Is 30% Commercial rent increase reasonable?

[tallblonde]

Our 3 year lease comes up for renewal in November.
We are good tenants and always pay early.
The landlord has let me know the rent is increasing by 30% and said that will only cover their mortgage.
They said the actual value indicates an increase of 50% would be more appropriate, but they'll settle with 30% .
I've been watching their behaviour over the last 18 months and 30% increase is typical...despite it causing long term businesses who've rented from them for 20+yrs to leave..
Their steep increases has even hit local press at least twice in that time when tenants tried using public support to force a less steep increase...with no joy and they've ended up leaving.
I've been searching for alternate premises since the last renewal 3 yrs ago and nothing has fit the bill.
I've also approached the local council to enquire about converting residential to commercial and thats no longer an option in our area.
When I queried having a rent free period at the very start of our tenancy they laughed and threatened to convert the space to residential.
I know the council would DEFO give permission to convert to residential and it would generate 100% more rental income for them.
I think i know the answer...if we want/need to stay we need to pay up as are no local alternatives...and I've seen them be ruthless in the last few months with other renewals.
But my question is......Is 35% increase in commercial rent reasonable?
Many thanks.

 

[Newchodge]

Our 3 year lease comes up for renewal in November.
We are good tenants and always pay early.
The landlord has let me know the rent is increasing by 30% and said that will only cover their mortgage.
They said the actual value indicates an increase of 50% would be more appropriate, but they'll settle with 30% .
I've been watching their behaviour over the last 18 months and 30% increase is typical...despite it causing long term businesses who've rented from them for 20+yrs to leave..
Their steep increases has even hit local press at least twice in that time when tenants tried using public support to force a less steep increase...with no joy and they've ended up leaving.
I've been searching for alternate premises since the last renewal 3 yrs ago and nothing has fit the bill.
I've also approached the local council to enquire about converting residential to commercial and thats no longer an option in our area.
When I queried having a rent free period at the very start of our tenancy they laughed and threatened to convert the space to residential.
I know the council would DEFO give permission to convert to residential and it would generate 100% more rental income for them.
I think i know the answer...if we want/need to stay we need to pay up as are no local alternatives...and I've seen them be ruthless in the last few months with other renewals.
But my question is......Is 35% increase in commercial rent reasonable?
Many thanks.

May I suggest that it is a non-question. Apart from defining resonable for whom and the existing terms, which might be extremely beneficial to the tenants, or to the landlord.

Knowing others think it is or is not resonable does not affect the reality that you either pay it or find an alternative property.

 

[tallblonde]

May I suggest that it is a non-question. Apart from defining resonable for whom and the existing terms, which might be extremely beneficial to the tenants, or to the landlord.

Knowing others think it is or is not resonable does not affect the reality that you either pay it or find an alternative property.

I'm wondering whether to explore if they are open to negotiations. I welcome your thoughts

 

[Newchodge]

I'm wondering whether to explore if they are open to negotiations. I welcome your thoughts

It must always be worthwhile to explore negotiations, but the history you reported concerning other tenants does not bode well!

 

[Mark T Jones]

I'd always explore and attempt to negotiate- remember, negotiation isn't just a question of 'price haggling' look to see if there are other variables you can throw in.

In reality though, you need to be prepared for the 'take it or leave it' option

 

[prophet01]

You do, of course, have the option to challenge the increase:

Can a tenant challenge a commercial rent increase?​

Tenants can challenge a rent increase, however, how this process is dealt with will largely depend on the type of rent review clause in the Lease and the specific lease terms set out in the Lease around rent review.​

• Review the Lease Agreement: The first step is to carefully review the rent review clause in your Lease. If the landlord is proposing an increase outside the terms of this clause, the tenant may have valid grounds to challenge it.
• Request a Valuation: In the case of an open market rent review, the parties can seek an independent valuation from a professional qualified surveyor which can be used as evidence to negotiate the proposed rent increase.
• Professional Recourse: If negotiations between the parties fail, tenants may need to refer the dispute for Expert determination pursuant to the Lease terms or take legal advice. Commercial leases usually provide for rent review disputes to be referred for arbitration or mediation in the first instance.

 

[FreddyG]

We are heading into a recession, so no, a 30% increase is absurd. When businesses start to go to the wall, the landlord will be lucky to get anyone at any price. The BoE has had to drop the base rate from 5.25% to 4.5% and will drop it again soon, after it made the mistake of raising the base rate far too high. They still cling to the silly (Keynesian) idea that interest payments affect inflation -

Hey, kids! Interest payments are a cost. If you raise them, you goose inflation to new highs!

The above is especially true in times of loose money and this and the various previous governments have been spending (and therefore creating) money by issuing bonds like so many drunken sailors on shore leave.

It's another six months until November - I would wait a month or two to see how the economy pans out. Commercial property is standing empty in many parts of the US and what happens there, tends to get exported.

 

[tallblonde]

I'd always explore and attempt to negotiate- remember, negotiation isn't just a question of 'price haggling' look to see if there are other variables you can throw in.

