Landlords increasing rents forcing businesses to close or struggle unreasonably

[Jackdale]

This is a national problem I know, but I am seeing more and more businesses forced to close their shops because the increases in rent is just beyond reasonable. There are some businesses w)ho have put their hearts and souls, as well as a great deal of time and personal finance into a landlord's property, often turning them from filthy states of disrepair into something very nice. Then landlords are increasing the rent which is far too much meaning that the landlord has a property that is very much improved, (meaning he can charge more for it) but also means that the tenant has lost all their investment and most likely lost their business if they can't afford to invest in another property.

Can anything be done, or are there any campaigns to try to stop this keep happening please? Landlords seem happy to have an empty property rather than charge a reasonable rent. Surely everyone loses out in this.

 

[MBE2017]

Prime retail rents are forecast to drop for the next 2-3 years, and with many towns high streets showing near record shop closures, I think most of these increases come down to increased costs, recovering from the couple of years of measures during covid 19 etc.

You don’t have to accept the increase, you can try negotiating, but knowing a LOT of landlords, ALL want decent paying tenants, they make no money from empty buildings.

As big a problem is so many of these small shops/businesses are not actually viable, and it’s easy to blame a landlord making a relatively small increase in most cases, forgetting the average 10% or so rents dropped last year in real terms. Increased costs for gas and electric will be much harder to cope with than the rent increases.

End of the day, landlords need to stay in business, increased costs get passed onto their clients, just as you would try to pass on increased costs to yours.

 

[WaveJumper]

landlord costs just like everyone else's have risen sharply whether commercial or private on a apartment block that I am invested in we had to increase the service charge by 5% at the beginning of the year and now had to increase this again mid year which in 25 years is unheard of but maintenance costs have gone through the roof and its not getting any easier.

I do wonder how business's blame rent increases for their demise when actually they have been lame ducks for the last few years (i am not saying this is true of all) its a great way to save face. Spending huge amounts on a commercial property you don't own is fraught with risk as its highly unlikely you will see any return in your investment unless its significantly increasing your bottom line.

I am pretty sure I mentioned this on another thread, talking to a local business here on a site just up the road from us his electric bill far out ways his rent now. The government will point to the fact that they have given help by freezing business rates not much help for the small units who were exempt anyway. Again as discussed on another thread if business's cannot absorb or pass on costs I believe we are going to see mass closures coming by the end of this year its really not looking good.

 

[Jackdale]

This is why I said "reasonable". A 10% increase is reasonable in leases where when they are renewed they are upward only, so from £20,000 to £22,000 might well be reasonable, but from £20,000 to £35,000 is not and there are increases like this. I am seeing shops, even where the council is landlords that are standing empty because the landlords have increased rents beyond reason, so the tenants have had no choice but to cut their losses and leave. This has an impact on the rest of the town because each empty shop is one less reason for a visitor to come shopping.

 

[Mark T Jones]

It's an isolated problem, and one that is unlikely to be addressed.

As a sensible tenant you protect your interests in whatever way you can, which includes not investing heavilly in leased premises (or investing in equipment which is demountable/easilly removed)

Landlords are also businesses - and many are about to hit tough times - they don't want premises empty without good reason (eg they plan to develop), and they will only hike up rents if they see big demand,or if they actively want the tenant out

 

[WaveJumper]

It's an isolated problem, and one that is unlikely to be addressed.

As a sensible tenant you protect your interests in whatever way you can, which includes not investing heavilly in leased premises (or investing in equipment which is demountable/easilly removed)

Landlords are also businesses - and many are about to hit tough times - they don't want premises empty without good reason (eg they plan to develop), and they will only hike up rents if they see big demand,or if they actively want the tenant out

All very true I'm afraid.

 

[MBE2017]

Many landlords will either sell many properties or in commercial cases take advantage of permitted development rights, to convert the building into a useable asset once more.

This is once again down to the Gov lack of housing plans, relying on private investors. By allowing easy developments, most are converting a lot of wasted space into flats, apartments etc. People should be grateful at least some people are trying to help the housing situation, even if it means they are doing this for money. Funnily no one comments on a home owner building an extension or doing a loft conversion, there is no difference in reality, both are property developments.

Personally I welcome such plans, hopefully it will bring many tired and let’s face it run down town centres back to life, where the majority of such opportunities lie.

 

[DontAsk]

Personally I welcome such plans, hopefully it will bring many tired and let’s face it run down town centres back to life, where the majority of such opportunities lie.

