Rental Adjustment- copied from James little

Question 1

How would you adjust for a premium

Answer 1

Capitalise rental value for the term, then add on the premium to this capital value, then decapitalise over the period of the term

Question 2

How would you adjust for a rent free period

Answer 2

Capitalise payable period up until review and then discount this sum by the YP for the total term of the lease.

Question 3

How would you adjust for stepped rents

Answer 3

Capitalise each rent up until review then decapitalise this over the period until review

Question 4

Why are premiums and reverse premiums given and how is this relflected in the rent?

Answer 4

A premium is given by the tenant in order to secure occupation of a site. It is typically reflected through a lower passing rent.

Reverse premium is given by the landlord in order to incentivise a tenant to occupy the premises. It is reflected by the landlord increasing the passing rent in order to recoupe the initial sum

Question 5

Why are some rents capitalised to review and others into perpetuity?

Answer 5

Rents may be capitalised into perpetuity where a long rent free period is given or incentive that could skew the capital value