Huge rise in commercial rent (Doubling for one neighbour)

[d4ndy]

Hello Everyone,

Just a question really, has anyone else been subject to a huge increase in light industrial commercial rent?

In brief, my direct neighbour early in 2017 negotiated a new three year lease at an increase of 11%. In July at our three year review of a five year lease) we were looking at a 60% increase. By December I had manage to negotiate this down to 46% (which was then back dated to the actual 3rd year break in May... can they do that? I was asked to sign but not date the letter of agreement to the increase and send it back).

Our lease ends in May and we are now being offered another increase of a further 16%, this is an increase of 68% on what we were paying originally. I guess I should be happy as another neighbour on our estate who has a fast food franchise is being asked for a 106% rise!!!

I was just wondering if this is a nation wide thing or it is specific to our area. The local commercial agents pretty much have the monopoly around here so they kind of dictate the current values of property.

Thanks for your feed back.

Dan

 

[Mr D]

One of my friends had a lease renewal recently, his went up by 25% - he wasn't pleased but it was in line with what he would pay elsewhere in the area for similar.
Landlord doing new lease - if its too high then negotiate or refuse and move out.
If its so much above similar elsewhere in the area then should be easy to avoid paying the higher rent.

 

[deniser]

Warehousing is in extremely short supply because of Brexit so if your neighbouring units include warehouse space this could be having a knock on effect.

https://www.theguardian.com/politic...ace-nears-capacity-firms-stockpile-for-brexit

 

[d4ndy]

Landlord doing new lease - if its too high then negotiate or refuse and move out.
If its so much above similar elsewhere in the area then should be easy to avoid paying the higher rent.

Thanks Mr D,
Oh to have a landlord to negotiate with (and I could have weathered a 25% increase) we have a local commercial agent a managing agent then anonymous hedge fund.

It is the local agent that sets the increase based on what they are letting similar local properties for. As they have the lions share of lettings it is not easy to find cheaper properties.

We are currently negotiating but to refuse and move out is easier said than done when you consider the 15k spent kitting the place out and really nowhere else to go accept maybe out of the area.

I understand the dollar vs. the pound will increase the cost of the products I buy in but where does the high increase in rent feature on a British piece of soil with British managing agents and a British Hedge Fund?

Thanks.

 

[Mr D]

I understand the dollar vs. the pound will increase the cost of the products I buy in but where does the high increase in rent feature on a British piece of soil with British managing agents and a British Hedge Fund?

Thanks.

Its possible you are paying for the reduction in return on other rented properties. Last year and probably this year too there were multiple large retailers doing a CVA and reducing the rents they pay / impacting returns the owners have on the property.
Hedge fund owning commercial property - maybe losing money / less return on other aspects.

Or simply wanting more profit, which will make up for your reduced profit.

 

[d4ndy]

Thanks again Mr. D, in this instance it seems the people setting the current market value are in fact the local agent but your comment is very much appreciated.

I guess my burning question is not necessary why our rents have had such an increase but how far spread it is? We are in Essex just outside the M25 and was wondering if the rest of the country were experiencing similar percentages of rise.

Thanks

 

[DavidWH]

Supply & Demand.

Near us they have demolished warehouse units, to build offices. Now there is a shortage of industrial units.

The neighbouring estate was fully refurbished, they were asking really high rents a few years ago. Now they're fully occupied.

Other local estates are at high capacity.

Just blame Br***t

 

[d4ndy]

Just blame Br***t

Thanks David, there is a lot of development activity around here building industrial units and warehousing but it is all large units, 20,000 sq. ft. plus. A site being developed opposite us are 50,000 to 150,000 sq. ft.

The agents will always say under 2000 sq. ft. are in short supply so command the premium rent which is true. So why don't the developers build smaller units if they are worth so much more per sq. ft.?

Think I'm in the wrong business! Bloody Br***t

 

[DavidWH]

Similar issue with us, so when the tenant next door vacated, we snapped up their unit and knocked a hole through the wall, cheaper, quicker, and easier than doing a full move.

 

[Financial-Modeller]

We are currently negotiating but to refuse and move out is easier said than done when you consider the 15k spent kitting the place out and really nowhere else to go accept maybe out of the area.

This sentence is the pertinent one and explains the rental demand.

 

[kulture]

All too true. Sometimes a good solicitor will enable you to put in good clauses in the lease to limit or control rent increases. Does your lease have any such?

 

[d4ndy]

All too true. Sometimes a good solicitor will enable you to put in good clauses in the lease to limit or control rent increases. Does your lease have any such?

