In this blog I discuss when the rent for a commercial space can be changed by the court, which criteria play a role and from when this possible new rent applies.
At the start of a tenancy agreement, the tenant and landlord agree on the amount of the rent for the commercial space. In practice, however, it regularly happens that the tenant and landlord cannot agree on a change in the rent. Both the tenant and the landlord can then request the court to change the rent based on an expert report.
When can a rental price of a commercial space be re-determined?
In the case of rental agreements that have been entered into for a definite period or have been extended for a specific period, the rent can be re-determined after the agreed rental period.
For leases that have been entered into for an indefinite period, the rent can be re-determined 5 years after the last agreed rent has commenced, or 5 years after the rent has been determined by a judge.
It depends on the rental agreement how many experts need to be involved, and when the case will be submitted to the court. It is important that the expert engaged is independent and knowledgeable. The expert must also meet the quality requirements of a real estate appraiser.
Which criteria play a role in the assessment?
In order to determine a reasonable new rental price, the current rental price of business premises in the area is examined. In practice, these are referred to as comparison buildings. However, the business premises must be relevant for the comparison with the leased property. For example, the commercial space must be comparable in size, layout and condition. Accessibility and facilities in and around the industrial space are also relevant factors. To some extent, this also applies to the type of business being conducted.
The comparison premises must also be on site. This means that they must be located in the immediate vicinity. For example in the same shopping area. If there are no comparable business premises in the vicinity, business premises located further away will be considered.
Finally, only the rents of comparable business premises are included, as applied in the past 5 years.
If the expert has found suitable comparison properties, they convert the rents to a current rent per square meter and (re-)determine the new rent on that basis. The expert will advise the judge on this.
When does a new rental price apply?
The judge can then follow the expert’s advice, but is not bound by it. The judge can reject the tenant’s or the landlord’s claim, set a new rent or – if they deem this necessary – appoint a new expert.
If the court comes to the conclusion that the rent indeed deviates too much from other rents in the area and a new rent must therefore be determined, the new rent will in principle apply from the moment the claim made by the tenant or landlord to the judge is settled. Alternately, if the judge has appointed the expert, the rent will apply from the time the request for appointment was made. If one of the parties demands this, the court may also determine a different effective date of the new rent based on special circumstances.
When determining the rent, the court may also determine that the rent will be gradually adjusted over a period of no more than 5 years. Although valuing real estate is a profession in its own right, there is room for a legal defence against the expert report. Think of the selected comparison properties, the valuation method and the measurement methods. It is therefore important to receive proper guidance during a rental price review.
If you have any questions about changing a rental price, please contact me.