L&T - Open Market Rent Review Flashcards
What is an open market rent review?
- Rental increase based on the market rent – known as a contractual agreement
- Settled as per the terms of the lease
What is the open market rent review process?
- Carried out a conflict of interest and competency check
- Agree the terms of engagement
- Review the lease:
* Reviewed the rent review clause
* Time was not of the essence
* Reviewed the assumptions and disregards - Notified the tenant and carried out my inspection of the unit in line with Surveying Safely guide. During the inspection the unit was measured using (GIA - industrial or IPMS3 - Office)
- Gathered my comparable evidence
- Analysed the data to establish market rent
- Issued my report to the client
- Served notice to the tenant
- Negotiated and agreed the new rent with tenant
- Asked solicitor to document and raise a rent review memo
- Completed the input to amend the rent, raised the charges and issued to the tenant
What is time of the essence?
- Time of the essence means there would be a deadline to agree terms otherwise the RR would be lost
- If it is not mentioned then it is assumed time is not of the essence – See Case Law
Time of the essence Case Law?
- United Scientific Holdings v Burnley Borough Council
- Always assume it is not if not stated within the lease
What is included in a rent review memorandum and what is it?
It legally records the amount of revised rent during a rent review. It includes tenant details, landlord details, the subject property, review date, the revised rent and signatures by both parties.
What is the hypothetical term?
The assumed terms in which a lease will obtain on the open market
What were the assumptions?
- Vacant Possession
- The subject property is fit for immediate occupation and use
- The property is available to let on the open market by a willing landlord to a willing tenant at the market rent
- All the covenants in the lease have been observed by the Tenant
- The property may be used for any purpose permitted under the terms of the lease.
What were the disregards?
- Goodwill
- Any increase in rental value caused by tenants improvements
- Any licences (such as alcohol) that is personal to the Tenant
- Case Law – Ponsford v HMS Aerosols – the lease had no provision for excluding Tenant’s improvements, therefore they were taken into account at rent review
How did you establish market rent?
- Gathered comparables – using recent transactions caried out within the property
- Using the hierarchy of evidence
What is the hierarchy of evidence?
- How we determine which transactions are most comparable
o Open market rent
o Lease Renewals
o Rent reviews
o Independent expert
o Arbitration awards
What would happen if you could not agree the rent figure?
- First - Negotiation – either in writing or face to face
- Second - Review the lease terms:
o Arbitration - Can issue a Calder bank letter
o Independent expert – usually noted within the lease
What is an arbitrator?
- Governed by the Arbitration Act 1995
- Award must be between two parties
- Arbitrator cannot be sued, unless proven they have acted in bad faith
- A reasoned reward must be given by the arbitrator unless otherwise agreed
What is an independent expert?
- Governed by the lease
- Can use their own knowledge and judgement to determine market rent
- No right of appeal
- Can be sued for negligence
- A reasoned reward can be given depending on the wording of the lease
What is a Calderbank letter?
- A Calderbank offer is an unequivocable offer to settle and is marked ‘Without prejudice save as to Costs’ – save means ‘except’
- Not used for negotiation
- If accepted then this is binding.
What does without prejudice mean?
Details within the letter cannot be used in the arbitration process.
