23 January, 2017
For the next topic in our series on types of rent review, we shift to "geared" rent reviews (also known as "side-by-side" rent reviews).
Geared rent reviews are usually only applicable in a lease between a Superior Landlord and a Tenant (often a developer or investor), where there are multiple Undertenants. Under the terms of a geared rent review, the Tenant will pay a basic ground rent to the Superior Landlord as well as a share of the income received from the underleases.
This type of rent review is becoming increasingly unattractive due to potential Stamp Duty Land Tax (SDLT) consequences once the "share of income" part of the rent is calculated. On the grant of the lease, the SDLT liability will be based on the estimated rent payable for each of the first five years of the lease term. Once the actual rent is known, further SDLT Returns may need to be submitted to HMRC by the Tenant and, indeed, more SDLT may be payable by the Tenant if the actual rent significantly differs from the estimated rent.
Therefore, from the perspective of a Tenant, geared rent review provisions can create considerable uncertainty as to whether there could be a further SDLT liability in future, and risk-averse Tenants may prefer for any future changes in rent (especially during the first five years of the term) to be more certain for SDLT purposes.
At Forbes our Commercial Property solicitors can advise on the merits of the different types of rent review to your particular circumstances. For further information contact our Commercial Property solicitors on 0800 689 0831 or make an enquiry here. You can also contact solicitor Mohassan Mehmood on 0333 207 1161 or via email on Mohassan.Mehmood@forbessolicitors.co.uk.