This. Plus, lets hope a few coffee shops, betting shops and fast food outlets disappear from the high street.

 

[Financial-Modeller]

This is why I said "reasonable". A 10% increase is reasonable in leases where when they are renewed they are upward only, so from £20,000 to £22,000 might well be reasonable, but from £20,000 to £35,000 is not and there are increases like this. I am seeing shops, even where the council is landlords that are standing empty because the landlords have increased rents beyond reason, so the tenants have had no choice but to cut their losses and leave. This has an impact on the rest of the town because each empty shop is one less reason for a visitor to come shopping.

Firstly, its unlikely that the rent increase is annual, for a typical commercial rental, rent might be reviewed every 3/5 years.

Check out reversionary rent, which may be relevant / applicable.

Secondly, why would a tenant invest in the value of the property, such that the market rent is higher without negotiating a rental agreement appropriate to the investment in the property? To put it another way, would the same tenant have invested the sum the day before the end of their lease?

 

[WaveJumper]

Many landlords will either sell many properties or in commercial cases take advantage of permitted development rights, to convert the building into a useable asset once more.

This is once again down to the Gov lack of housing plans, relying on private investors. By allowing easy developments, most are converting a lot of wasted space into flats, apartments etc. People should be grateful at least some people are trying to help the housing situation, even if it means they are doing this for money. Funnily no one comments on a home owner building an extension or doing a loft conversion, there is no difference in reality, both are property developments.

Personally I welcome such plans, hopefully it will bring many tired and let’s face it run down town centres back to life, where the majority of such opportunities lie.

Quite correct, before I left this sector (commercial property) councils were falling over themselves to help landlords bring development plans for housing into town centres and if we could build over 13 stories the more they seemed to like it. Both landlords and councils have known for years a change was coming to the town centres. Councils long term strategy is to have as much housing in the centre of towns as possible, increasing footfall, increasing the evening economy, more people safer environment and of course more rate payers. These plans always frustratingly take a long time to come together but you can see the evidence of the strategy across many towns now.

 

[WaveJumper]

This is why I said "reasonable". A 10% increase is reasonable in leases where when they are renewed they are upward only, so from £20,000 to £22,000 might well be reasonable, but from £20,000 to £35,000 is not and there are increases like this. I am seeing shops, even where the council is landlords that are standing empty because the landlords have increased rents beyond reason, so the tenants have had no choice but to cut their losses and leave. This has an impact on the rest of the town because each empty shop is one less reason for a visitor to come shopping.

In answer to this direct question, this should be the start to a negotiation, if in this situation and you have know one representing you on a rent review you need to do some home work. You need to find out what the latest rent review deals have been achieved for like for like properties, check with other business owners you can even ask around at some of the local property agents.

If a higher rent review has been agreed near you, next door etc ultimately they have the evidence to push this through even if the deal is taken to arbitration.

So do some homework

Part of your negotiations should included - ok ill sign a new longer lease but will refurbish the unit so you want a 100k plus contribution to the shoplifting. Landlords would sooner give a massive rent free period and a contribution to a new fit out to seal a deal it will be done on "the side" to keep the main lease "clean" ......good evidence if they also doing another rent review a couple of doors up.

 

[Richard Cole]

I have just closed my shop as my landlord refused to negotiate on a new lease. I suspected I was paying much higher rent than other shops near by and so hired a chartered surveyor to negotiate o£ my behalf. He reported back that my rent was around £10K higher than it should have been, mainly due to the lease having a RPI rent review clause that sees it go up every year. Last 12 years this has been about 2.3% but with inflation soring and likely to be over 15% by the end of the year I refused to sign a new lease with this clause and asked for it to be replaced with an alternative rent review mechanism. My landlord hired his own surveyors, the first he sacked as he agreed with my surveyor and then lied to me that he had retired, he hadn't, the second also agreed that the rent was far to high but only offered me a £4,000 rent reduction. Without the RPI clause being removed it was meaningless as the rent would go up to what it was again within 12 months and continue to rise sharply if inflation did not fall back to normal. My landlord was also in the minority during the the lockdowns when 90% of landlords in my very popular tourist location offered their tenants 50% rent reduction, mine didn't. As far as i know he has no new tenant and has now destroyed a perfectly viable business that survived, just, Covid. I had no alternative but to close and without any suitable nearby shops to take over close. I have decided to get out of retail as I suspect that the next 6 - 18 months will be brutal on the high street and we will see lots of shops closing for good over the winter, although I hope I am wrong.

