Commercial lease renewal rent raise

[Merlot Mike]

Time for my tenant's lease to be renewed... I suppose I'm gonna have to cough up another grand for the lawyer to update the contract grrrr. How do you guys work out how much to raise rent by?

[Beano]

Time for my tenant's lease to be renewed... I suppose I'm gonna have to cough up another grand for the lawyer to update the contract grrrr. How do you guys work out how much to raise rent by?

What does the lease say

[Merlot Mike]

What does the lease say

Just that the rent can't be raised by more than 8% at once.

[Davo36]

The normal (formal) approach is to have a valuer come along and do a valuation for rental purposes for you.

So they look into recent leases of similar properties in the area and come up with a rental figure for you.

But of course it costs money.

Then you take that to the tenant and say "The rent will be going to this level, and here is my valuation report as evidence."

The tenant can either agree, or they can commission their own valuation.

Or, what normally happens is a bit of negotiation goes on.

And in fact, if it's a small tenancy, the informal way to go is to say to the tenant "How do you fell about a $x per annum increase?" and negotiate...

[Merlot Mike]

The normal (formal) approach is to have a valuer come along and do a valuation for rental purposes for you.

So they look into recent leases of similar properties in the area and come up with a rental figure for you.

But of course it costs money.

Then you take that to the tenant and say "The rent will be going to this level, and here is my valuation report as evidence."

The tenant can either agree, or they can commission their own valuation.

Or, what normally happens is a bit of negotiation goes on.

And in fact, if it's a small tenancy, the informal way to go is to say to the tenant "How do you fell about a $x per annum increase?" and negotiate...

It is indeed a small tenancy so I think the informal approach might work well. The lease was put in place two years ago so perhaps a 3% increase would be reasonable.

[Davo36]

Yeah this is what I often do.

3% is certainly reasonable.

And for the renewal, I often do that via email. As long as you have something in writing...

But I stress it's for the smaller tenancies. When big money is involved, the formal process is safest.

[Merlot Mike]

Yeah this is what I often do.

3% is certainly reasonable.

And for the renewal, I often do that via email. As long as you have something in writing...

But I stress it's for the smaller tenancies. When big money is involved, the formal process is safest.

Your advice is much appreciated. Do I need to involve my lawyer or can a lay-person such as myself simply update the relevant details in the existing lease?

[Davo36]

I don't even change the lease agreement...

They're picking up a renewal in the exisiting lease agreement right?

If so, just get the tenant to agree to an email saying they will renew, with everything being the same, but the rent will go to $x p.a.

[Merlot Mike]

I don't even change the lease agreement...

They're picking up a renewal in the exisiting lease agreement right?

If so, just get the tenant to agree to an email saying they will renew, with everything being the same, but the rent will go to $x p.a.

Yes that is correct.. brilliant! Cheers.

[Scouser]

relatively new at this but done two rent reviews so far and I found out that ff there's enough comparable to lease around then it's not too difficult to work out a comparable lease per m2 that is about market levels. If that's not the case then a friendly real estate agent who do leasing tend to have lots of examples to assist. I've found they're willing to help as they want your business when it comes time for a new tenant. I did both.

On documenting the rent review - checked with my lawyer and a signed letter is sufficient. Scan and send as a pdf - tighter than an email. My tenants were fine with this as well as according to my lease agreements they had to pay the legal costs.

[Merlot Mike]

relatively new at this but done two rent reviews so far and I found out that ff there's enough comparable to lease around then it's not too difficult to work out a comparable lease per m2 that is about market levels. If that's not the case then a friendly real estate agent who do leasing tend to have lots of examples to assist. I've found they're willing to help as they want your business when it comes time for a new tenant. I did both.

On documenting the rent review - checked with my lawyer and a signed letter is sufficient. Scan and send as a pdf - tighter than an email. My tenants were fine with this as well as according to my lease agreements they had to pay the legal costs.

This sounds good. So I should write up a letter to the effect of ..." X agrees to a rent increase of Y" and have him sign and return yes?

[Scouser]

I took an assumptive approach and did not get the client to sign anything.
Letter was of the form

Dear XXXXXX,
I am confirming the outcome of the rent review process for XXXXXXX.
The rent was reviewed as per the lease agreement.
The new agreed rental is $XXXXXXXX p.a. plus GST effective January 1st 2017.

[Merlot Mike]

I took an assumptive approach and did not get the client to sign anything.
Letter was of the form

Dear XXXXXX,
I am confirming the outcome of the rent review process for XXXXXXX.
The rent was reviewed as per the lease agreement.
The new agreed rental is $XXXXXXXX p.a. plus GST effective January 1st 2017.

Ok sounds good. I'm just a bit surprised that the tenant does not need to sign.

[Scouser]

Ok sounds good. I'm just a bit surprised that the tenant does not need to sign.

Had some contracts training (minimal as part of my professional life) and my understanding is stating an agreed contractual 'approach' in writing, which they then effectively agree to (by paying) means they have "contractually" (not really but sort of) agreed to. I believe it would stand up in court. It's also not a new contract it's a change in one very specific detail to the contract covered by the original contract in a manner determined by the original contract. Essentially once they've paid the 1st payment it is deemed to be the new details. It's actually the new details if they don't object to your letter (I won't go in to why) but paying is proof of acceptance. They could argue they were still considering it in court until the point they pay. If they pay but object that's a different issue but I don't see that being relevant in this case. If you're really concerned use a lawyer. I am NOT A LAWYER so take that in to account when reading my comments.

I also checked with a real estate agent I knew who is himself a significant commercial property investor for decades and he rarely used lawyers on rent reviews. He did it with difficult tenants.

[Merlot Mike]

Had some contracts training (minimal as part of my professional life) and my understanding is stating an agreed contractual 'approach' in writing, which they then effectively agree to (by paying) means they have "contractually" (not really but sort of) agreed to. I believe it would stand up in court. It's also not a new contract it's a change in one very specific detail to the contract covered by the original contract in a manner determined by the original contract. Essentially once they've paid the 1st payment it is deemed to be the new details. It's actually the new details if they don't object to your letter (I won't go in to why) but paying is proof of acceptance. They could argue they were still considering it in court until the point they pay. If they pay but object that's a different issue but I don't see that being relevant in this case. If you're really concerned use a lawyer. I am NOT A LAWYER so take that in to account when reading my comments.

I also checked with a real estate agent I knew who is himself a significant commercial property investor for decades and he rarely used lawyers on rent reviews. He did it with difficult tenants.

Ah I see... this makes sense.. thanks for clarifying that.