Rising rent review is here to stay

by Richard Gordon

Despite intense pressure from several restaurant and retail groups, the Government has decided not to ban upward-only rent reviews.

Restaurateurs, through the Restaurateurs Association of Great Britain (RAGB), and retailers formed the Property Market Reform Group in July 1992 to draw attention to the plight of commercial leaseholders locked into rising rents during a deep recession.

In 1993 the Government said it would consult on three aspects of leases which were causing concern: upward-only rent reviews, confidentiality clauses and dispute resolution procedures.

Last week the Government said there was no need to legislate against upward-only rent reviews as the market was now providing a variety of leasing terms.

Although this form of rent review had created problems for tenants on 25-year leases, the Government had said earlier that any legislation would not be retrospective.

David Harrold, chief executive of the RAGB, said it was "extremely disappointing" that the hard and lengthy lobbying had resulted in upward-only rent reviews remaining lawful.

"At the moment the restaurant business is good - although it has not returned to pre-1991 levels - but this clause has no regard to the uncertainty that restaurateurs face from year to year," Mr Harrold said.

But Craig Richie of chartered surveyor EA Shaw & Partners told Caterer that recent restaurant leases had got around the problem of upward-only reviews by including a break-out clause. He said a new lease for a Pizza Express in Covent Garden gave the restaurant the option to terminate the lease in the year 2000.

"Most new leases have a break-out clause, so legislation against upward-only rent reviews would have been of limited value," he said.

However, Paul Benjamin of chartered surveyors Adlers said it was unfortunate for restaurateurs that many were locked into upward-only rent reviews.

"Food stuffs can go up, wages can go up, prices often have to come down in order to be competitive and yet the restaurateur may be locked into a lease whereby, at the very least, the rent will stay the same or go up, leaving the tenant with a shortfall," Mr Benjamin said.

While some landlords appreciated the volatility of the restaurant industry and might accept a rent reduction, many others, such as institutional landlords, were "not really bothered about the success of a local pizza restaurant".

The Government also announced last week that it would not be legislating against confidentiality clauses or attempt to regulate the disputes procedure, which is overseen by the Royal Institution of Chartered Surveyors.