This is a very specialist area that you don’t always come across in reality, but when you do then it’s helpful to know what it’s all about.
Whilst you’ll certainly require legal advice on how this is actioned and a surveyor valuer to decide the amount, it’s important to get the gist of what it all means in order to clearly understand what the right solution is.
In short, this is an adjustment rent that a tenant will pay between leases at a property. This is only for 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 kick them out (or at least paying them compensation in some cases where they can legitimately do this).
However, even where this applies, in realty you may not require this level of detail. A landlord and tenant may well agree things amicably without all this legal fuss, and simply start a new lease and rent where the old one ends.
But this can get trick sometimes. Things can drag out, and parties have a change in tactics. And when you’re dealing with big commercial properties and monies, then this sort of detail is therefore worth looking into.
The Interim Rent
Therefore, there is a right for either the landlord or tenant to apply for an interim rent if they wish, which permits the court to decide on what this mddile-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 three months paying £12,000 - so is an interim-rent paid in this six-month 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 latter ‘A’:
1. The Appropriate Date
This is the 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.
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 date 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 go 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 date that could have been possible.
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 while if renewal negotiation don’t materialise into anything.
2. The Application Date
This is the date when an interim rent is actually applied for to the court, which could actually be after the above appropriate date of when it then takes effect back-dated.
This can now be made by either the landlord or tenant, and although flexibility to do afterwards there is a limit of up to six months after the current lease end date in order to stop a long hold-over period and things dragging on.
Therefore you do have the opportunity to wait for the actual application on the back of deciding what any new lease and rent is and whether an interim rent claim is beneficial, but just being 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 rent back if rental levels have been falling.
3. The Amount Due
The final part then is what the amount of this interim rent is, and seeing if all this process is actually worth it.
After all the former rent should still be being charged and paid, it’s just the increase or decrease amount before the new level kicks in later under the new lease.
In short, this will refer to the new rent, and more than likely just be this same level. This reasonable rent must be fair 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 sub leases, plus the true market rent going forward.
In reality there is often 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 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 time has dragged on and market rents have kept on 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 now, 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.
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 from.
Whether you’re a landlord wanting to receive as much 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 at the end 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 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 something sensible - but it’s still worth a sanity-check in the meantime.
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