Unfortunately not. In short any review or renewal rate is set at the current market value. I'm hoping to reassign the lease next door (A much lower rate for 13 months) but of course that will be dependent on the managing agent agreeing to the move.

Thanks

 

[kulture]

Unfortunately not. In short any review or renewal rate is set at the current market value. I'm hoping to reassign the lease next door (A much lower rate for 13 months) but of course that will be dependent on the managing agent agreeing to the move.

Thanks

This is not necessarily true. Any commercial lease can say anything regarding how the rent will be reviewed. Clauses can be added to limit the increase. Some leases peg it to the RPI, some add a clause saying that tenant's improvements cannot be considered, others have an arbitration clause. It all depends what is in the lease. Perhaps your lease does not have any such protections and is thus open to abuse by the agent.

The lower rate next door could be used as an argument that your rate should not be increased. The "current market value" is open to interpretation.

 

[The Byre]

Buy a place! If you need a bricks and mortar building then you are in the real-estate business, but if you are renting, you are sitting on the wrong side of the desk!

Read this lot - https://www.ukbusinessforums.co.uk/articles/is-the-pursuit-of-equity-a-better-business-model.925/

 

[d4ndy]

We are currently negotiating but to refuse and move out is easier said than done when you consider the 15k spent kitting the place out and really nowhere else to go accept maybe out of the area.

This sentence is the pertinent one and explains the rental demand.

Indeed, as I mentioned in the original post a neighbour who has a fast food franchise is being asked for a 106% rise. There is such an inconsistency in percentage terms but the local agents factor in marketability (not how much you've invested, hmmm.) and as they are on the front of the industrial estate they must pay the premium.

Thanks

 

[d4ndy]

This is not necessarily true. Any commercial lease can say anything regarding how the rent will be reviewed. Clauses can be added to limit the increase.

At the 3rd year review I did show the local agent examples of percentage increases (over the same period) which ranged between 23% to 28% and argued that the 60% we were being ask was unreasonable. The bottom line for them was price per square foot. I did manage to get it back to a 48% increase (pretty much with a gun to my head) being told that if I insisted on taking it further it would go to independent arbitration and if I lost [quote "Which you will"] I would have to pay all of the costs and they would also in force the 60% increase.

I will read through the lease document again but as I said earlier the key wording being 'current market value' is the term the local agents keep quoting.

Also Does anyone have any feedback on the back dating of the review? In brief, May review date, approached in July, agreement made verbally late December and agreement letter received in February which I was instructed to sign only and return not dated?

Thanks kulture, I really appreciate the input.

 

[d4ndy]

Read this lot -

Thanks.

 

[kulture]

Does the lease specify how the current market value is determined? Does it have a clause saying how (or if) you can appeal this market value? A one off cost is likely to be better than an ongoing nightmare. Further have you considered sharing the cost with other tenants in the estate. The current problem is made worse if one or two tenants accept a huge increase as it then increases the current market value. If however one or more gets a lower increase or you all club together to compare the price per square foot with an equivalent estate elsewhere then you may have more chance of getting a lower rent.

Of course they will say that you will loose, but how can they possibly say this, especially if they then give ground.

 

[kulture]

It would be a good idea to invest a bit of money and go pay a commercial surveyor to look at your lease and rent and estimate your chances of winning a challenge.

 

[d4ndy]

Does the lease specify how the current market value is determined?

Sorry for the delay in my response, work and family very demanding at the moment. I did dig out (what I thought was) a copy of the lease agreement, it was the original copy my solicitor had to view. Strangely this copy had reference to the Rent Review in the table of contents but not in the actual document? Anyway today I have located the actual signed document and will be reading through it tonight.

Thanks again for your input here, it really is appreciated.

Dan

 

[Ziggrs]

I think that you have answered your question by saying word “monopoly around here”. In any case, you should try to investigate what are real prices in your neighbourhood and if you find cheaper place, just move. Don’t think that these guys would not do the same thing next year

 

[Supercoach]

Several points here:
1. The new rent may not be decided for months (especially if it goes to any kind of arbitration) but you pay the extra from the date of the review - not the date of the determination.
2. Current market is determined by how others are settling their reviews or the rents when new tenants are renting. Don't let this put you off though as there are many factors, position, facilities etc., that need to be taken in to account and most demands are initially inflated anyway. Get a surveyor on a fixed price as this is much less expensive than years of an uplifted rent.
3. Most retailers on the CVA route have 'upward only' rent reviews so can never get a decrease.
Read your review options very carefully and don't be afraid of challenging any proposals. Going through the review process is expensive in terms of time and money to the landlord.
Hope this help.