The unit was purpose-built, with a number of features specific to The Health Store, including a substantial concrete mezzanine floor, extra office space and specific loading facilities.
The lease had been subject to a Deed of Variation which put in place a minimum rental uplift on the first review in March 2015 of £435,000 and March 2020 of £455,000. The landlord served a rent review notice seeking £460,000 for the 2015 review.
The Health Store does not have an in-house property specialist, and the Finance Director who had previously worked with NG on rent review matters at another Nottingham company, sought NG’s assistance and professional advice.
A detailed understanding of the original letting and the specific alterations and improvements put in for The Health Store was critical in assessing the market rent relative to comparable warehouses in the East Midlands. This involved extensive research of original construction and contract documentation.
Detailed knowledge of and experience of working with commercial rent review clauses was also essential to understand the nuances of various assumptions and disregards required to assess the rental value.
Our knowledge of the East Midlands’ warehouse market and along the M1 corridor was particularly important, reflecting NG’s extensive knowledge of the local market and acting therein.
The ability to review and interrogate comparable evidence, and specifically differentials between construction and lease clause features, enabled a clear calculation of current market rent to be assessed.
In light of the impasse, a technical “Calderbank offer” was made to the landlords offering to settle without recourse to third party. This has the effect of focusing the other side’s mind on the offer and procedure, as there are potentially substantial cost implications of a Calderbank offer being under-bid by an Arbitrator’s Award. In this instance, the Calderbank was effective, and the landlord accepted the settlement offer.
Negotiations with the landlord’s surveyor reached stalemate, as NG’s opinion was that the current market rent did not exceed the collar of £435,000; the landlord’s surveyor thought otherwise.
The landlords applied to the RICS for the appointment of an Arbitrator to determine the new rent, at which time NG submitted a Calderbank offer. Settlement was subsequently reached between the parties at a nominal increase on the collar level, to avoid the costs and risk of proceeding to third party, particularly in light of this specific Arbitrator’s appointment.
The settlement represented a reduction in rent of over £21,000 per annum on that sought by the landlord, with The Health Store being delighted with the result.
The success at the rent review led to The Health Store reverting to NGCS in 2017 for assistance regarding potential dilapidations. The company wished to make provision in accounts for a dilapidations liability at the end of the lease and instructed NG to prepare a costed Terminal Schedule of Dilapidations. This was then used to provide a range of potential outcomes, enabling The Health Store to accrue sufficient funds in the accounts for the future expenditure.
Richard Brown of NGCS commented:
“A detailed knowledge of rent review clauses and procedure, together with the ability to draw on a comprehensive comparables database, were essential factors in achieving this favourable result. NG’s specialisation in the East Midlands market gives clients confidence that their best interests are being looked after.
In addition, the multi-disciplinary nature of NG offered the client a comprehensive one-stop level of service, with confidence in the result.”