Rent reviews are a mechanism for adjusting a tenant's rent to the current market level. Similarly, the revaluation of rating assessments adjusts the rates an occupier pays, bringing it into line with rental values.
You negotiate rent reviews (if your lease provides for them) with your landlord. You discuss rates with your local Valuation Office. The key questions are whether an increase is reasonable and if you should challenge it.
1. Rent review basics
The landlord's right to increase the rent, and your right to challenge an increase are detailed in your lease agreement. Read it, and discuss it with your professional adviser, who should specialise in property.
The frequency of rent reviews is typically once every three to five years
- As a tenant, you want rent reviews to be as far apart as possible. Your rent then lags behind any general increase in rents.
- A short lease may have no rent review.
The new rent is usually the open market rental value at the date of the rent review
- This is the rent the landlord could expect to receive if the premises were leased to a third party, on similar terms.
- You may have agreed a low rent for the original lease, but this is irrelevant. It does not entitle you to continue with a low rent.
- Some leases have fixed increases or link the new rent to increases in the Retail Price Index or some other inflationary index.
If the rent review is 'upward only', the rent cannot go down at the rent review
- This applies even if the open market value of the rent is lower than your current rent.
The lease will include a range of 'assumptions'
- These are aimed at making comparisons with other premises easier when deciding the open market rental value.
- The 'use of the premises' assumption can increase or decrease the rental value.
- If a building can be used either as high-value office space or low-value storage space, the rent will be valued on the assumption that the tenant will use it as an office. It is irrelevant that the tenant may really only be using it for storage.
The landlord must usually give you notice, in writing, if the rent is to be reviewed
- Three months is a typical notice period.
- This gives you a chance to decide if the proposed increase is reasonable.
- If you decide an increase is unreasonable, inform the landlord in writing immediately. Give your reasons.
- There may be a deadline for replying. If you miss it, you may have to pay the new rent.
2. Negotiating a market rent
At a rent review your landlord will want to increase the rent. Strengthen your position by gathering evidence to show that the proposed rent is too high.
Collect information on the rents charged for similar premises in the area
- Ask fellow tenants what they are paying.
- Commercial estate agents can provide details of properties to let.
- Obtaining details of the rents that have actually been agreed is more difficult. You may be able to reach an agreement to swap information with other tenants.
Form your own estimate of the open market value of your premises
- When analysing the rent of other premises, make any necessary adjustments for incentives (or premiums).
Try to reach a settlement with your landlord at this stage
- If local rent levels are collapsing, consider proceeding more slowly. But observe any time limits set out in the lease.
- If you are in shared premises, consider negotiating jointly with other tenants.
- Until agreement is reached, you can continue paying rent at the old rate. On settlement you will have to pay the difference between the passing and revised rents.
If appropriate, negotiate better terms in your lease as part of your rent review
Your surveyor can compile the necessary evidence and negotiate on your behalf
- If the negotiations become acrimonious or legalistic, fully involve your solicitor.
3. Third party rent dispute resolution
If you cannot agree the new rent, the lease usually specifies that a third party should resolve the dispute and sets out the procedure to be followed.
First try to agree on an independent third party, such as a local chartered surveyor
- You can veto the landlord's suggestion, if you think this person favours the landlord.
- If you cannot agree the appointment, an independent appointment must usually be made by the President of the Royal Institution of Chartered Surveyors.
An arbitrator's decision will be based on evidence presented by you and the landlord
- Your professional adviser can help you build and put forward a strong case.
- The arbitrator decides how the fees and costs of the parties should be apportioned. If there is a clear loser who is seen to have been unreasonable, that party could be ordered to pay the full costs.
An independent expert's decision will be based on his or her own knowledge and investigations
- The independent expert need not consult you or the landlord.
- Usually you split the fees equally with the landlord and pay your own costs, even if you win the appeal.
The major drawback of going to a third party is the cost, as well as the time
- The fees are usually agreed by you and the landlord with the third party when he or she is appointed.
- You can expect to pay at least £2,000, plus the cost of your own professional advisers.
- The third party's decision is usually announced once the fees have been paid.
- Going to a third party may not pay off, especially if your rent is low. But it may be the only way to reach an agreement.
Once the third party's decision is made, any rent owed is payable immediately
- The new rent is backdated to the rent review date. Interest is likely to be payable.
The alternative way to settle a rent dispute (if your lease allows it) is to use a mediator
- You and your landlord need to agree who the mediator will be.
- Using a mediator may be a quick and cheap solution. But the mediator has no authority to impose a rent on either party.
4. Understanding business rates
All non-domestic property is subject to business rates
- Living accommodation - including most accommodation within business premises - is subject to council tax.
- Business rates are normally payable by the occupier of the premises.
- If your lease or licence agreement states that the rent is inclusive of rates, it is your landlord who is responsible for paying the rates. If the landlord defaults, the local council can pursue the occupier.