 

[Berbinto]

I'm a private landlord for domestic properties. I understand the need to raise rent to avoid losses, but I never understand why commercial landlords are happy for their shops to remain empty. Surely any rent is better than none?
A good landlord should listen to the tenant as as well.

 

[Mark T Jones]

I'm a private landlord for domestic properties. I understand the need to raise rent to avoid losses, but I never understand why commercial landlords are happy for their shops to remain empty. Surely any rent is better than none?
A good landlord should listen to the tenant as as well.

Ultimately landlords are in the business of collecting rent, though there are a number if potential reasons why they might leave property empty

For example

Commercial property is often valued on rental value, so a reduction in rent can devalue the property, which in some cases will put them in breach of banking covenants.

Often. No rent is preferable to a succession of half-baked start ups, who chop the property around, default and disappear.

Or they might be holding out for planning consent

 

[MBE2017]

Only my thoughts, but commercial conversions will be the next “gold rush” tactic pushed to new investors, an awful load of money is going to be made in the next decade on conversions IMO.

 

[WaveJumper]

Ultimately landlords are in the business of collecting rent, though there are a number if potential reasons why they might leave property empty

For example

Commercial property is often valued on rental value, so a reduction in rent can devalue the property, which in some cases will put them in breach of banking covenants.

Often. No rent is preferable to a succession of half-baked start ups, who chop the property around, default and disappear.

Or they might be holding out for planning consent

Mark is quite right with his examples. Also if its say a large landlord with 50 rent reviews on the go they would sooner have an empty unit or two holding out for a new tenant whilst other negotiations are on the go, its all about rental evidence at this point if they excepted a lower offer on one of those empty ones the whole tone that had been previously achieved could be wiped out affecting their fund valuations and investors would be none to pleased.

 

[MOIC]

In answer to this direct question, this should be the start to a negotiation, if in this situation and you have know one representing you on a rent review you need to do some home work. You need to find out what the latest rent review deals have been achieved for like for like properties, check with other business owners you can even ask around at some of the local property agents.

If a higher rent review has been agreed near you, next door etc ultimately they have the evidence to push this through even if the deal is taken to arbitration.

So do some homework

Part of your negotiations should included - ok ill sign a new longer lease but will refurbish the unit so you want a 100k plus contribution to the shoplifting. Landlords would sooner give a massive rent free period and a contribution to a new fit out to seal a deal it will be done on "the side" to keep the main lease "clean" ......good evidence if they also doing another rent review a couple of doors up.

Agree with all the points above.

 

[The Byre]

There are some businesses w)ho have put their hearts and souls, as well as a great deal of time and personal finance into a landlord's property, often turning them from filthy states of disrepair into something very nice.

Then they are sitting on the wrong side of the table.

Imagine a square table. On one side sits the business tenant. Opposite them sits the owner of the property. Next to them sits the outright owner and business person. Opposite them sits the banker who lent the landlord the money to buy the property. Four people sitting at a square table.

Four people sitting at the property table, but only one of them should actually be there! The others are either struggling or are taking money off that table from the others. Only two of them are generating value for themselves.

What people often forget is that a property is a liability. And if there is a mortgage on that property, it is a large liability - it is as large as the size of that mortgage.

And every liability is someone else's asset.

The two that are generating value for themselves are (1) the banker and (2) the outright owner who uses the property as a business.

1. The banker is the big winner because he owns the mortgage and he uses that mortgage as an asset that acts as collateral for more mortgages. He may not earn much on an individual mortgage, but that may be the stem of umpteen more mortgages that he can then sell in a large bundle. That bundle then acts as collateral for another bank or similar body to engage in more lending. The tale of banking is the tale of The Never Ending Story.

2. The outright owner probably began as a mortgaged owner - but he was clever and bought the property when the market was at a low point, so he could pay off that mortgage fairly quickly. The problem is that the market is at a low point when business is bad and other costs and interest rates are high. That means you must be selling goods or services that sell well in the bad times - discount shops for example. So he/she has to sell goods people MUST have cheaply and must buy in a physical shop. Designer soap and flowers are out. Home brewing is definitely IN!

3. The mortgaged landlord either has his/her nose above the waterline if they bought the property when the market was down - and is going to be under water if they bought at the top of the market. And of course, they must have tenants that pay rent and look after the property.