In reality though, you need to be prepared for the 'take it or leave it' opti

Many thanks Mark

 

[tallblonde]

You do, of course, have the option to challenge the increase:

Can a tenant challenge a commercial rent increase?​

Tenants can challenge a rent increase, however, how this process is dealt with will largely depend on the type of rent review clause in the Lease and the specific lease terms set out in the Lease around rent review.​

• Review the Lease Agreement: The first step is to carefully review the rent review clause in your Lease. If the landlord is proposing an increase outside the terms of this clause, the tenant may have valid grounds to challenge it.
• Request a Valuation: In the case of an open market rent review, the parties can seek an independent valuation from a professional qualified surveyor which can be used as evidence to negotiate the proposed rent increase.
• Professional Recourse: If negotiations between the parties fail, tenants may need to refer the dispute for Expert determination pursuant to the Lease terms or take legal advice. Commercial leases usually provide for rent review disputes to be referred for arbitration or mediation in the first instance.

Thank you for this information.
I'm going to sit with this and mull it over.
My concern is that any challenge makes us a less appealing tenant.

 

[tallblonde]

We are heading into a recession, so no, a 30% increase is absurd. When businesses start to go to the wall, the landlord will be lucky to get anyone at any price. The BoE has had to drop the base rate from 5.25% to 4.5% and will drop it again soon, after it made the mistake of raising the base rate far too high. They still cling to the silly (Keynesian) idea that interest payments affect inflation -

Hey, kids! Interest payments are a cost. If you raise them, you goose inflation to new highs!

The above is especially true in times of loose money and this and the various previous governments have been spending (and therefore creating) money by issuing bonds like so many drunken sailors on shore leave.

It's another six months until November - I would wait a month or two to see how the economy pans out. Commercial property is standing empty in many parts of the US and what happens there, tends to get exported.

Many thanks.
We are based in a city in North west of UK.
We are ideally located in the Centre of a town above shops right in the middle of our client footfall.
15 yrs ago the premises used to be a residential apartment which was converted to office space.
The UK government now has changed planning rules which stops residential conversion to commercial use, which is why I've not managed to find an alternative.

You make a good point....things can change in 6 months.

 

[WaveJumper]

A lot of things can come into play, all new leases are a negotiation, seek some professional advice from a local agent to help with your case, you need to know what the local market rate for rents are. You need evidence of latest deals whats been achieved hence the professional advice.

Personally I would not believe a word of what the landlord is saying and as a business obviously always good to have a back up plan but pretty sure he won't have people lining up.

 

[tallblonde]

A lot of things can come into play, all new leases are a negotiation, seek some professional advice from a local agent to help with your case, you need to know what the local market rate for rents are. You need evidence of latest deals whats been achieved hence the professional advice.

Personally I would not believe a word of what the landlord is saying and as a business obviously always good to have a back up plan but pretty sure he won't have people lining up.

Thank you Wave Jumper.

 

[Jprandss]

Hard to know without knowing what rent you are paying (it might be far below market rent), but in a situation like this it's worth getting a commercial estate agent to give you some facts about similar units, and whether the 30% rise is realistic.

I spoke to a commercial agent regarding a tenant he was advising about a unit- he advised the client to accept the rent increase as they were paying far below any of his neighbours, and to realise that they were on a great deal.

"My concern is that any challenge makes us a less appealing tenant."

^^This is a concerning statement, it's impossible to negotiate if you aren't willing to lose face.

 

[Paul Kelly ICHYB]

As a backup plan, start looking at other properties. You might be surprised by the price differences.

 

[tallblonde]

Hard to know without knowing what rent you are paying (it might be far below market rent), but in a situation like this it's worth getting a commercial estate agent to give you some facts about similar units, and whether the 30% rise is realistic.

I spoke to a commercial agent regarding a tenant he was advising about a unit- he advised the client to accept the rent increase as they were paying far below any of his neighbours, and to realise that they were on a great deal.

"My concern is that any challenge makes us a less appealing tenant."

^^This is a concerning statement, it's impossible to negotiate if you aren't willing to lose face.

thank you. This is a good idea.

 

[tallblonde]

As a backup plan, start looking at other properties. You might be surprised by the price differences.

Thank you Paul.

 

[Michael Loveridge]

You do, of course, have the option to challenge the increase:

Can a tenant challenge a commercial rent increase?​

Tenants can challenge a rent increase, however, how this process is dealt with will largely depend on the type of rent review clause in the Lease and the specific lease terms set out in the Lease around rent review.​

• Review the Lease Agreement: The first step is to carefully review the rent review clause in your Lease. If the landlord is proposing an increase outside the terms of this clause, the tenant may have valid grounds to challenge it.
• Request a Valuation: In the case of an open market rent review, the parties can seek an independent valuation from a professional qualified surveyor which can be used as evidence to negotiate the proposed rent increase.
• Professional Recourse: If negotiations between the parties fail, tenants may need to refer the dispute for Expert determination pursuant to the Lease terms or take legal advice. Commercial leases usually provide for rent review disputes to be referred for arbitration or mediation in the first instance.

Unfortunately, this response is wrong and misleading.

This is because it relates to a rent review in an existing lease, whereas the OP is talking about a new lease.

 

[Michael Loveridge]

Our 3 year lease comes up for renewal in November.

Has the landlord served you with a formal notice to quit?

 

[FreddyG]

Two points here -

1. Property prices (esp. commercial property) are falling in the US. (See my previous post!)

2. This is a long shot, but if you are in Scotland, the principle of tacit relocation should apply. i.e. a commercial lease renews automatically at the old price if nobody gives notice to quit. (The key difference is that tacit relocation in Scotland creates a presumption of renewal, whereas English law requires an agreement.)

 

[Chris Ashdown]

How much have your own prices increased over the same period of the lease?