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How to resolve a rent dispute on your commercial property

Tuesday, June 17, 2014

Many leases on commercial properties, shops, offices, industrial units, etc. allow for periodic rent reviews, usually every 3 or 5 years. Most leases have what is known as “upward only” rent review provisions. This means the rent cannot be reduced. The best you can expect is for the rent to remain the same, or perhaps be increased only slightly.

Rent reviews

Landlords will understandably approach a rent review as an opportunity to increase the rent as much as possible. It is natural for the landlord to want more for his property, and it is equally natural for you to want to pay as little as possible. It follows that rent reviews often result in situations where landlords and tenants fall into dispute.

Dispute clauses

A commercial lease will normally include a dispute clause. This will set out a method for resolving rent disputes that involves the appointment of an independent surveyor who will set the rent for the next 3 or 5 years. If you run small businesses, and have had no experience of dealing with a rent review, the prospect of resolving a dispute this way can seem daunting, but it need not be.

Appointing an independent surveyor

The dispute clause will usually provide that you and the landlord can attempt to agree who the independent surveyor will be. If they cannot agree, which often happens, the lease is likely to provide for one of both parties to apply for the independent surveyor to be appointed by the Royal Institution of Chartered Surveyors (RICS). When RICS appoints an independent surveyor, it has a duty to ensure the surveyor is appropriately qualified to decide the rent to be paid on the premises, and that he or she has no conflicts of interest. 

Deciding the rent

The way the independent surveyor will go about deciding the rent will depend on whether he is appointed as an arbitrator or as an independent expert. The roles are similar in many respects, but there are distinct differences, one or two of which are as follows:

  1. An arbitrator will invite you and the landlord to provide him your views on what the rent should be, and ask for you both to provide evidence to support them. The arbitrator will decide the rent on the basis of whose argument and evidence is the most persuasive. An arbitrator cannot carry out his own investigations into the local market or comparable properties, and he must make a decision that falls somewhere between the rent levels arguedby both you and the landlord..
  2. An independent expert has a more investigative role. He will normally listen to the parties’ arguments and take evidence, but he is not bound by these. He can make his own investigations and use his personal knowledge of the market to arrive at a decision.

The similarities between roles of arbitrators and independent experts are many, and perhaps the most significant is that their decisions are usually binding and enforceable.

The cost for getting a dispute resolved by an independent surveyor will depend on a number of factors, including the complexity of a dispute and the amount of time the independent surveyor is required to spend on a case. If you have signed up to a “small business lease” as published by RICS, the costs of the independent surveyor will usually be capped. 

For more information about resolving rent review disputes contact: RICS Dispute Resolution Services, Surveyor Court, Westwood Way, Coventry CV4 8JE

T 020 7334 3806 F 020 7334 3802 E drs@rics.org W www.rics.org/drs

Download the RICS Small Business Property Guide for comprehensive advice on common property decisions and actions you may need to take - from acquiring a lease to challenging a dilapidations claim – along with vital property-related issues such as valuations, planning permission and the business rates system.

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Martin Burns BA (Hons) LL.B (Hons) Barrister Head of ADR Research and Development Royal Institution of Chartered Surveyors (RICS)

Speaker profile - 2014 Martin’s role involves promoting RICS as a leading source of conflict avoidance and dispute resolution services for land, property and the built environment. He is involved in researching and developing conflict avoidance, early intervention and dispute resolution strategies for governments and industries in the UK and global markets.

Martin has recently worked on projects in Australia, South Africa and the United Arab Emirates, and has been advising government officials and built environment professionals in Poland and the Irish Republic.

Martin is a trained mediator, a member of the Chartered Institute of Arbitrators and has over 23 years’ experience in the dispute resolution sector. He has Honours Degrees in Politics and in Law, and was called as a Barrister by Lincoln’s Inn in 2005.