Part 4 – Rent
The rent is often seen as the most important element of a lease because it can be the tenant’s most significant outgoing and it is the landlord’s main reason for granting a lease. Rent is usually defined by an annual amount but is frequently paid quarterly, for largely historical reasons. Some landlords are changing to monthly rent payments as this can be better for the cash flow of both parties.
Rent is almost inevitably paid in advance not arrears, as a form of security for the landlord. Additionally, some landlords ask for a rent deposit of, say, three months’ rent. The landlord can use this money if the tenant defaults under the lease in anyway but otherwise has to return the deposit when the tenant, legitimately, leaves the property.
In some cases, usually as a result of the condition of the property[add link to part 7 later?], a tenant can negotiate a rent free period or a discounted rent at the outset of the lease to reflect the costs they are about to incur in fitting out the property. As these works are often seen as an improvement to the property the argument is that the landlord should bear the cost and does so by not collecting as much rent.
The rent will be fixed for a period of time, sometimes the full term if the lease is not too long. There may be fixed increases at certain intervals but commonly, with a lease of any significant length, a rent review will be likely. This gives the landlord the opportunity to increase the rent to bring it in line with current market levels. It is very rare to ever see the rent decrease on a review.
The lease will contain detailed provisions as to how the new rent will be calculated and is generally agreed between the parties at the time. However, if agreement cannot be reached, the lease should contain a procedure by which the rent is determined by referral to an independent expert, usually a chartered surveyor. In some cases, the lease will state that the rent will be increase in line with inflation, by reference to a specific inflationary index, such as RPI.
In this series of articles, we are aiming to give you a brief overview of the principal areas covered by a commercial lease. These articles are for guidance only and do not represent legal advice. If you need advice or assistance on leases or any other property concern, please do not hesitate to contact Andrew Rannie, Head of the Property Department for a free initial consultation.