How to arrange a rent increase. Industrial Units

[Deleted member 59730]

It has come round to the time when I would normally adjust the rent of my industrial units. However at the present time I think it would not be helpful for my tenants so I do not intend to increase now.

Any ideas on how I can do this so that the rent is fair when it does go up in a year or twos time?

 

[KM-Tiger]

Perhaps get a Surveyor or Agent to assess the rent?

Is there legal stuff you need to get done to inform the tenants you are deferring the rent increase to such and such a date?

 

[WaveJumper]

You sound like a caring sharing landlord if you feel that your tenants deserve a break can you not simply write to them and say this is the planned increase as per the lease etc etc however you will defer the increase for 12 months and it will take effect on such and such date.

Are you confident that those in occupation have all suffered throughout lockdown many businesses have thrived?

 

[Energise Accounting]

It has come round to the time when I would normally adjust the rent of my industrial units. However at the present time I think it would not be helpful for my tenants so I do not intend to increase now.

Any ideas on how I can do this so that the rent is fair when it does go up in a year or twos time?

Commercial rents are normally based on the Rateable Value of the premiss.

 

[Deleted member 335660]

It has come round to the time when I would normally adjust the rent of my industrial units. However at the present time I think it would not be helpful for my tenants so I do not intend to increase now.

Any ideas on how I can do this so that the rent is fair when it does go up in a year or twos time?

Our landlord lays it down in advance in the contract. Our rent will increase by 3% each year for the next 5 years. Simple and nobody has any surprises.

 

[kulture]

Commercial rents are normally based on the Rateable Value of the premiss.

No they are not. Commercial rents are based on whatever the landlord thinks they can get away with. Then increased by whatever formula set out in the lease.

 

[WaveJumper]

That would be interesting as the business rates are based on the market rental value on 1st April 2015

 

[Energise Accounting]

That would be interesting as the business rates are based on the market rental value on 1st April 2015

Just add inflation.

 

[Energise Accounting]

No they are not. Commercial rents are based on whatever the landlord thinks they can get away with. Then increased by whatever formula set out in the lease.

Business rates are based on the open market rental values in 2015. If you just increase by inflation for every year since. I bet in 90% of cases there will not be huge differences. As that is pretty much the formula surveyors use, to establish a fair rent.


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[Financial-Modeller]

How you handle the rent increase partially depends on the variation to any provision for an increase within the lease, but also to whether you plan to cancel any planned increase or defer it.

If he lease contains no provision for an increase now, you don't need to do anything.

If today's rent is GBP100, and the lease provides that it should increase by GBP3 per year, it's not completely clear whether you are proposing to increase the current rent to GBP103 or GBP106 in 2 years, IYSWIM.

In either case if you and the tenant(s) reach an agreement, document it.

 

[Financial-Modeller]

Business rates are based on the open market rental values in 2015. If you just increase by inflation for every year since. I bet in 90% of cases there will not be huge differences. As that is pretty much the formula surveyors use, to establish a fair rent..

Was that taught at the RICS Associateship level or Fellowship level?

 

[kulture]

Business rates are based on the open market rental values in 2015. If you just increase by inflation for every year since. I bet in 90% of cases there will not be huge differences. As that is pretty much the formula surveyors use, to establish a fair rent.


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Actually what proper surveyors actually do is go look at the property and surrounding properties, find out what the other properties are rented out at and make an educated calculation baised on that and the specificis of the property.

Meanwhile the valuation office who set the RV for 2015 made a rough guess looking at a map of thge area, and maybe a quick drive by. (but mostly just looking at a map). The RV will have little or no relationship to the CURRENT market rate. The idea that JUST inflation is taken into consideration is wrong. There are many other factors that can change the likely rental income of a property. For example I know of MANY retail shops where the rent charges is significanltly LESS that the RATES, let alone less than the RV. This is because the market has changed a lot since 2015.

Then regardless of what a good surveyor says, any estate agent will try to inflate the rent as much as they can.

I should take you up on that bet, because you would be so wrong.

 

[Deleted member 59730]

Actually what proper surveyors actually do is go look at the property and surrounding properties, find out what the other properties are rented out at and make an educated calculation baised on that and the specificis of the property.

Thanks for all the replies.

I have 2 units on an estate of 10. There hasn't been an empty unit for more than ten years so I think that an estate agent/surveyor would be very unfair to the tenants.

The renewals are every 3 years. If I informed them of the increase but didn't charge while they have covid difficulties what percentage should I use?

 

[Energise Accounting]

Actually what proper surveyors actually do is go look at the property and surrounding properties, find out what the other properties are rented out at and make an educated calculation baised on that and the specificis of the property.

Meanwhile the valuation office who set the RV for 2015 made a rough guess looking at a map of thge area, and maybe a quick drive by. (but mostly just looking at a map). The RV will have little or no relationship to the CURRENT market rate. The idea that JUST inflation is taken into consideration is wrong. There are many other factors that can change the likely rental income of a property. For example I know of MANY retail shops where the rent charges is significanltly LESS that the RATES, let alone less than the RV. This is because the market has changed a lot since 2015.

Then regardless of what a good surveyor says, any estate agent will try to inflate the rent as much as they can.

I should take you up on that bet, because you would be so wrong.

What I should have said is take my solution as a starting point that is what a surveyor told me they do. Then look around the area if all the shops are boarded up you are going to have to lower your expectations. Same with industrial units. Although as quite rightly pointed out estate agents will inflate the price. A good one will tell you about demand in the local area. But again, you can normally see that for yourself.

But also, as others have said it is normally within the contract.

You are probably miss judging the VOA quite a bit they will have a fair idea of the rents paid in a local area we have a group of around 6 shops in our local area and every couple of years at least one will be asked how much rent they are paying. So, they pretty much know if rents are going up or down.


And I can tell you they are also pretty much on top with it within the pub trade as well. Where the Pubcos will try and trick a naive person into signing a high rent deal.


Like everything else it comes down to supply and demand you could have some great looking retail units whatever the surveyor or the VOA say if there is no demand you will not find a tenant.

 

[WaveJumper]

Surveyors and agents will always have a very good handle on the latest deals done and the rents achievable in any given area of the country. You can even turn to Google yourself and get a pretty good idea of what the average price per square foot is i.e. Cornwall industrial units £7.73

 

[Deleted member 335660]

Thanks for all the replies.

I have 2 units on an estate of 10. There hasn't been an empty unit for more than ten years so I think that an estate agent/surveyor would be very unfair to the tenants.

The renewals are every 3 years. If I informed them of the increase but didn't charge while they have covid difficulties what percentage should I use?

Our landlord uses 3% but you have three options:

1. Base it on inflation or cpi
2. Base it on property prices
3. Don't base it on anything just make your own decision.

The important thing from a tenants point of you is knowing what is going to happen, not just having a fixed price for 3 years then suddenly finding your rent going up by 10%.