Michael Large, Senior Associate – Coleman Coyle
Head of Legal – GOTA
If you are seeking urgent assistance please contact us for our list of recommended professional service providers. Confirmation of your membership will be required to receive discounted rates from selected providers.
What is new or different?
The majority of Railway property across the UK has been sold to Blackstone & Telereal Trillum. These two property investment companies have formed a joint venture and subsidiary company called The Arch Co. The Arch Co has purchased the leasehold for 5200 arches. The National Audit Office has carried out a study into this sale. If you would like to know more detail, you can read the full report here: NAO Report
Many other areas of Railway Property have been sold to various other landlords, some to local authority and others to private investment firms. We are working collectively to get the best support, legal and regulatory advisors, recommended by our members to share their skills and knowledge to benefit us all.
We have recently learned that some 70 railway properties recently purchased by the Arch Co are not actually owned by The Arch Co but are leased back to Network Rail and therefore come with further challenges in tenant/landlord communication and negotiations.
Network Rail continues to retain ownership and management freehold and the railway infrastructure along with a large number of arches which were not included in the asset sale to Blackstone & Telereal Trillium. Knowing who your landlord is important. Please contact us if you are unsure.
What to do when you get a letter from your landlord saying “Rent Increase Notice” / “rent Review” or “Lease Renewal”:
You have to respond, objecting to the rent increase, within a limited time, the time limit will be written on the letter and in your lease.
Failure to respond correctly and within the given deadline may result in being stuck with the rent increase.
A Counter Notice should be sent to the landlord via Recorded Delivery post and headed ‘Counter Notice’. An email will not suffice. The letter Counter Notice should make it clear that you object to the new rent being proposed and that you invite the landlord to negotiate with you. You can also pass the letter on to your appointed Surveyor to deal with this on your behalf but be sure to do so straight away in order to give enough time to respond within the time limits set out within
the lease.
Lease renewals: if you have security of tenure (see 6 below) you have certain legal protections. To end your lease, the landlord has to serve you with a “Section 25 Notice”. If you do receive one of these notices, take legal advice straight away: the notice tells you to in no uncertain terms. There will be a deadline in the notice.
You have to take action before that deadline OR YOU WILL LOSE YOUR LEASE.
The action you need to take will depend on your circumstances. If you want to stay, you will have to either: agree an extension in writing, which is only a temporary solution; agree a new lease and have it legally completed before the deadline, or; apply to court for a new lease before the deadline. There are more details at (6) below but you should protect your security of tenure for the good of your own business. It is also possible to protect yourself by serving a “Section 26 Notice” on your landlord.
How is the rent negotiated?
The rent review process will be specified within the lease and this is usually by way of open
negotiation but is based on comparable transactions, taking into account your specific lease terms,
location, specification, tenant’s improvements and other factors.
The rent can be negotiated directly between the Landlord and the tenant or alternatively each party may appoint their own representative to act on their behalf. Your landlord would usually undertake the smaller and more straight forward negotiations themselves, whilst the larger more contentious transactions would usually be outsourced to a firm of Surveyors.
If the respective parties cannot agree the new rent amicably, either party may refer the matter to the RICS for the appointment of an independent Third Party to determine the new rent. This process can be very expensive and the outcome is uncertain.
Comparables, what is that?
‘Comparables’ is the term used to describe the market transactions relied upon to agree the new level of rent. These comparable transactions could be an Open Market Letting, Lease Renewal, Rent Review or Third Party Determination. The type of transaction will also carry different weight to be applied when assessing the new rent.
Comparables are vital. Do remember that in a rent review arbitration you can demand ALL of the relevant comparables from the landlord – not just the ones that favour them. Your solicitor should be able to help with that. A really good surveyor will also be able to get access to a lot of that information through all sorts of completely legitimate means that you won’t have access to. It is likely to be worth the investment. We are of course working to pool this type of data ourselves to give tenants extra tools to help them.”
It is important to note that there are a number of valuation considerations to take into account when assessing these comparables, which will also determine whether they are even comparable at all.
Your landlord will or should put forward supporting comparable evidence of the rent he is seeking and it is up to you or your surveyor to analyse and verify this information and to seek your own comparable evidence in order to best negotiate your case. Your landlord will naturally put forward the rental evidence that suits them and so it is always advisable to carry out your own research or appoint your own surveyor in order to act in your best interests.
It should not be assumed that your rent will automatically increase as this will depend on whether the comparable evidence justifies it. The lease will usually dictate that the rent cannot be decreased at rent review so if the comparable evidence shows a lower rent than that which you are currently paying, your rent would stay the same. It should be noted however, that at lease expiry/renewal, the rent can go upwards or downwards.
Can they back date rent increases?
Yes, nearly all the leases say “time is not of the essence” in relation to rent increase notices which means they can ask for the increases from review date in the past. In some cases they have
asked for increases back dated several years in the past.
It is not always legally possible to force a landlord to start a rent review. But if you ask them, and try to force the issue, they may respond.
In some instances, it may be possible to negotiate that some of the back dated rent is waived but this is on a case by case basis. The best way to ensure that you will not be subject to a back dated rent increase is to check your lease and instigate any forthcoming or outstanding rent reviews.
Your surveyor will also be able to assist in reviewing your lease and advising on any future or outstanding lease events and can diarise this so as to keep on top of impending events.
Understandably, businesses do not like to think about their rent being increased and so tend to put it off, however, if it is dealt with proactively, this will save money and stress later on.
Secure Tenure. What is that?
Your lease may not say so but you may have a protected lease under the Landlord and Tenant Act 1954, giving you Security of Tenure.
The general rule is if your lease does not mention it you are most likely covered by the Act.
Many landlords have just about stopped allowing secure tenure on new leases. It may be worth negotiating to try to get it when you are negotiating a new lease.
This is an important and valuable right. It gives you rights to remain in the property, rights to negotiate a new market rent (that may go up or down) in the new lease, and rights to compensation if your lease is terminated (in certain circumstances).
Find out if you have security. If you do, make sure you understand the process you need to go though to get a new lease, and to keep your security. It is recommended that you seek legal advice on this issue as it is tricky and complicated.
If you have a lease that rolls over with no fixed date, this is likely to give rise to a periodic tenancy. If you did not have the protection of the Act under your fixed term lease, you may have acquired it if the lease rolls over without anything having been said. If you do have a protected lease, this generally means that you have the automatic option of being able to remain in occupation on expiry of the lease (and requesting a new tenancy).
However, there are still a number of prescribed grounds on which the landlord can object, including persistent late payment of rent, breaches of the lease or demonstrating an intention to redevelop.
It is an important and sometimes valuable right. Find out if you have it, and if so make sure you understand the process you and Network Rail needs to go though in granting you a new lease.
What should I do?
Speak to the other tenants in your area and see if you can share information and advice amongst yourselves. Join our tenants association and benefit from joining forces.
Seek professional advice, especially that of a qualified RICS surveyor who is experienced in negotiating commercial rent reviews and lease renewals. The money they can save you should far outweigh their professional charges and in addition you will receive sound strategic advice concerning your lease.
RICS Surveyor, what’s that?
The Royal Institution of Chartered Surveyors is the professional organisation that governs and regulates surveyors who provide property advice and related services such as valuation, consultancy and negotiation. Always check that your surveyor is currently registered as qualified by checking here: http://www.rics.org/uk/find-a-member/