Residential Rent Increase RPI or OMV

by Readers Question

10:11 AM, 13th June 2017
About A year ago

Residential Rent Increase RPI or OMV

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Residential Rent Increase RPI or OMV

Hi Guys, got an interesting one I am trying to work out the method to be used to review the rent. The residential property has a Lease of 43 years, with yearly reviews but I cannot workout from the clause what method is used to review the rent.

The clause reads
‘On each of the Review Dates the Rent (being the rent payable per calendar month) shall be adjusted to be equal to any percentage increase, as measured on an annual basis from the date of the commencement of the Tenant’s occupation of the Property under the terms of this Lease, in the sum of any housing benefit or equivalent state or other benefit which is receivable by the Tenant in respect of his occupation of the Property.

I’m sure this is probably obvious to most, but I cant get my head around it.

Any and all help appreciated.

Gareth



Comments

Neil Patterson

10:13 AM, 13th June 2017
About A year ago

Hi Gareth,

Not obvious to me and some might say clear as Mud !

Puzzler

11:17 AM, 13th June 2017
About A year ago

I think it means in line with the annual inflationary increase in housing benefit paid to the tenant. Presumably this is social housing? what type of tenancy is it that runs for 43 years? or is it ground rent?

terry sullivan

12:12 PM, 13th June 2017
About A year ago

does hb go up annually?

Sam Addison

12:58 PM, 13th June 2017
About A year ago

'the Rent...to be equal to any percentage increase...in the sum of any housing benefit...which is receivable by the Tenant..'
It seems to me that if the tenant is not entitled to benefits then the rent is ZERO. Otherwise the rent is to be equal to a percentage increase. If benefits go up be 3% then the rent is to be 3 whats???
This is utter nonsense. I don't know who wrote this but i suspect that it is not enforceable under the law.

Gareth White

13:26 PM, 13th June 2017
About A year ago

Hi Guys

The whole clause reads as follows
3. RENT ANO RENT REVIEW
3.1 The Tenant shall pay the Rent in advance on or before the Rent Payment Dates.
3.2 The Tenant shall pay the first installment of the Rent (being a proportion of the Rent due from the date hereof to the date immediately preceding the next Rent Payment Date) on the date hereof
3.3 The Tenant shall pay interest at 4% above the base rate of The Bank of England on any rent lawfully due that is paid more than 14 days after the date on which it became due. The interest will be payable from the date the rent should have been paid until the date the rent is actually paid.
3.4 The Tenant shall be in breach of this Lease if the Tenant fails to pay the Rent in accordance with this clause 3.
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3.5 If the Property is damaged or destroyed by an Insured Risk so as to be unfit for occupation and use then, unless the damage or destruction was caused by the willful actions, negligence or default of the Tenant, payment of the Rent shall be suspended until the Property is fit for occupation and use.
3.6 In this clause 3 the President is the President for the time being of the Royal Institution of Chartered Surveyors or a person acting on his behalf, and the Surveyor is the independent valuer appointed pursuant to clause 3.11.
3.7 The amount of the Rent shall be reviewed on each Review Dates in accordance with this clause.
3.8 On each of the Review Dates the Rent (being the rent payable per calendar month) shall be adjusted to be equal to any percentage increase, as measured on an annual basis from the date of the commencement of the Tenant's occupation of the Property under the terms of this Lease, in the sum of any housing benefit or equivalent state or other benefit which is receivable by the Tenant in respect of his occupation of the Property.
3.9 If any question or dispute arises between the parties as to the amount of the Rent payable or as to the interpretation, application or effect of any part of this clause 3 the question, dispute or disagreement is to be determined by the Surveyor. The Surveyor shall have full power to determine the question, dispute or disagreement.
3.10 If either the Landlord or the Tenant reasonably believes that any change in the way housing benefit or equivalent state or other benefit is paid or calculated would fundamentally alter the calculation in accordance with this clause 3 and has given notice to the other party of this belief, or if it becomes impossible or impracticable to calculate the rent in accordance with this clause 3, then the Landlord and the Tenant shall endeavour within a reasonable time to agree an alternative mechanism for setting the Rent. In default of such agreement, an alternative mechanism shall be determined by the Surveyor provided that the Surveyor must determine the alternative mechanism in the spirit in which the current calculation has been devised.
3.11 The Surveyor shall be an independent valuer who is a Member or Fellow of the Royal Institution of Chartered Surveyors. The Landlord and the Tenant may, by agreement, appoint the Surveyor at any time before either of them applies to the President for the Surveyor to be appointed.
3.12 The Surveyor shall act as an expert and not as an arbitrator. The decision of the Surveyor shall be given in writing. The written decision of the Surveyor on the matters referred to him shall be final and binding in the absence of manifest error or fraud.
3.13 If the Surveyor dies, or becomes unwilling or incapable of acting, or unreasonably delays in making any determination, then either the Landlord or the Tenant may apply to the President to discharge the Surveyor and clause 3.11 shall then apply in relation to the appointment of a replacement.
3.14 The fees and expenses of the Surveyor and the cost of the appointment of the Surveyor and any counsel's fees, or other fees, reasonably incurred by the Surveyor shall be payable by the Landlord and the Tenant in the proportions that the Surveyor directs (or if the Surveyor makes no direction, then equally). If either the Landlord or the Tenant does not pay its part of the fees and expenses of the Surveyor within ten working days after demand by the Surveyor then:
(a) the other party may pay instead; and
(b) the amount so paid shall be a debt of the party that should have paid due and payable on demand to the party that actually made the payment,
The Landlord and the Tenant shall otherwise each bear their own costs in connection with the rent review.
3.15 If the revised Annual Rent has not been agreed by the Landlord and the Tenant or determined by the Surveyor on or before the relevant Review Date, the Rent payable from that Review Date shall continue at the rate payable inunediately before that Review Date. On the date the revised Rent is agreed or the determination of the Surveyor is notified to the Landlord and the Tenant, the Tenant shall pay:
(a) the shortfall (if any) between the amount that it has paid for the period from the Review Date until the Rent Payment Date following the date of agreement or notification of the revised Rent and the amount that would have been payable had the revised Rent been agreed or determined on or before that Review Date; and
(b) interest at the Interest Rate on that shortfall calculated on a daily basis by reference to the Rent Payment Dates on which parts of the shortfall would have been payable if the revised Rent had been agreed or determined on or before that Review Date and the date payment is received by the Landlord.
3 .16 Time shall not be of the essence for the purposes of this clause 3.
3.17 As soon as practicable after the amount of the revised Annual Rent has been agreed or determined, a memorandum recording the amount shall be signed by or on behalf of the Landlord and the Tenant and endorsed on or attached to this lease and its counterpart. The Landlord and the Tenant shall each bear their own costs in connection with the memorandum.
3.18 The Tenant shall in addition to the Rent pay in arrears on or before the Rent Payment Dates the Insurance Rent by 12 equal monthly installments
3.19 For the avoidance of doubt the Rent and Insurance Rent shall be due at all times and shall not be conditional upon receipt of the Tenant of any housing benefit or equivalent benefit

