Are a landlord of a medical centre/doctors surgery? Consider if the lease rent is at the correct level. If not, is there a rent review clause which allows the rent to be reviewed?
If there is a rent review clause which will typically be every three or every five years, a landlord can instigate a review to ensure the rent is at the correct level. One of the main benefits of completing a rent review is that it will increase the amount of rent income a landlord receives, but it is also likely to increase the value of your property too.
There are generally two types of rent review, which is to Retail Price Index (RPI) or to Market Rent. If the rent review clause is to RPI then a calculation can normally be made under the review clause. If it is to open market rent then the rental figure must generally need to be negotiated in order to reach the correct rental figure between the landlords and tenants representatives.
A full review of the lease will be required initially which should focus on the rent review clause. This will detail how the rent review is to be initiated and how the rent is to be calculated. Time may be of the essence which means that a rent review notice would need to be served in a defined period of time. If this time period is not met it can mean that the rent cannot be reviewed and will remain at the same level so it is essential to avoid missing such a clause.
If the rent can be reviewed to open market rent the specific rent review clause will need to be considered in detail to assess how the property is to be valued. A detailed review of the market evidence of similar properties in the local area should then be completed to understand whether the passing rent is at the correct level or not. An inspection may also be required to assess the age, size and quality of the property. If the rent is low, the landlord should consider instigating the rent review to ensure they are receiving the correct level of rent.
A landlord should also be aware that a rent review clause can be upwards only, which is better for a landlord, as it poses little risk to instigating a review as the rent cannot go down. If the rent review is upwards only a landlord is likely to instigate a review of the rent even, if there is only a small uplift anticipated due to the limited risk involved. There are however upwards and downwards review clauses which means that the rent can go down. In this case it is essential to complete a detailed review of the estimated rental value to ensure that a rent review is worth initiating from a landlord perspective.
A number of medical centre leases have GP’s who are the tenant who are likely to have the full amount of rent reimbursed by the NHS. There is consequently a process to go through working alongside the tenant to ensure any increased rent remains reimbursed by the NHS. This will generally include having the rent review notice or rent review memorandum sent over to the CCG/NHS who are subsequently likely to instruct the District Valuer (or another representative) to complete their assessment of rent.
You can appeal this with the landlords agent if the assessment is lower than anticipated. In most cases the rent can be agreed at appeal but if not the lease should have a dispute resolution mechanism to have a 3rd party determine the rent.
Given the complexities involved in the rent review process in this sector it is essential that a specialist healthcare surveyor assists in completing medical centre/doctors surgery rent reviews as they will have the knowledge in completing the full process and reaching the best and correct outcome.
Further advice
If you would like to discuss any of the above, please contact Dave Simpson in our Healthcare team on 0207 907 3727 or via email to dave.simpson@argroup.co.uk.