The traditional five year gap between property rent reviews is helpful for business planning says commercial property agent Prop-Search, 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. It is also equally important for a landlord to ensure that they are maximising the return on their investment.
Ian Harman, a Director of Prop-Search, said: “For the past five years or so – thanks to a flat-lining economy – there has been limited rental growth between 2008 and 2012 across Northamptonshire.”
“But as the country’s economic situation has started to improve, this has led to the inevitable 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 to pursue an increase.”
One response would be to instruct an experienced surveyor with local knowledge to carry out the rent review negotiations on your behalf, whether you are the landlord or the tenant in occupation. It will give you the reassurance that you are paying a rent, which is in line with the market and takes account of the building’s unique characteristics, plus any issues that impact on rent within the lease.
Another property overhead which will affect budgets is any service charge. In commercial multi-let buildings, 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 receptions, staircases, lifts and also for the costs of security, cleaning, and mechanical and electrical provisions, as well as 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 only charging the items entitled to be billed are being billed. For a tenant any saving in this regard can only have a positive effect profit margins.
