Jennifer Slade

Rent

Rent review

AmountPayment datesRent suspension/abatementPayments defined as “Rent” Interest

Purpose Periodic reassessment of rent Valuation exercise – determined by

provisions▪ Open Market Rental Value (OMRV)▪ RPI▪ Turnover rent

Upwards only rent review?

Rising market

Fallingmarket

Rising market

Fallingmarket

Reviewed rent

Reviewed rent(upwards only)

Rent review provisions = directions to valuer Use of “comparables”

“Hypothetical lease” is subject of valuation Based on actual lease Assumptions and Disregards introduced to

▪ Eliminate contingencies of actual letting▪ Create “level playing field”▪ Produce fair valuation?

Hypothetical letting: lease provisions

Hypothetical letting: lease provisions

Take actual clause

Widen (i.e. less restrictive)

Hypothetical letting: lease provisions

Take actual clause

Widen (i.e. less restrictive)

Lease more attractive to hypothetical bidders

More/higher hypothetical rental bids

Hypothetical letting: lease provisions

Take actual clause

Widen (i.e. less restrictive)

Lease more attractive to hypothetical bidders

More/higher hypothetical rental bids

Rent inflated at review(landlords’ objective)

Hypothetical letting: circumstances

Hypothetical letting: circumstances

Take actual circumstances of letting/market

Increase competition for hypothetical letting/adjust

circumstances

Hypothetical letting: circumstances

Take actual circumstances of letting/market

Increase competition for hypothetical letting/adjust

circumstances

More/higher hypothetical rental bids

Rent inflated at review(landlords’ objective)

(a) no works … that have diminished the rental value

(b) if destroyed… Premises rebuilt

(c) L and T covenants have been performed Is this fair to T?

(d) willing landlord and willing tenant… with vacant possession Is VP always realistic?

(e) fully fitted out

(f) Hypothetical Lease contains same terms as [actual] Lease save for Initial Rent…and… any rent-free period [for fitting out]

Rent-free’s and other inducements: Broadgate Square v Lehman Brothers “headline rent” vs “effective rent”

Take a five year lease – “rent” is £100K p.a.

1 2 3 4 5

Take a five year lease – “rent” is £100K p.a.

1 2 3 4 5

Rent-free of 12 months

Take a five year lease – “rent” is £100K p.a.

1 2 3 4 5

Rent-free of 12 months

£0 £100K £100K £100K £100K

Take a five year lease – “rent” is £100K p.a.

1 2 3 4 5

Rent-free of 12 months

£0 £100K £100K £100K £100K

Headline rent = £100K p.a.

BUT

Effective rent = 400/5 = £80K p.a.

(f) (continued)… including provisions for rent review

(g) term of hypothetical lease

(h) (i) 1954 Act renewal / VAT recovery

See s34 LTA 1954

(a) occupation

(b) goodwill

(c) improvements

Experts vs arbitrators

Formalistic reviews

Time of the essence