4. The big loser is the business in a rented shop. He is working for the mortgaged landlord who is working for the bank.

So there you have four people sitting at the square property table - only you can decide which side of the table you want to sit!

 

[N-UPS]

agree

in practice it can be quite hard when there is only in effect one empty seat at the table.

I see hedge funds buying up commercial property and then controlling the pricing. A right to buy scheme would be good. What do blackstone own now? 16 thousand commercial properties in EU?

 

[WaveJumper]

agree

in practice it can be quite hard when there is only in effect one empty seat at the table.

I see hedge funds buying up commercial property and then controlling the pricing. A right to buy scheme would be good. What do blackstone own now? 16 thousand commercial properties in EU?

Around $881 billion of assets at last count across four key areas: real estate, private equity, hedge fund solutions, credit and insurance. They poured a lot of money into EU distribution centres in the last few years catching the BREXIT wave

 

[N-UPS]

881 Billion? Crazy
The equivalent of £13.5K for every person alive in the UK

We are the unfortunate tenants of one of these hedge fund owned properties. They want to double our rent.

Is this happening to other people too?
Last time we renewed the lease it was a 10% increase.

 

[MBE2017]

881 Billion? Crazy
The equivalent of £13.5K for every person alive in the UK

We are the unfortunate tenants of one of these hedge fund owned properties. They want to double our rent.

Is this happening to other people too?
Last time we renewed the lease it was a 10% increase.

As I have mentioned many times, rather than demonising existing landlords, be very afraid of the banks and Blackrock replacement version heading your way. They will be much greedier and less forgiving.

As for what Blackrock own, as one of their managers told me recently in a meeting, pretty much everything, but they are working on the rest.

 

[The Byre]

in practice it can be quite hard when there is only in effect one empty seat at the table.

Made all the harder by Blackrock occupying two seats at that table - the landlord and the banker.

There are however ways to not have to rent a commercial property. Internet sales can be made from anywhere. Restaurants can be off the beaten track. And so on.

I had to learn my lesson the hard way with commercial rents, when the LL wanted to double the rent - I moved out and bought an out-of-town barn and sold stuff from there!

 

[WaveJumper]

The flip side is these funds could be propping up your pension fund or course. There's been many a thread on this topic and remember every rent review is the start of the negotiation process there are many things which can be thrown into the mix.

 

[Financial-Modeller]

I don't understand the preference for small private landlords over pension funds.

As a tenant, I would rather rent a property from a landlord with a large portfolio, set-up in a tax-efficient manner, with a professional property management team, that is likely to offer a longer-term tenancy without wanting to sell the property for emotive / family / personal financial reasons.

BtL doesn't work efficiently for the legions of 'accidental landlords' across the UK, so Pension Funds are more likely to run a portfolio better than individuals managing one property.

 

[N-UPS]

Well it does take money out of the UK if they are offshore. It reduces the corporation tax netted - a doubling in rent reduces profit by that amount which reduces CT.

Secondly with a large entity if they are malign they have the clout to force things, like target rents, by buying up all the cheaper options. Its an uneven relationship, david vs goliath without a regulator like you would normally expect.

They can be as unreasonable as they like. Doubling our rent would put the PE at about 7 - so for every seven years someone rents they could build the warehouse. Why dont we build our own? Lack of opportunity. No land or warehouses for sale. Its all gobbled by.... do you really need me to finish the sentence?

 

[N-UPS]

The flip side is these funds could be propping up your pension fund or course. There's been many a thread on this topic and remember every rent review is the start of the negotiation process there are many things which can be thrown into the mix.

If this is such a good idea we should just increase rents 10000% and all retire on our pensions. We do actually need some economic output at some point... and employ some staff...

 

[The Byre]

They can be as unreasonable as they like.

Can - ? They very often are! These companies have shareholders who compare dividends and expect the highest possible returns. And those shareholders will be largely funds of some sort that are under an obligation to make good returns to pay pensions or whatever the target might be.

Why dont we build our own? Lack of opportunity. No land or warehouses for sale. Its all gobbled by.... do you really need me to finish the sentence?

I know it's getting hard and harder - but there are still niches and corners where one can find land as long as one is not fixed on one region.

As long as you keep your powder dry and wait for the coming depression, you should be able to get cheap property, especially in those parts of the UK that are not within 300 miles of London. It may take five years or so, but that will be a golden opportunity for many business people.