- Similar but different arrangements apply in England, Scotland, Wales and Northern Ireland. Although the systems are similar, each country has its own multiplier and relief schemes. The details given below apply to business rates in England.
The amount you pay in rates is based on the rateable value of your premises
- You can check how your rateable value has been calculated by contacting the Valuation Office Agency (VOA).
- A revaluation of rateable values came into force on 1 April 2017. The rateable values are based on open market rental values on 1 April 2015.
- Any new premises (or any changes to existing premises) are valued at the rent they would have commanded in April 2015.
- The next revaluation of rateable values is expected on 1 April 2023, based on rental values on 1 April 2021.
- The rateable value is the same, whether the premises are owner-occupied, leased or licensed.
The normal rates payable are calculated by multiplying the rateable value by the multiplier
- The multiplier (sometimes called the Uniform Business Rate or UBR) usually changes each year in line with inflation.
- From 1 April 2021, the standard multiplier in England is 51.2p. So for a building with a rateable value of £100,000, the annual rates would normally be £51,200.
- A lower small business multiplier, 49.9p, is used for businesses eligible for Small Business Rate Relief (SBRR) and for businesses with rateable values below £51,000.
- There is a supplement for buildings in London with a rateable value over £70,000.
- Special rules apply in the City of London, which usually charges a small supplement over the standard multiplier.
Some businesses are eligible for Small Business Rate Relief (SBRR)
- The business must occupy only one main property, with a low rateable value.
- Eligible rate payers automatically qualify for 100% SBRR on buildings with a rateable value up to £12,000. There is a tapering relief from 100% to 0% for properties up to £15,000.
- For rateable values between £15,000 and £51,000, there is no percentage reduction but the small business multiplier is used.
- Businesses that occupy additional properties may still be able to claim the relief on the main property, provided that the rateable value of each of the other properties is less than £2,900.
- You must inform your local authority if your circumstances change in any way that is likely to affect your entitlement to SBRR. For example, moving to new premises.
You may qualify for other reliefs
- If the property (or part of the property) is empty.
- Empty commercial premises are exempt from business rates for three months. Industrial and warehouse buildings qualify for a further three months' exemption. After that, full business rates are payable.
- Businesses that start up in or relocate to a newer enterprise zone (those starting in April 2016 or April 2017) before March 2021 or March 2022 may qualify for a 100% business rate discount for five years up to a maximum £55,000 per year.
- Listed properties and those with a rateable value of under £2,900 are exempt.
- Certain agricultural properties, those used for religious worship, the welfare and training of disabled people, charities and qualifying amateur sports clubs also qualify for reliefs or exemptions.
- Pubs, post offices and village shops in rural areas with a population below 3,000 may qualify for 100% relief.
- You may receive a temporary reduction if your business is affected by severe local disruption (such as flooding or major roadworks).
- The government introduced extra COVID-19 business rates relief for some businesses.
Your local authority will send you a rates bill each year
- You have a choice of when to pay. Most businesses pay in ten equal instalments.
5. Challenging your rates
If you disagree with your premise's rateable value, contact your local VOA office
- Discuss the valuation and why you think it is incorrect.
If you still do not agree with the rateable value, you can make a formal proposal
- You can appeal on the basis that the rateable value of the premises is significantly different from the open market rental value of the premises on 1 April 2015.
- You can also appeal if the premises are adversely affected by a change in circumstances. For example, structural alteration of the premises or the loss of nearby parking facilities.
- You can only make one proposal on the same grounds during the life of a rating list (the current list runs until the next revaluation).
The VOA will consider your proposal and discuss it with you
- A property adviser, such as a chartered surveyor, can advise you and make a proposal on your behalf.
- Avoid 'cowboy' advisers who may provide you with poor advice for a large fee. Try and use an adviser based on a personal recommendation.
- The VOA will advise you when they are ready to discuss your proposal.
- If you cannot agree a revised assessment, you can appeal to a valuation tribunal.
If your rates challenge is successful, you receive a rate refund
- This might be a repayment, a reduction in your monthly payments, or a credit for the next year.
- You usually receive interest on the amount owed to you.
- Find a surveyor through the Royal Institution of Chartered Surveyors (RICS).
- Find out about the RICS Small Business Scheme for rent reviews (020 7334 3806).
- Find a solicitor through the Law Society.
- Check or appeal the rateable value of business premises with the Valuation Office Agency (03000 501501).
- Contact your local council about business rates relief in England.
- Get information on business rates relief in Wales.
- Get information on business rates relief in Scotland.
- Get information on business rates in Northern Ireland.
"You may wish to appoint an agent to act on your behalf in making a proposal and, of course, the vast majority give sound advice. But be wary of the few who promise big savings yet do not provide a good service. Always look carefully at the terms of the contract and make sure you understand what they are - particularly the basis of the agent's remuneration." - Patrick Bond, Deputy Director, Rating, Valuation Office Agency