The Property Poser panel this week helps a reader who is concerned that the rental on his commercial property is unjustifiably higher than that of a similar shop space next door.
The reader explains that he is halfway through a five-year lease and recently discovered that the neighbouring premises, which is approximately the same size and similarly outfitted, was recently rented out for 20 per cent less than what he is paying.
In nearly all instances, commercial transactions tend to be motivated by a combination of factors, says Sean Radue of Radue Attorneys in Port Elizabeth.
“The landlord, in this instance, may have had a profit motive but one must also consider that the rental may have been market-related when the reader first concluded his lease.”
Radue says the premises may have been regarded as particularly desirable or the reader may have thought the size and location would benefit his business.
“The fact that he concluded a lease for five years, which is a fairly lengthy period, may also indicate that he thought the rental was quite reasonable.”
Something else for the reader to consider is that, two-and-half years into his lease, the rental would typically have escalated twice already, says Radue.
“We aren’t told but the escalation would probably be in the order of eight to ten per cent.
“When one factors this into the question, the rental he is paying and the current rental of the premises next door are quite in line from a commercial viewpoint – especially if the real market value has not improved over this period.”
Radue says if the reader entered into the lease willingly, the law expects the parties to a contract to abide by the terms and conditions applicable to each of them.
“Of course, the lease agreement may have an early exit clause, which allows the reader to terminate the lease under certain circumstances.”
However, this is something that would typically have been negotiated in anticipation of the possible occurrence of such circumstances, says Radue.
According to Radue, the potential use of an early termination could persuade the landlord to reduce the rental rather than lose a good tenant, particularly if the tenant attracts custom to the centre.
“There’s nothing preventing the reader from merely approaching the landlord and putting a motivated and reasoned argument forward as to why he should agree to a reduced rental.”
Without any special considerations, however, it is difficult to imagine a landlord merely reducing the rental payable, says Radue.
“The Consumer Protection Act may be of some assistance in certain circumstances.”
Radue says, as the Act commenced on April 1, 2011, the lease should have been concluded after that date to benefit from its protection.
“The first potential hurdle facing the reader is that section 14 of the Act doesn’t apply to juristic persons.”
In commercial letting, it is quite unlikely that the parties concerned are so-called natural persons, says Radue.
“Under the Act, the landlord would appear to be a ‘supplier’ as it seems as though various premises are generally commercially available.”
Assuming both aspects are favourable in the reader’s case, Radue says the lease should not extend beyond 24 months without there being a demonstrable financial benefit to the reader, and may be cancelled with 20 business days’ notice.
“As the Act only assists with the possibility of cancellation, this is a tactic the reader should be careful in employing as he may find himself without a premises from which to operate his business.”
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