Ask The Experts - Premises Rent Dispute

Published:04/11/2011

Question

We are three part-time PMS partners. Two of us, including me, own the premises. The third partner pays us rent. We have no written lease agreement. The other owner and I charge the whole partnership for use of the premises. The PCT pays a notional rent but it is much lower than the amount needed to cover the cost of our mortgage and to maintain the external part of the premises landlords’ responsibility). We would like to increase the rent to cover the mortgage cost and maintenance, regardless of the amount of notional rent. I wonder if the law allows this? We do not want to make a profit, but we do not want to be left out of pocket either. I also wonder if we could set the rent based on our own preferences. What other options do we have?

Answer

I note that, despite tackling the PCT on the matter, the level of notional rent received by yourself and partner still does not cover the cost of your mortgage together with the cost of your external repair liabilities. I don’t think it’s unreasonable of you to seek a level of rent that covers the cost of your mortgage interest charges (not the cost of capital repayment) together with an amount towards your external and structural repair liabilities. This really should be the case if you are in a surgery that is of a reasonable quality and suitable for its purpose (having regard to the NHS requirements and minimum standards as shown in the 2004 Directions). The fact that it is not could either mean that the rent is too low inferring that despite their review the District Valuer is still under-valuing. You will only be able to ascertain this by getting specific advice from a specialist valuer just as Aitchison Raffety.

The alternative is that the problem lies in the fact that the capital value of the property may be a lot higher based on its alternate use. In some high value residential areas it is not uncommon to find conversions that have a residential value a lot higher than the general level of surgery values. In making their assessment of the notional rent, the 2004 Directions allows the District Valuer to take into account alternate use which should go a long way to overcoming your problem. However, the District Vauler will often have regard to such alternate use but then make large deductions due to the reconversion costs. This practice is one of much debate and where different valuers have different opinions. In my opinion such deductions are not appropriate for a surgery of high quality where its continuous use as a surgery can be assumed for a number of years. Conversely it is probably the correct approach where a surgery is of mediocre or poor quality and in reality would in the foreseeable future be better located elsewhere.