Real Estate Tip of the Week: Beware of Interim Rent Pitfalls

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Real Estate Tip of the Week: Beware of Interim Rent Pitfalls

Published 16 septiembre 2019

In cases where market rents have fallen below the current passing rent, it is essential for landlords to consider the implications of interim rent when finalising the renewal of a 1954 Act protected lease.

Interim rent is rent payable after the expiry of the contractual term of a 1954 Act protected lease and before a formal lease renewal has been completed. It is payable from the earliest date that could have been specified in the s.25 notice or (as applicable) s.26 request (the “Interim Rent Commencement Date”).

Either party can apply to the court to determine an interim rent provided that the Landlord has served a s.25 notice to renew or the Tenant has served a s.26 request to renew. There is no need for court proceedings to have been issued prior to completion of the renewal lease.

The rules determining what the interim rent should be are complex, but it will often be the case that the interim rent will be the rent agreed to be payable under any renewal lease.

This being the case, Landlords must be wary of completing a 1954 Act protected renewal with a lower rent than was payable under the old lease if such rent is payable from a later date than the Interim Rent Commencement Date. This is because the Tenant will have paid rent for the period from the Interim Rent Commencement Date to the new lease rent commencement date at the higher, passing rent payable under the old lease. Even after completion of the new lease, the Tenant will be able to apply to Court to force repayment of the difference between the interim rent and the higher rent previously paid over that period.

However, all is not lost. It can be expressly agreed in heads of terms that there is to be no repayment of any rent, or (failing that) it can be catered for in negotiations between solicitors. However, doing nothing may lead to the Landlord having to make what might be a sizeable payment to the Tenant, which is particularly galling if the deal itself is already very advantageous to the Tenant.

Authors

Robert Wardle

Robert Wardle

Bristol

+44(0)117 918 2089

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