If you have any spare cash, put it into physical gold and sit tight.

 

[N-UPS]

Good advice Byre.

Morally, I'd encourage people to push back as much as possible on this to try to help the future generations of businesses. Its not only the physical environment that is being F***d up.

 

[MBE2017]

As long as you keep your powder dry and wait for the coming depression, you should be able to get cheap property, especially in those parts of the UK that are not within 300 miles of London. It may take five years or so, but that will be a golden opportunity for many business people.

If you have any spare cash, put it into physical gold and sit tight.

Almost impossible to time markets correctly, and add into the pot many property purchases tend to take six to twelve months to go through with our terrible system.

Only time will tell when the right time is, FWIW, if you are planning to hold onto the property long term, as long as the figures stack, anytime tends to be the right time. I’m hoping to pick up property all the time, but an option payment helps cushion recession worries.

 

[tony84]

My lease is due up in December. I emailed my landlord last week and they said they are "currently" increasing rent by 5% for everyone - which seems fair enough as they cover gas and electric.

Although come November when mine is up renewal who knows, it could be more.

 

[Karimbo]

I have just closed my shop as my landlord refused to negotiate on a new lease. I suspected I was paying much higher rent than other shops near by and so hired a chartered surveyor to negotiate o£ my behalf. He reported back that my rent was around £10K higher than it should have been, mainly due to the lease having a RPI rent review clause that sees it go up every year. Last 12 years this has been about 2.3% but with inflation soring and likely to be over 15% by the end of the year I refused to sign a new lease with this clause and asked for it to be replaced with an alternative rent review mechanism. My landlord hired his own surveyors, the first he sacked as he agreed with my surveyor and then lied to me that he had retired, he hadn't, the second also agreed that the rent was far to high but only offered me a £4,000 rent reduction. Without the RPI clause being removed it was meaningless as the rent would go up to what it was again within 12 months and continue to rise sharply if inflation did not fall back to normal. My landlord was also in the minority during the the lockdowns when 90% of landlords in my very popular tourist location offered their tenants 50% rent reduction, mine didn't. As far as i know he has no new tenant and has now destroyed a perfectly viable business that survived, just, Covid. I had no alternative but to close and without any suitable nearby shops to take over close. I have decided to get out of retail as I suspect that the next 6 - 18 months will be brutal on the high street and we will see lots of shops closing for good over the winter, although I hope I am wrong.

let them pay business rates for an empty property for a few years - it might humble them a bit.

 

[WaveJumper]

They only need to speak to the likes of Mothball and a whole collection of others to mitigate the issue of business rates.

 

[Karimbo]

They only need to speak to the likes of Mothball and a whole collection of others to mitigate the issue of business rates.

Ahhh so they're the ones propping up fly by night American candy stores in Oxford strreet

 

[Talay]

What I do know is that for me at least, the days of full insuring and repairing and upward only leases are finished.

Anything we do in the future will be with zero insuring or repairing liability and at open market rent or we simply won't sign.

Yes, rents will be higher to offset some of that liability but that is as it should be. For too long the boot has been on the landlord's foot.

Equally, where we see value in retaining a High Street presence, I strongly suspect we will buy when property becomes available.

 

[N-UPS]

They only need to speak to the likes of Mothball and a whole collection of others to mitigate the issue of business rates.

I dont understand. Are there ways for landlords to "mothball" a property and stop having to pay rates on it?

 

[Karimbo]

I dont understand. Are there ways for landlords to "mothball" a property and stop having to pay rates on it?

Look up American candy store articles. They just get a cannon fodder business to take up the lease with no going concern. They pay some rent for the property (maybe even free) but they take over the business rates responsibility of the landlord.

The tenant business is a Ltd company who has no hope of being viable if thyley rightfully pay the rates so they just run the business until taxes need to filed or business rates bailiffs are sent over.

Then they business gets wound up and rinse repeat with a different one.

There is an under thr table agreement that the tenant business will hand the property back any time to the landlord when they eventually get a real tenant.

With the huge rents and rates in Oxford Street. There just isn't any hope of these properties being let to genuine businesses.

 

[N-UPS]

Thank you for bringing this up. Sneaky!
I found an article

Oxford Street's American candy shops probed over tax dodging claims

Oxford Street American candy shops are being investigated after claims that they failed to pay £7.9 million in business rates.

www.retailgazette.co.uk

The simple solution would be if the unpaid rates goes back to the actual land owner.