Rent Reviews and Lease Renewals
Both of the Gibson Gale valuers have a wealth of experience in dealing with rent reviews and lease renewals within Gibraltar and it is important to appoint a valuer as early in the process as possible, ideally before initial notices have been served.
The valuer needs to be conversant with the local property market, research values, measure floor areas in accordance with the Code of Measurement Practice, identify Tenants´ improvements and read the lease to ascertain any restrictions which may reduce the value.
The review/lease renewal procedure has to be carefully considered to formulate a strategy. Knowledge of the local letting market is essential and comparable transactions have to be researched in detail.
The process involved is sketched out below:
A) Rent Reviews
Commercial leases typically provide for the rent to be increased periodically, reviews are normally to "market value" and are ´upwards only" every three, four or five years. There are also other forms of review based upon business turnover and pedestrian footfall.
Most reviews are to "market rent" although the lease often defines hypothetical circumstances including vacant possession, good repair, full lease term etc.
Premises are compared with others which are similar and have been let recently on the open market. In practice, no two properties are identical, and adjustments have to be made for location, size, layout of accommodation, condition, use, rent review pattern, tenants improvements and many other variables.
The landlord and tenant most commonly appoint valuers to value the premises taking into account all of the variables and market information, and to negotiate the market rent by analysing and testing each others evidence and assumptions.
iii) Rent Review Procedure
The procedure is laid down in the lease but most leases provide for the landlord to serve notice prior to the review date with a suggested revised rent based upon the valuation.
The tenant appoints a valuer who advises on rental values and makes a counter proposal to commence negotiations.
Failing a negotiated agreement, the rent is decided by an independent valuer or arbitrator.
B) Lease Renewals
Business tenants usually have a right to renew leases under the Landlord and Tenant legislation (unless they have specifically contracted out).
Typically the landlord will serve notice on the tenant terminating the lease and stating whether or not it will oppose a new lease (opposition can only be on limited grounds). Both parties can appoint valuers who negotiate the terms of the new lease including the rent.
Failing agreement, the tenant may apply to the court for a new lease. There are strict time limits for formal notices which should be served by the parties respective Lawyers.