rental increase

[inform]

Hello to you very helpful people

We are negotiating a new 10 year lease with our existing tenant who has a non-assignable FRI lease with with a fixed rent for the period without any rent reviews.

We are happy to renew his lease on the same terms subject to a rental increase and rent reviews every five years. The tenant is adamant that he is not going to pay any rental increase and at the same time wants an assignable lease ( which we have offered in return for the increase) and reduce his repairing obligations. (he's let the premises fall into disrepair and has done nothing to maintain it at all). After months of negotiations we are at stale mate.

The problem is that our surveyor negotiating the new terms has said that he cannot find a property in the area similar to ours (there are so few of them around) that justifies an increase and that if the matter went to court he could not prove that the premises were worth any more than the existing rent. The increase we are asking amounts to 2% which is in line with inflation. Naturally we do not want the matter to go to court which would cost us the increase we are likely to achieve on top of solicitors and surveyors costs. My question is, if the surveyor has said that after 10 years he cannot confidently go to court and justifiy any increase is there any other means by which we can resolve this matter without going to court such as arbitration and in the event we do, what outcome could we expect in your opinion.

It seems all the cards are stacked against us and the courts are in favour of the tenants!

Thank you in advance for you reply

[yeahbutno]

Unless your property is in an area which has gone drastically downhill in the last 10 years, I think it would be virtually impossible to argue that the rental value hasn't increased - and by a damn sight more than 2% as well...more like 100% in most areas!

Get a new surveyor. A good one.

[yeahbutno]

Just to add - assuming the lease is correctly written, he is already legally responsible for the repairs. You should invoke the relevant clause immediately.

I think the clause to deny assignment is probably an unfair clause (legally) and could probably be challenged in court successfully.

If it is within the L&T, then the tenant is entitled to the same terms, in other words he probably CAN hold out for a lease without a rent-review after 5 years. However, he certainly CAN'T get away with avoiding a rent increase now, if the market rental is higher than it was 10 years ago (which it almost certainly must be?) The fact that there are no similar local properties doesn't give any more strength to his argument than yours. Surely your surveyor can provide figures on average rentals locally now compared to 1996 and apply that increase to your case?

[inform]

Thank you for your suportive advice but unfortunately our surveyor is pretty adamant that the value of the property has not increased at all. We keep being told that if it goes to court he would not be able to support us as he doesn't have any evidence becasue there are not other premises like ours in the area. He just doesn't have anything to comapre it with. He said he has even discussed with other prominent local companies. We are sticking to our guns for the 2% increase from the tenant in the hope that he will break without going to court. If it does, any increase we gain will be swollowed up by court costs. :rolleyes:

Thanks anyway.

[propman2]

on the legality of assignment prohibition no it is not illegal, a landlord has the ability subject to agreement to control his lettings strictly in this manner to control the tenant mix for example in a parade of shops

[propman2]

also if it went to court under renewal the court would look to replicate the terms of lease so as it is non assignable and 10 yera review this would be starting point. Why not trade off a 5 year review for the tenant ability to assign.

If it remains at a 10 year lease, I suspect the court would look at this in your favour and grant a higher rent to reflect that the rent cannot be increased for 10 years and is therefore inflation prone.

[yeahbutno]

Still find it incredible to believe that rentals have stayed absolutely static for 10 years anywhere in the UK. Are there some exceptional circumstances?

[inform]

First thanks for all you comments.

The rental set 10 years ago was an arrangement based on mutal agreement since the tenant received the business and its goodwill we started for nothing. The rent was slightly higher than the market rate. We are now being told that if this matter goes to court the judge will look negatively on the lease because there are no alienation rights and therefore could in fact reduce the rent! Had we known all this prior to serving the section 25 notice we would have refused renewal on the basis of wanting the premises back and placed it on the open market. Anyone know whether there is anyway of doing this now. We wouldn't mind if he wanted to keep his business for himself, but he now wants alienation rights just so that he can sell it off which shouldn't be allowed. Any thoughts

[yeahbutno]

Why should he not be allowed to sell the business that the has owned and run for the last 10 years?

[inform]

Because it was agreed at the outset that the premises would be returned to us. Further we wish to develop the premises and use it ourselves and it would not be fair on any new tenant to pay a substantial amount for a business only for it to be returned to the owners at the end of the term.

