When it comes to a tenant agreeing a rent with a landlord, the plain-vanilla way is to simply agree an amount, say, every month and then keep it ticking over to the end of the lease. If this can’t be agreed then you can either increase or decrease to suit, and if that doesn’t do the trick then look at the unfortunate scenario of things coming to a grinding halt.
This isn’t good news for everyone really, particularly when the basics are agreed and it’s maybe just the detail and cashflow to thrash out.
Therefore here are a few ways to spice thing up and hopefully get things agreed. They’re particularly useful with commercial lettings where you’re often dealing with bigger figures, longer leases, and different ways in which a business can account and budget for things.
But the principles are still the same for other situations like renting your own home, with just a re-application to the situation and legal restrictions that you have.
They’re also applicable for both tenants and landlords, and depending upon which side of the rent-free you’re on, you just need to use these tools to either reduce or increase the overall rent liability.
So here goes, some of the ways that you can use the powerful tool on rents in leases to agree favourable letting terms:
1. A Rent Free Period
This is the classic opportunity that seems almost too good to be true, for a landlord to provide a period of no rental charge at all. This is a popular with commercial properties, for both a genuine period of the tenant needing to fit out the premises, but also a rent incentive for the landlord to help the tenant with cashflow.
Remember to spot what the overall rent then works out to be across the length of the lease, and see if it can be dependent upon certain circumstances.
2. A One-Off Premium
This can seem a little confusing at first, particularly with both a normal and then reverse premium.
In short, the tenant is offering a payment upfront, or the landlord a payment back, for what could be a variety of reasons.
It might be towards works at the property, to help secure a good deal now, or be a way to account for more money now rather than stretched out rental money over time.
Whatever the reason, check out how to correctly account for these which can be different for different purposes that you are trying to achieve.
3. A Deposit Upfront
This is something that everyone’s more familiar with, and not technically to do with a rent incentive as the idea is that you will eventually get the money back. It’s more a form of security for people, and helpful if you need reassurance that rent can be paid on time.
4. A Gradual Rent Increase
If the rent is a hard blow, then see if it can be gradually increased to taper the effect in nicely.
The formal way is through a rent review at a certain point in time, but there can be other variations of this and based upon standard criteria like RPI increases in the economy.
5. A Fluctuating Rent
Leading on from a gradual rent is a way in which you can agree a change in the rent over time for a variety of reasons, which can include downwards as well as upwards.
So whether or not a certain trigger-event in the future like a break options happens can then determine whether an extra rent free or reduced rent kicks in. A nice incentive for example for a tenant to not action a break clause to vacate in the future.
Another way might be simply a reduced rent to half level for one period, maybe over a difficult time like Christmas to help again with cash flow.
6. A Rental Payment Basis
So okay, you have the basis of rent agreed; now look at how this is practically paid.
Often this is upfront which obviously benefits a landlord but can cause cashflow issues for a tenant, particularly with most commercial leases where a whacking three months’ rent is often needed in advance.
By agreeing a smaller payment period, and even a delayed one, can still mean the same rent eventually coming in but help take the pressure of managing the cashflow.
7. A Tax Implication
A final thought is how the tax man likes to take a slice of the action, two common examples being VAT and SDLT stamp duty on leases. But there’s also other knock on effects like income and capital gains tax that can be lurking in your accounts.
Suss out what’s applicable for your own particular property and personal status, and see if there’s a different way to shape the deal that will help one party more but not be a killer for the others.
Go on, Spice the Rent Up
So whether you’re a tenant pondering over what rent you can really afford, or a landlord wanting to increase your rental returns, these above pointers can help spice up your negotiations.
They’re going to be most helpful when agreeing a whole new letting or lease renewal, as you have a blank canvass to start from, although watch out for things always needing to head towards a fair rental level in the market. Also, you may have legislation determining what this can be in, say, a lease renewal triggering statutory protection.
But these principles are still applicable in other situations mid-term, as it may be in everyone’s interest to agree fresh terms to save hassle and costs later on, and stop a tenant going under now or a landlord getting greedy later on.
So give it a go, think through the possible options, begin to see the perspective of all parties and what’s important to them, and begin seeing what can be changed.
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