#3395 - Rent, Service Charge & Rent Review Clauses Crib Sheet - Property Law and Practice

Rent & Rent Review Clauses

RENT

1. Is the amount of rent certain?

   1. Determined by rent review?

   2. Insurance premiums?

   3. VAT?

   4. Service charges?

2. Does the lease set out date from which rent is payable?

   1. First payment date?

   2. General payment dates?

3. Is there a rent suspension clause?

   1. If premises damaged or destroyed so cannot be used by tenant
      

4. Does the lease provide for interest on late payment by the tenant?

5. Does the lease provide for VAT – is it included in Rent or over & above?

6. Has tenant breached rent clause

   1. Is there a guarantor?

      1. 17 LT(C)A 1995 serve notice of claim upon former tenant or guarantor within 6 months of current tenant’s default

         1. Failure to serve valid notice will result in landlord being unable to recover sum from person concerned

         2. Only 6 years’ arrears of rent are recoverable

7. Remedies against former tenants or sub-tenants

   1. 17 LT(C)A 1995 serve notice of claim upon former tenant or guarantor within 6 months of current tenant’s default

      1. Failure to serve valid notice will result in landlord being unable to recover sum from person concerned

      2. Only 6 years’ arrears of rent are recoverable

      3. 18(2) LT(C)(A) 1995 former tenant not liable for full rent if it has increased as a result of a rent review – apportion the amount correctly

   2. Is sum owed greater than 750?

      1. Landlord can start insolvency proceedings against tenant

   3. Distress

      1. Enter the demised premises & seize chattels to the value of the debt

   4. 6 Law of Distress Amendment Act 1908 if there is a sub-tenant then superior landlord can serve notice on sub-tenant requiring him to pay rent to superior landlord until arrears paid off

   5. Forfeiture

      1. See lease for forfeiture clause

      2. Also if residential property then have issues with eviction

SERVICE CHARGES

1. Is there a service charge clause?

   1. Landlord concerns:

      1. Landlord has an obligation to provide services

      2. Often requires payment in advance

      3. Reserve right to charge for services on the basis of estimate of service costs

      4. Have a sinking fund

      5. Ensure that there are terms in the lease to deal with adjustment to charges

   2. Tenant concerns

      1. Is cost shared between tenants?

         1. Divide cost by reference to floor area tenant occupies OR

         2. Distribute on a fair & reasonable basis

      2. Ensure estimate is based on a proper assessment of what projected costs are to be

      3. Does landlord have transparent auditing provisions

      4. Ensure that any other items of expenditure landlord may incur are expressly made recoverable

         1. Bank interest & bank charges

         2. Legal expenses & professional fees

         3. Management charge

         4. Costs of enforcing the obligations under the lease

2. Has landlord or tenant breached the service charge clause?

   1. Remedies same as for rent

VAT

1. Price deemed inclusive of VAT unless contrary is stated

   1. On sale of freehold SCPC 1.4.1 applies whereby the sale will not constitute a supply for VAT purposes

   2. Tenant ensure contract excludes 89 VATA 1994. If seller opts to tax after exchange then option can be on top or rent or purchase price

2. Notice must be given within 30 days to HMRC when opting to tax

3. If consideration is given in return for a rent-free period then VAT at the standard rate applies. If no consideration is given, then no VAT is applicable

4. Cannot retrospectively charge VAT

5. Landlord can offset input tax it has made on supplies by charging output tax on tenant

RENT REVIEW

1. Is there a rent review clause?

   1. Fixed increases could unfairly disadvantage a party depending on whether a rent is being overpaid or underpaid

   2. If rent is pegged to inflation then the problematic as the RPI may vary dramatically from region to region

   3. Turnover rents only really appropriate for leisure or retail units

   4. Upwards only

      1. The Code states that the landlord can insist upon an upwards only rent review but discouraged from doing so and encouraged to offer alternatives on request & give reasons if not

   5. OMR – BE SPECIFIC

      1. If acting for landlord then not term equal to unexpired residue, but term equal to 15 years on review date?

      2. If acting for tenant then alter best rent to reasonable rent

2. What are the landlord’s concerns? – Assumptions that:

   1. Vacant possession

   2. Premises fitted out & equipped for immediate use

   3. Fully restored

   4. Complied with obligations in lease

   5. No work has been carried out that diminished the rental value of the premises

   6. Any inability to recover VAT is ignored

3. What are the tenant’s concerns? – Assumptions that:

   1. Property is let as whole or in parts

   2. Term equal to contractual term commencing on relevant review date

   3. Rent review is included in the hypothetical lease

      1. A tenant is more likely to pay a higher rent in the open market if there was no provision for rent review

   4. Tenant is subject to the benefit of any rent free period

   5. Complied with obligations in lease

      1. When acting for the tenant, do not assume that the landlord has complied with his obligations in the lease

   6. Disregard goodwill attached to premises by reason of tenant’s business

   7. Disregard any effect on rent caused by tenant’s improvement to premises

4. Is there a provision for interest in the case of a delay on the rent review?

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