Hot Topic Highlight - Lease Renewals & Interim Rent

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Do you know your Section 24 a-d from your Section 34? Or your interim rent from your new rent?

Don't fear - Property Elite are here to explain all you need to know about interim rent at lease renewal.

If you are an RICS APC candidate, be sure to check out our great value RICS APC support (e.g. revision quizzes, e-mock interviews and APC question packs).

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Why is this relevant?

When dealing with lease renewals, considering the level of interim rent is often something that is left until the last minute to deal with. However, it can be an important part of a renewal deal and a key tool in negotiations.

Whether you are RICS APC candidate, professional member or student - having an understanding of the interim rent procedure under the Landlord & Tenant Act 1954 is vitally important.

What do I need to know?

• What is interim rent?
• When does it apply?
• When did the procedures last change?
• Why is it contentious?
• Who can apply for it?
• When can an application be made?
• When does it commence?
• How is it calculated?
• What are some of the tactical considerations?

What is interim rent?

Interim rent is effectively the rent payable from contractual expiry of the existing lease until commencement of the renewal lease.

When does it apply?

To leases which have security of tenure under Part II of the Landlord & Tenant Act 1954. It does not apply to contracted out leases.

When did the procedures last change?

In June 2004, the Regulatory Reform (Business Tenancies) (England and Wales) Order 2004 came into force which streamlined the interim rent procedure.

Why is it contentious?

Simply put, it's another point for the opposing parties to negotiate! As with the level of rent under the renewal lease, interim rent is another potential cost that needs to be dealt with. In a rising or falling market, the impact on one of the parties will be disproportionate and a dispute is likely to arise.

Who can apply for it?

Either the landlord or the tenant under Section 24 a-d of the Landlord & Tenant Act 1954. They are equally free to agree the level of interim rent by negotiation, in which case no interim rent application needs to be submitted.

When can an application be made?

At any time after the service of a valid landlord's Section 25 or tenant's Section 26 notice and no later than 6 months after the relevant tenancy has terminated, i.e. it can be determined after the fact.

When does it commence?

Interim rent kicks in from the earliest date on which the tenancy could have been brought to an end. This means that the termination date specified in the notice is not necessarily the commencement date for interim rent, e.g. if 12 months notice was stated. Legal advice should be sought to ensure that the parties' positions remain protected in terms of future cost liabilities.

How is it calculated?

This is a complex area and depends on the circumstances of the renewal.

For an unopposed renewal of whole, the interim rent is usually the new rent. 

However, there are two exceptions to this:

• There have been substantial market changes since the start of the interim rent period so that the interim rent would differ substantially from the new rent - this will be on the standard statutory Section 34 basis with the valuation date being different
• The terms of the renewal lease are different to those of the existing lease. This could be combined with a change in market conditions. The rent under this exception would be what 'is reasonable for the tenant to pay', valued on the standard statutory Section 34 basis but taking into account the level of existing rent. 

What are some of the tactical considerations?

Interim rent will not be payable until a valid Section 25 or Section 26 notice is served - so this needs to be carefully considered in the preliminary stages of reporting to your client. 

In a falling market, the tenant may decide to serve a Section 26 notice at the earliest possible moment to take advantage of a potentially lower interim rent. 

In a rising market, the tenant may wish to hold off serving a Section 26 notice to allow the lower level of existing rent to continue for as long as possible.

The opposite may apply when a landlord is considering their position on interim rent. 

There may also be other tactical considerations which will influence when and why the parties may or may not serve the relevant notices.

How can I seek further support?

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If you are an RICS APC candidate, be sure to check out our great value revision quizzes, e-mock interviews and APC question packs.

You might also like to check out our free revision quizzes (links on our Blog page), before upgrading to the full versions.

Contact us (07491 252 025 / [email protected]) for a free informal 30 minute chat about more hot topics and how you can boost your CPD hours before December 31. 

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Stay tuned for our next blog post to help build a better you

N.b. nothing in this article constitutes legal advice.