Now that we are returning to a system where Pubco's are granting short 'tied' leases (3 or 5 years) - as opposed to 10 or 20 year leases - there are more lease renewals than rent reviews to be dealt with.
This is a double edged sword. Whilst many pubcos will be keen to deal with these in a fairly informal way, they are covered by legal procedures set out in the Landlord & Tenant Act 1954 (unless they have been excluded by prior agreement between the parties). Either party may serve notice to continue or discontinue the tenancy/ lease. Once a legal notice is served, the landlord has two months to oppose a new tenancy, whilst the tenant must make an application to court before the expiry of the Notice if they are not to lose their rights under the Act. Given the legal elements and strict timescales that need to be applied to avoid losing your rights it is highly advisable to have a solicitor over see the process.
On renewal, the rent is set to market value, either by negotiation or by a determination by the Court. The rent can go down as well as up on lease renewal and generally it must exclude:-
- tenant's occupation (the extra a tenant would pay to stay put rather then move - even next door),
- tenant's goodwill (the extra a tenant can afford because they had built up a business) and
- tenant's improvements (voluntary works over and above repairs that have improved the value of the property).
Generally, the terms of the lease will stay the same. If either party wishes to change the terms, it is incumbent upon that party to prove the need for a change (pubcos often want a tenant to sign its latest lease which may involve some different terms to the original, a court would decide if these changes are reasonable or not).
Lease renewal is intended to protect the business Tenants interest, giving rights for lease renewal and an opportunity to rebalance the rent to a market rent. (This is more applicable to standard institutional leases with upward only rent review clauses not the modern Pub Co agreement which are much more flexible and invariably now allow upward and downward rent reviews during the term.)
Whether you are a Landlord or a Tenant with a long term goal or you are thinking of selling your business as soon as you have agreed your new lease terms, it should be to your economic advantage to employ an experienced rent review surveyor to advise upon and to negotiate the terms of the new lease, including the level of rent.