London 2017 is proving to be a very uncertain and unpredictable market in the light of the surprise election, Brexit, terrorism and other related factors which are having impacts.
It is well known that rents have risen dramatically in the centre of London over the last five years and therefore many operators are worried about their next rent review. The issue is that once these rent reviews pass, normally the landlords will appoint a surveyor to get the evidence for them in the neighbouring area. This will usually involve you needing to employ a surveyor as well which will then take you down a track governed by the RICS which is simply process driven. The RICS, which has for many decades not changed its stance in relation to economic circumstances, does not take into account affordability, and so rents can double, treble, quadruple whether the new tenant can afford it or not and assumes that there would be a plethora of new tenants to take up such rents at the new level.
Our advice and recommendation to operators is to consider upcoming rent reviews up to twelve months in advance of any trigger date and have honest upfront conversations with landlords based on current evidence.
What we are doing for many of our clients is taking early action, giving them the current evidence and then approaching directly to try and agree terms based on their economic affordability rather than simply the pounds per square foot and this will often result in a fair increase for the landlords and also avoid hefty costs from the RICS appointed arbitrators and unnecessary delay and increased uncertainty.
We would like to urge the RICS to look at how they consider the settling of rents, especially in a changing economic environment but our main call is to operators to take early action and to contact us in order that we can support and assist companies through what could be a challenging trading period.
It is also to be pointed out that if any operators are looking to assign their leases these will need to be assigned once rent reviews are settled and it will be very hard to assign these leases with hefty rent reviews outstanding. The key is to avoid the surveyor scientific route and work on actual real commerciality, obviously with the basis of what evidence has been achieved in the area.
We actually find that many landlords and asset managers that we deal with are open minded to agree terms with operators they like and they see as being able to work with in the longer term, and are not necessarily committed to achieving the highest rent but actually understand that the right tenant mix should be the focus. However, the driver for many of the landlords’ surveyors is to achieve the highest rent possible as their fees are often linked to this.
Once again the key is that a strategic proactive approach is needed.
If you would like to discuss or seek advice regarding your rent review and business objectives, feel free to have a chat with our Landlord & Tenant specialist David Ford on 0207 100 5520 or firstname.lastname@example.org.