Rental Analysis & Adjustment Flashcards
What rents can be immediately discarded when weighting evidence?
Rents which require too many adjustments
Rents which dont conform to the rating hypothesis
Rents fixed between parties
Leases with missing info
Rents fixed long before AVD
When do sale and leaseback events occur?
When a property owner sells the interest in the property (e.g., to a financial institution) and then immediately takes a lease of the property
Why use a sale and leaseback?
Enables a company to sell an asset to raise capital, then lets the company lease the asset back from the purchaser. Therefore a company can get both the cash and the asset for their own use
Why are sale and leasebacks weighted low?
The company sells the property to the purchaser and not to the open market, therefore it would not be a good representation
Would a new letting deriving from a new property be weighted highly?
The trading development of a new property may not reach the expected level. Also new adjoining properties may be let to a lower grade of tenant than the subject. Weight could potentially be low
How are rents on anchor tenants weighed?
The initial rent on an anchor tenant may be agreed lower, in the hopes the demand for other units in the development will increase. The figure on the first rent review may be more accurate depending on the clause
How are the rents on charities weighed up?
Charities can sometimes qualify for an 80% reduction in rates as they might pay higher than the true rental value.
What is a tender rent? How are they weighted?
When a landlord puts out a lease to auction to achieve the highest rent possible in a timeframe. Tenants who bid usually have surveyors with full market knowledge, therefore tender rents could be useful
What are some assumptions valuer’s will make when weighing up rent reviews?
Length of lease - value may differ if there is either 5 years left on lease or 10 years
Improvements - will they be involved in the value?
Upwards only - rent agreed may be above market value, as value cannot fall
Assume tenant takes property - even if there is no demand
What are some assumptions valuer’s will make when weighing up lease renewals?
Rent may not be accepted as open market, as the tenant may have carried out improvements which may increase the value. This increase in value wouldnt be reflected or tested in the market.
What is a rack rent?
An extortionate amount of rent
What are the propositions set out by the Lands Tribunal in Lotus & Delta v Culverwell and Leicester City Council 1976
The rent of the subject should be taken as the starting point.
Rents closer to the AVD should have more weight attached.
Rents of similar properties should be considered.
Assessments of comparable properties should be considered.
An opinion can be formed from the evidence (nature of actual rent and degree of comparability from other properties)
Where no rents are available, subject property holds the most weight
How is the case Specialeyes Plc v Felgate 1994 relevant to the weighting of evidence?
When deciding what weight to apply on various rental evidence to find a zone A rate, rents that were close before AVD were weighted higher than rents post AVD (as there was a rapid rise in rents during 1988/1989
How are relative values in a previous list treated?
Lamb v Minards (VO) - whilst values in the old list might not be useful, relativities could be
How can rents reflect disabilities to properties?
Rents may show what restricted access or an obscured shop frontage have by comparison to other non disabled properties. Receipts/rents can be analysed to show if there is a need for a reduction
What considerations must be taken when assuming the effect of MCCs on rental values?
- the effect must hinder a number of traders in the locality
- whether the change was due to economic factors
- If there is no correlation between turnover and rent
- is it like for like?
What adjustments can be made to a rent?
Repairs + Insurance
Business rates
Services
Fixtures and fittings
Covenants
Premiums
Key money
Tenant improvements
Reverse premium
Why are repairs and insurance adjusted for?
Under the definition of rateable value, the repairs and insurance should be held responsible by the tenant.
Why are rates adjusted for?
Its assumed rates are included in the rent, usually stated in the lease
Why are services adjusted for?
A deduction should be made from to reflect the cost of services. No adjustments need to be made if the landlord recovers costs of service from the tenant no adjustments need to be made, however if the LL is making exceptional profit from the services adjustments would need to be made
Why are fixtures/fittings/P&M adjusted for?
The rent of a property may include payment for use of fixtures/fittings/P&M. Anything non rateable would need to be deducted from the rent passing
How would a user covenant affect a passing rent?
If there is a user clause restricting the use of a property, if there is demand for the properties services which are being hindered, then a lower rent may have been negotiated
Why are premiums adjusted in rents?
Premiums are paid for the acquisition of a lease.
Premiums in the form of Goodwill (incoming tenant gets the same benefits (customers) as outgoing tenant), which isn’t rateable so it would have to be deducted.
Fixtures and Fittings
Locational - e.g., retailers wanting a better location
Capitalised profit rent
What is capitalised profit rent?
The profit rent represents the annual difference between the rent paid under the lease and the current market rental value of the property - analysing the capitalised profit rent will find the true valuue
