Rent review: think turnover rent!

Currently, there are many discussions between tenants and landlords about (temporary) rent adjustments, due to mandatory closures due to government measures resulting from the corona crisis. Discussions are held about paying rent in advance or in arrears, rent reduction or rent suspension, and sometimes about defects in the leased property. A good time to review the rent as well.

New rent, why now?

The law gives opportunity for a further rent to be set by the court only in certain cases. Parties can also voluntarily choose to do so, deviating from the law. Now is precisely the time to enter into consultation. Both tenant and landlord benefit from a tenant who can pay the rent, now but also in the future, thus preventing vacancy.

Rent review according to legal rules

In the case of retail premises, the law stipulates that both tenant and landlord can demand that the court further fix the rent if it no longer corresponds to comparable commercial premises on site. This possibility exists if a contract is for a fixed term, after expiration of agreed duration. In all other cases - in short - each time when at least five years have passed since the previous further rent determination.

In this statutory determination procedure, attention must be paid to a variety of rules and the systematics required by law in doing so. For example, the premises must be comparable on site and a period of five years preceding the filing of the claim must be considered.

Before such proceedings can be brought, the parties must have consulted, including on an expert to be appointed jointly. It is necessary that a report prepared by one or more experts jointly appointed by the parties on the matter be attached. Failure to do so renders a party inadmissible in the court proceedings. A request to the court to appoint an expert often follows.

In short, a rather cumbersome method that can obviously be set aside at any time, if the parties jointly agree on a further rent.

Rent review by mutual agreement: turnover rent

Just when parties have frequent contact about (temporary) rent reduction and suspension due to corona and mandatory closures anyway, this is the time to (also) agree on rent review for the next five years.

One option that should certainly be kept in mind is a rent dependent on the level of turnover of the tenant, the so-called turnover rent. Where the legal system is not set up for turnover rent, parties are free to make such agreements among themselves.

Should future mandatory closures due to pandemics, for example, become more frequent, both tenant and landlord would benefit from clarity on the level of rent in such situations. If the rent becomes wholly or partially dependent on the turnover made by the tenant, there will be no need to consult again between the landlord and tenant in future similar situations. This has already been taken into account.

Landlord has the advantage of receiving higher rent if tenant turns good sales. But if things are not going so well, the tenant will owe less rent. But vacancies or bankruptcies can thus be better prevented. This is in the interest of both tenant and landlord.

Obviously, however, the tenant and landlord will have to have sufficient trust and be willing to hand over audited documents that explicitly show what rent can and may be charged. Clear and specific agreements on the calculation of the amount of rent are necessary. Multiple methodologies can be applied.

Opinion

It is important to include further agreements on this in an annex/appendix to the existing lease. By preparing for this now, parties can avoid ambiguity and possible legal proceedings with all sorts of additional costs. If you make clear agreements now, it will be settled for the next five years. And why wait until the legal deadline has arrived? Consultation is necessary now anyway because of corona.