[yeahbutno]

Thanks Inform. I understand now!

Presumably, the lease specifically excludes the Landlord & Tenant Act in terms of tenure? That being the case, the tenant has no right whatsoever to any new lease, and you are fully within your rights to either insist on a new lease on your terms, or serve notice to quit.

[agingsurveyor]

The lease must be within the L&T Act otherwise the OP wouldn't have mentioned S25 notices or going to court.

I'm slightly confused by the OP's contradictory references firstly to wanting the premises back to relet in the market and then to develop and occupy himself.

Under the Act you can ONLY obtain possession under one of the specified grounds. Reletting in the market is not one of them! Redeveloping or occupying yourself are both valid grounds but you have to be able to provide rigorous proof of a genuine intention and financial ability to do either of them.

What sort of property is it? It must be very unusual if there are no comparables?

[yeahbutno]

When the OP wrote "....Because it was agreed at the outset that the premises would be returned to us...", I assumed it meant that he had a non L&T lease.

Legally, if that isn't the case, then the tenant has every right to a new lease, and I still think he could also successfully challenge the non-assignement clauses as unfair. However, I'm still perplexed by the idea that the rental value is no different from 10 years ago.

[agingsurveyor]

Clauses that prohibit assignment and/or sub-letting are not uncommon in commercial leases and the "unfairness" provisions do not apply.

A restriction on the right to assign would, however reduce the rental value when compared with a lease with no such restriction. Likewise a ten year lease without review should command a higher rent than one with rent reviews. However that assumes that rents are generally increasing, which the OP's surveyor says he cannot establish in this case. If there really are no comparables then I have some sympathy because as an expert witness in a court case the surveyor is required to act for the court, not his client, to enable it to reach a proper decision. Unsubstantiated assertions about rental value would be stamped on very quickly by counsel for the other side, and the judge.

[inform]

Thank you all for your comments they have been most helpful and particularly the last thread, it explains why our surveyor is extremely nervous.

When we approached the surveyors 18 months ago to guage our position in the market place we were told at that time the rental would now attract an increase and to place it on the market above the rental we are now requesting. 18 months down the line a different person but same company has taken over the case but has contradicted everything the previous surveyor has said in terms of rental value. Further during this period the tenant did try to sell his business and we tried to support him with this, (about 8 months ago) we negotiated and agreed a rent which is the same we are asking the tenant. Although We have this in writing, our surveyor has said that this could not be used as comparable evidence. The deal was aborted because 1. the tenant wouldn't meet his repairing obligations (another story), and 2. the existing lease was coming to a close.

We really feel we have been messed around and not been forwarned adequately to make an informed decision despite having a solicitor and surveyor to act in our interest. We really do not want to go to court and the situation as it stands is that we have offered the tenant a new lease on exactly the same terms for the same rent but only 5 years. We do want to develop the premises and yes we do have a genuine business to go back in with but the timing in not quite right yet. We know the new terms wont be acceptable to the tenant and it will probably go to court. Its worrying that the court will not take any circumstances in consideration regarding unsubstantiated assertions about rental value.

It all seems so messy and thank again as I have gained more insight from you people than those who I am paying to receive it from.

Infrom

[agingsurveyor]

I think you may well have a reasonable chance of success. You will be seen to be acting reasonably in offering a new five year lease (or possibly a ten year lease with a break at five years?) because your own plans are not finalised. You should be prepared to put up a good case about your wish to occupy yourself and the court will balance the interests of both parties. If you limit the court hearing to the single point of the lease length it shouldn't be too expensive but your solicitor will advise you on this. Mind you "expensive" is a relative term! The new lease will still be within the L&T Act so you will have to be prepared to prove your case in five years time.

[inform]

Thanks you for that, I am heartened. Hopefully our new business plan will be up and running and if nothing else, this process has taught us a valuable lesson.

In appreciation.
Inform

[propman2]

when you serve a s25 notice you either advise that a renewal would not be opposed or object to renewal on one of the grounds under the act.

you may have missed the opportunity to object. ask a solicitor

However you mention there are no tenant alienation rights therefore if the renewal went to court because you could not agree terms for a renewed lease, the court in my view could not insert such a clause.

Therefore the tenant will not be able to realise the value of the business by selling it on as he cannot assign the lease!