Puzzler

13:53 PM, 13th June 2017
About A year ago

Reply to the comment left by "Sam Addison" at "13/06/2017 - 12:58":

Yes i.e. it just identifies the increase by whatever inflation measure is used (e.g. CPI or RPI) for benefits, this must be social housing. The increase is zero not the rent, if 3% then the same increase is applied to the rent. The rent is subject to the increase not equal to it!

So rent =1000 pcm
Benefits rise by 3%
Rent also rises by 3%
1030 pcm

Crucially the landlord is bound by this formula

Puzzler

14:01 PM, 13th June 2017
About A year ago

Reply to the comment left by "terry sullivan" at "13/06/2017 - 12:12":

Reviewed and goes up in line with inflation

Gareth White

14:12 PM, 13th June 2017
About A year ago

Reply to the comment left by "Puzzler " at "13/06/2017 - 13:53":

Puzzler so say the rent at the start of the lease is £600pcm it will will go up yearly based on inflation rise. Would it also be able to go down as not specified upward only? For info it is a private house that has been sold with a tenant and this lease.

Its confusing because in the whole clause I posted it refers to RICS surveyor assessing the rent would they not go to market rent or just work out the inflation increase?

Sam Addison

15:39 PM, 13th June 2017
About A year ago

It is clearly a standard RICS contract not dissimilar to Institution of Civil Engineers contracts I have worked with.
The intention is clearly that rent increases shall be tied to increases in housing benefit for that particular type of property.
It also requires the tenant and landlord to agree the rent increase and, failing that agreement, it shall be determined by a member of RICS.
While clause 3.8 (badly drafted in my opinion!) only refers to increase it is obviously theoretically possible that if referred to the Surveyor they could take deflation into account and fix a decrease in rent. There is nothing in the contract specifying what the Surveyor will use to determine the rent payable, whether market rents or inflation increases.
Any argument in interpretation of the contract is got round by referring to the Surveyor who ultimately holds all the power including setting his own fees and determining apportionment of these between Landlord and Tenant.
Personally I wouldn't use this contract but would look to put tenant onto an AST with which you or your letting agent is familiar.

Gareth White

16:26 PM, 13th June 2017
About A year ago

Reply to the comment left by "Sam Addison" at "13/06/2017 - 15:39":

Thanks Sam - the problem I guess is that its a lease for 43 years so no opportunity to convert to an AST as the tenant isn't going to want to change

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