28 Jan Landlord & Tenant: Rent reviews, subletting and service charges
Rent reviews should be clear and headline rent review clauses should not be used. Landlords should on request offer alternatives to their proposed option for rent review priced on a risk-adjusted basis. For example, alternatives to upward only rent review might include up/down reviews to market rent with a minimum of the initial rent, or reference to another measure such as annual indexation.
Where landlords are unable to offer alternatives, they should give reasons. Leases should allow both landlords and tenants to start the rent review process.
- Assignment and Subletting
• allow tenants to assign the whole of the premises with the landlord’s consent not to be unreasonably withheld or delayed; and
• not refer to any specific circumstances for refusal, although a lease would still be Code compliant if it requires that any group company taking an assignment, when assessed together with any proposed guarantor, must be of at least equivalent financial standing to the assignor (together with any guarantor of the assignor).
Authorised Guarantee Agreements should not be required as a condition of the assignment, unless at the date of the assignment the proposed assignee, when assessed together with any proposed guarantor:
• is of lower financial standing than the assignor (and its guarantor); or
• is resident or registered overseas. For smaller tenants a rent deposit should be acceptable as an alternative. If subletting is allowed, the sublease rent should be the market rent at the time of subletting.
Subleases to be excluded from the 1954 Act should not have to be on the same terms as the tenant’s lease.
- Service Charges
Landlords must, during negotiations, provide best estimates of service charges, insurance payments and any other outgoings that tenants will incur under their leases.
Landlords must disclose known irregular events that would have a significant impact on the amount of future service charges.
Landlords should be aware of the RICS 2006 Code of Practice on Service Charges in Commercial Property.
Contributor: James Page