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Does a lease have to have a rental escalation written in?

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Q

Hi, I am busy with a two-year lease where the tenant doesn’t want an escalation written in. He says would prefer it be written in that it will be negotiated after the first year.

Can one do that in a two-year lease? It seems risky: If a landlord is tied into two years to then try to negotiate halfway through, what if they don’t agree?

Is there wording we can use so that the landlord isn’t compromised. Or is it basically just a stupid idea?

Or should there at least be a minimum escalation, like to be negotiated but no less than CPI + 0.5%? – John

A

Hi John, it is possible to provide for an escalation to be negotiated, but as you correctly point out, it is risky for the landlord, as it allows the tenant to stubbornly refuse to agree to anything more than he wants to pay.

One option is certainly to say that the increase percentage will be negotiated, but it will not be less than a certain amount. In that case, the lease should state that should the parties be unable to agree by a certain date, the minimum agreed increase will apply.

Given the tenant’s attitude, however, it is doubtful that this would be agreed to, because it effectively removes any obligation on the landlord’s part to negotiate, because what reason would the landlord have to agree to a lesser amount than the indicated minimum?


Rental escalations: Why tenants cannot beat the system


Another option is to build a comprehensive clause into the lease indicating by when the percentage must be agreed upon and if it cannot be agreed by a stipulated time, referring it to a valuator to decide upon a market-related increase.

The benefit of this formulation is that neither party has any guarantees as to what would be considered market-related (so it could go against either party) and this would make them both more inclined to negotiate with each other in good faith.

I would be more than happy to formulate a clause to this effect should you so wish?


Got a burning question? Email david@hometimes.co.za and we’ll be sure to assist you


Who is Marlon Shevelew?

Marlon Shevelew, director of Marlon Shevelew and Associates.

Marlon Shevelew, director of Marlon Shevelew and Associates.

Marlon Shevelew is the director of Marlon Shevelew and Associates Inc. a law firm specialising in rental property, contractual, consumer and company law.

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david.steynberg@gmail.com

David A Steynberg, managing editor and director of HomeTimes, has more than 10 years of experience as both a journalist and editor, having headed up Business Day’s HomeFront supplement, SAPOA’s range of four printed titles, digimags Asset in Africa and the South African Planning Institute’s official title, Planning Africa, as well as B2B titles, Building Africa and Water, Sewage & Effluent magazines. He began his career at Farmer’s Weekly magazine before moving on to People Magazine where he was awarded two Excellence Awards for Best Real Life feature as well as Writer of the Year runner-up. He is also a past fellow of the International Women’s Media Foundation.

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