solicitors just won’t do landlord and tenant. There isn’t much money in it, there is a lot of work and there is lots to know.

Estate agents are people with knowledge of the industry. That’s the purpose of engaging them. They often act on behalf of both sides, not just the seller. (This is a fact quite separate from any views anyone may have about the probity or competence of agents.)

Someone is going to have to negotiate something here. But knowledge is essential to do this effectively.

It is likely that the landlord is indeed cuter than he lets on to the OP.

The OP is right to recognize the importance of this negotiation. But in my view he/she just doesn’t know enough to handle this negotiation unaided.