In terms of what is an 'interim rent' under a lease renewal of a commercial property, this is the middle adjusted rent between the end of the old lease and the start of the new lease.
The meaning of such an interim rent is only regarding business tenants where the Landlord and Tenant Act 1954 applies, which is the law that provides them a right to a new lease rather than the landlord being able to evict them (or at least paying them compensation in some cases where they can legitimately do this).
However, even where this applies, in reality, you may not require this level of detail.
A landlord and tenant may well agree to things amicably without all this legal fuss, and simply start a new lease and rent where the old one ends.
The Interim Rent, Under Section 24 of the 54 Act
However, when you're relying upon the security and provisions of the Landlord & Tenant Act 1954, there is a right for either the landlord or tenant to apply for an interim rent if they wish.
This permits the court to decide on what this middle-rent should be between the old and new leases.
So one lease may have ended three months ago already paying £10,000 pa, and a new one takes effect in another six months paying £12,000 - so is an interim-rent paid in this six-months gap, and if so when is it paid from and what figure is it between £10,000 and £12,000?
Well the best way to understand is through three issues all beginning with the letter ‘A’:
1. The Appropriate Date
This is the appropriate date from when an interim rent will take effect; and if you want to get technical, then under clause 24b of the Landlord and Tenant Act 1954.
Therefore, this is when interim rent is payable, and may well be backdated.
This assumes that a landlord has served a Section 25 notice or a tenant a Section 26 which are the official notices to trigger the renewal procedures under this legislation.
In short, this appropriate commencement date for the interim rent is the earliest one that could have been specified in these notices.
This is probably the end of the current lease, as even though the dates under these notices for a new lease may stretch into the future, this issue of interim rent is supposed to begin when the old lease ends really.
However, there is a but. If the lease is already ‘holding over’ past the current lease end date, then you can only run from the earliest possible date in these notices which if then served will be six months into the future.
In actual fact, even if these notices say the new lease is for twelve months in the future, the interim rent can be from six months in the future because that is the earliest possible date.
And this takes effect whether or not a new lease is accepted or not, as this is an interim-rent even if only for a short period of time.
2. The Application Date
This is the application date when an interim rent is applied to the court, which could be after the above appropriate date of when it then takes effect retrospectively.
In regards to when this interim rent application can be made by either the landlord or tenant, although there is the flexibility to apply after a Section 25 or 26 notice has been served, there is a limit of up to six months after the current lease end date, in order to stop a long holding-over period and matters dragging on.
Therefore, you do have the opportunity to wait for the actual application after deciding what any new lease and rent is, and whether an interim rent claim is beneficial; but still be aware of not leaving it too late.
Also, depending upon whether you’re a landlord or tenant and the rent is going up or down, will depend upon how eager you are to progress this, which might well include credited rent if rental levels have been falling.
3. The Amount Due
The final part then is what the amount of this interim rent is, and see if this whole process is actually worthwhile.
After all, the former rent should still be charged and paid; it’s just the increased or decreased amount before the new level kicks in under the new lease.
In short, this will refer to the new rent, and more than likely be exactly the same level.
This 'reasonable' interim rent must be a fair calculation and reflect actual circumstances and assuming a notional one-year lease on the same basis as the current one.
You therefore must have an eye on the current lease and any subleases, plus the true market rent going forward.
In reality, there can be a small deduction of say 10% to reflect this shorter period, but every situation is different.
And because you assume the reality of the property rather than a hypothetical one, even things like a tenant’s fit-out still being there is assumed, for better or worse when it comes to the rental level.
But there are two scenarios where you will need to make an adjustment under clause 24c of the Landlord & Tenant Act 1954 as exceptions one or two.
The first is when there is a substantial difference in the amounts during this interim phase compared to the start of the new lease.
Maybe the time has dragged on and market rents have kept increasing, therefore the interim rent for an earlier period has to be a little less to be fair.
The second is where the new lease is on substantially different terms, which has an effect on the rent.
So maybe the tenant is not responsible for all the repairs, and therefore when they were under the holding-over old lease then the rent should be a little bit more to reflect the change.
In short, as you look at how to calculate the amount of interim rent, although you start with the new-lease rent, you then need to consider the cushioning effect due to the unique situation of this property.
The Lease Renewal Process
Don't forget as well the whole process of lease renewals at commercial properties, and whether, or when, you need to consider an interim rent adjustment.
We have a video here of the five key factors to consider with a lease renewal, with interim rent being one of these where you can download a Fact Sheet of these factors here:
What to do in the Interim
Therefore, if you’re involved with this middle-period between two leases on a commercial property, then it’s important to quickly understand what adjustment-rent is at stake and both what it is and when it’s due.
Whether you’re a landlord wanting to receive as much rent as possible, a tenant wanting to reduce further, or a middle-man advisor stuck in the middle - a lot can be at stake, and come as a nasty (or pleasant) surprise if not accounted for correctly.
So, go through these three principles of the appropriate and application dates to see when this becomes due, and then the valuation process of the rent amount being agreed.
In the end, it may not be worth the hassle and cost of going through the formal route with solicitors and court application, and you can agree to something sensible; but still worth a sanity-check in the meantime.
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