What do you do at rent review when you own a shop in a secondary location right at the end of the high street? Take the rent you're offered? Or negotiate for every penny? Here's what one happy landlord recently discovered...
Fringe Location
Okay, so end of a parade – actually, end of a secondary parade – and the end of the high street – not exactly a prime retail location. The tenant is a veterinary surgery with a flat above, so not the most desirable space to live above either. And those were the arguments that the landlord faced at the last review in 2009.
Low Expectations
The landlord wasn't expecting much this time around either. His instructions: "We negotiated the rent ourselves last time. See what you can do."
Now, there had been a couple of recent lettings that justified a 10% uplift. But, the first rule of any rent review negotiation is: check the lease, and check the correspondence from the last review.
Because, if you're used to looking at property documentation day in day out, you learn to spot those extra, gold nuggets. And those gold nuggets could maximise your rental income at this and subsequent reviews.
Now, there had been a couple of recent lettings that justified a 10% uplift. But, the first rule of any rent review negotiation is: check the lease, and check the correspondence from the last review.
Because, if you're used to looking at property documentation day in day out, you learn to spot those extra, gold nuggets. And those gold nuggets could maximise your rental income at this and subsequent reviews.
Gold nugget #1 - Parking
You know the sort of parking spaces you normally get behind a parade of shops? They're invariably concealed, difficult to access, slightly foreboding, and not particularly secure. Not much use for customers even if there is a rear access to the shop, or they're well signposted. The bottom line is that parking behind a shop is normally unusable for customers.
However, end of parade parking is different. The rear yard provided a smart, tarmacked parking area with delineated parking spaces, directly accessed off the adjoining residential road.
So, easy to access, far more visible, and right beside the entrance to the shop; a draw for customers, and being right at the end of the high street (or right at the entrance to the high street), sign-posted off-street parking is one of the first things people see.
In this case, we're talking about 5 parking spaces and a garage. And no other shops in the high street have parking this good!
Rental uplift: Last time, the landlord agreed a spot figure for the parking. This time around we agreed £300 per space and £350 for the garage.
However, end of parade parking is different. The rear yard provided a smart, tarmacked parking area with delineated parking spaces, directly accessed off the adjoining residential road.
So, easy to access, far more visible, and right beside the entrance to the shop; a draw for customers, and being right at the end of the high street (or right at the entrance to the high street), sign-posted off-street parking is one of the first things people see.
In this case, we're talking about 5 parking spaces and a garage. And no other shops in the high street have parking this good!
Rental uplift: Last time, the landlord agreed a spot figure for the parking. This time around we agreed £300 per space and £350 for the garage.
Gold nugget #2 – Return Frontage
End of parade units often have a glazed return frontage – a display window to the side of the shop. And any retailer knows the value of a visible shop frontage in advertising their presence and wares.
So, even though the shop is right at the end of the high street, the return frontage and location make it far more prominent than supposedly more valuable units closer to the prime pitch.
It is market practice to make an adjustment for a return frontage, and we argued that the return and the on-site customer parking were an advantage.
The tenant agreed the same rate as the rest of the parade, despite the technically inferior end of parade location.
Rental uplift: Last time round, the proportion of the rent for the shop itself was approximately £16,000 pa. This time around the shop achieve closer to £19,000 pa.
So, even though the shop is right at the end of the high street, the return frontage and location make it far more prominent than supposedly more valuable units closer to the prime pitch.
It is market practice to make an adjustment for a return frontage, and we argued that the return and the on-site customer parking were an advantage.
The tenant agreed the same rate as the rest of the parade, despite the technically inferior end of parade location.
Rental uplift: Last time round, the proportion of the rent for the shop itself was approximately £16,000 pa. This time around the shop achieve closer to £19,000 pa.
Gold nugget #3 – The Flat Above
Flats above shops can usually either be let in the open market, or used by the tenant or their employees (a service tenancy). In this case, the lease permitted both types of occupation.
The tenant's agent argued, not surprisingly, that most residential tenants would be reluctant to live above a vets surgery – the noise, smell, etc – and that the rent on this flat should be less than other flats above shops.
But, a vet's remuneration typically includes living accommodation on-site. Hence the term 'resident vet'.
According to the rent review clause in the lease, the assumed retail tenant could be a vet or any other A1 or D1 Use Class. And that includes day centres, galleries, training centres, hairdressers, travel agencies, etc. Far more desirable tenants to live above!
So, if the shop was occupied by a vet, the flat would be occupied by a resident vet, who probably wouldn't be bothered about animal noise. And if the shop was occupied by anybody else, then no problems there either.
At the last review, the parties valued it as a 2 bedroom flat with two box rooms. However, a quick search with local letting agents showed that one of the box rooms was big enough to be classed as a bedroom in its own right. So we now have a 3 bedroom flat!
Rental uplift: Last time around, the rent for the flat was £960 per calendar month (pcm) , less a 33% discount for the costs of management. This time around we agreed £1,250 pcm in line with other flats above shops in this location, and the discount is just 30%.
The tenant's agent argued, not surprisingly, that most residential tenants would be reluctant to live above a vets surgery – the noise, smell, etc – and that the rent on this flat should be less than other flats above shops.
But, a vet's remuneration typically includes living accommodation on-site. Hence the term 'resident vet'.
According to the rent review clause in the lease, the assumed retail tenant could be a vet or any other A1 or D1 Use Class. And that includes day centres, galleries, training centres, hairdressers, travel agencies, etc. Far more desirable tenants to live above!
So, if the shop was occupied by a vet, the flat would be occupied by a resident vet, who probably wouldn't be bothered about animal noise. And if the shop was occupied by anybody else, then no problems there either.
At the last review, the parties valued it as a 2 bedroom flat with two box rooms. However, a quick search with local letting agents showed that one of the box rooms was big enough to be classed as a bedroom in its own right. So we now have a 3 bedroom flat!
Rental uplift: Last time around, the rent for the flat was £960 per calendar month (pcm) , less a 33% discount for the costs of management. This time around we agreed £1,250 pcm in line with other flats above shops in this location, and the discount is just 30%.
Bottom Line
What started out as a fringe retail unit with a 2 bedroom flat above worth £25,000 is now, with nothing done to the property, a prominent corner unit with customer parking and a 3 bedroom flat above. The agreed rent is £31,000, and that's a 25% rental uplift.
And although not binding, these arguments stand for next time! So, at the next rent review, our landlord may be even happier, starting his negotiations from a higher passing rent.
Feeling uncertain about the rental prospects of your retail unit? Put this advice to the test. Or ask us to check your lease for any gold nuggets.
And although not binding, these arguments stand for next time! So, at the next rent review, our landlord may be even happier, starting his negotiations from a higher passing rent.
Feeling uncertain about the rental prospects of your retail unit? Put this advice to the test. Or ask us to check your lease for any gold nuggets.