Commercial and Retail Property Management – What Is the Market Rental for the Lease?

Commercial and Retail Property Management - What Is the Market Rental for the Lease?The term market rental arises frequently in commercial, industrial, and retail property. Establishing market rental will normally occur in one of the following situations:

Granting a new lease to a new tenant within the property At the time of rent review within an established lease The lease renewal to an existing tenants within the property

The negotiation of market rental becomes difficult and frustrating to handle unless you have all the details and facts of the local market to support your negotiation.

The negotiation of this type of rental is perhaps the most drawn out and difficult to achieve when it comes to most leases. On that basis, many landlords prefer not to place too many market rent reviews within the lease documentation for a premises or property.

It is quite common for a tenant and landlord to be in dispute when it comes to this type of rent review. When this occurs, the lease document normally has a process of resolution involving arbitration and independent valuation information. Always refer to the lease when it comes to how you should handle a review dispute.

Large Properties versus Small Properties

When it comes to this type of rental negotiation in a large property with numerous tenants, the comparisons between the tenancies will sometimes help and establish their own levels of comparable rental. This therefore makes the negotiation of rental in a large property much easier given the reliability of and access to accurate information in the current property location.

When negotiating market rental in a single stand-alone tenancy or a single property, it is somewhat harder to achieve detailed comparable market information from the properties nearby. Landlords and property managers should cooperate to share information of this type.

A further factor to consider is that the other property and its rental information may not be directly comparable in the same location. Variations can occur in and directly because of property type, tenancy type, location, lease incentives, and building improvements.

What are the alternatives?

It is of note that many landlords will choose to avoid market rental review requirements by adopting other review processes in their leases such as fixed increases, fixed percentage increases, and increases that are indexed to the local consumer index. This is quite a sensible alternative providing the tenant is in agreeance at the time of original lease negotiation.

Market rent is therefore a difficult rent review process to adopt that will create debate. It should only be used where significant changes in the local property market for tenancies and leases are expected. That being said, this type of rent review process and its implementation may also be enforced at particular times by local legislation relating to leasing (retail property is a case in point in many locations). When in doubt or when needing further information as to how this rental review type can be implemented, seek the assistance of a locally qualified and experienced property solicitor.