L&T - Open Market Rent Review Flashcards
What is an open market rent review?
Rental increase based on the market rent
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 :
o If it was, there would be a deadline to agree terms
o Allows assume time is not of the essence - United Scientific Holdings v BBC
* 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 or IPMS??)
- Gathered my comparables to establish market rent
- Issued my report to the client
- Served notice to the tenant
- Agree figure 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 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 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 ‘Subject to Contract save as to Costs’ – save means ‘except’
What must a Calderbank letter contain?
- An unconditional written offer to settle the rent review
- A reasonable proposal regarding costs incurred up to the date of the offer (normally this would be that each party bears their own costs plus 50% of the Arbitrators fees)
- Either OR both parties may make the offer and it states that it is open for acceptance for 21 days
How does a rent review clause in a lease enhance an asset’s value?
A rent review clause ensures that a lease reflects the current market conditions. As market rents rise, it allows the landlord to increase the rent, enhancing the value of the asset.
