Rental - Case Law Flashcards
Segama Vs Penny Le Roy (1984)
Main Point:
- English Case - Appeal by the landlord (Segama) over Arbitrator’s Award.
- Vacant possession and post review date evidence can be used to analyse trends.
- Segama (landlord) Penny Le Roy (tenant)
Facts:
- It is proper to consider post review date evidence, provided that it shows a trend that could have been foreseeable at the review date.
- The weight of post review evidence would depend on all factors in the case.
- The further after the review date the less reliable the evidence is.
Held - Post rent review evidence is admissible to help establish a valuation as at the review date but that the weight of the evidence would depend on all the factors of the case. The relevance of the evidence diminishes over time.
Jefferies Vs RC Dymock Ltd (1987)
Main Points:
-Objective rent assessment - takes no account of landlord/tenant situation
-Subjective rent assessment - takes into account the situation of landlord/tenant
Case - The case involved a car sales yard, where significant improvements had been made to accommodate the tenant’s car sales business and over half of which was paid for by the tenant. The issue was whether the tenant should have to pay rent including or excluding
tenant improvements. The tenant’s improvements become the property of the landlord: rent assessments should take into account tenant’s excess expenditure on improvements.
The lease clause stated:
“The rental fixed at each rent review shall be such rental as agreed upon by the landlord and tenant and if they can not agree to be determined by arbitration”
Held - This was ruled to be a subjective clause, and therefore rent should not be charged on the
tenant’s improvements.
-The use of the objective/subjective methods of assessing rental will be determined by the wording of the lease.
Objective Vs Subjective Rent Assessments
As determined by Jefferies Vs RC Dymock Ltd (1987).
Objective (most common)
Objective rent review is where the assessment takes no account of the personal situation of the landlord or tenant and simply looks at the property and what that should rent for.
To be used where a lease rent review provision states “market rent”.
Subjective
Subjective rent review is where the assessment takes account of the personal situation of the landlord and tenant, and which would take into account all considerations that would have affected the minds of the parties if they were negotiating the rent themselves.
To be used where a lease rent review provision states - “fair rent”, “reasonable rent”, “parties to agree” or “rent to be agreed”.
Modick RC Vs Mahoney (1991)
Main Point - Rental assessment - Profitability and account history can be relevant when assessing rental in the absence of market evidence. New lettings are considered the best evidence. Issues arise around the average efficient operators. If the use of a premises is restricted then a lower rental may be justified in times of depression in that industry.
Case - Auckland. Involves the same car yard and lease as Jefferies Vs Dymock case. Issue - the lease restricted the use of the premises to motor vehicle dealing. Tenant claimed that their operating loss and lack of profitability should be taken into account when assessing the rental for the premises.
Held - Profitability and account history can be relevant when assessing rental in the absence of market evidence or when that methodology is used by the marketplace i.e. accommodation/service station type leases. The fundamental issue with this method is the quality of the operator comes under question. The best evidence is of recent new lettings of comparable premises within the locality.
Real work example of a subjective rent?
BLK Vintners - rent to be assessed based on the tenant’s annual processing capacity. i.e. a set rental of say, $100,000 per 1000T of processed grape pulp.
BHP Vs AMP (1986)
Main Point - Market Rent - 2 tier rental market, being new lettings and rent reviews. Valuer allowed to consider both new and existing rentals when determining the rental for the premises. Valuer is to exclude any “special value” consideration that premises may hold to a tenant. Tenant fixtures must be excluded when assessing rent.
Case - involves a dispute between the lessor (AMP) and the lessee (BHP) over the fixing of rental upon review for a multi-level commercial office tenancy in Melbourne. When the rental payable under the lease was struck the market was in “boom”, at this time market rents having held no distinction between rents paid by new tenants vs sitting tenants.
Subsequently, market conditions changed and a 2 tier rental structure was formed, whereby rental was discounted to attract new tenants, and sitting tenants that had their rents set within the “boom” period were effectively paying above-market rent.
Held - valuer should be allowed to consider new and existing rentals when determining rent.
Feltex International Vs JBL Consolidated (1988)
MAIN POINTS
+High Court Case
+Appropriate to adjust a rental assessment to account for the frequency in rent reviews
+Rental should be equal to what a prudent lessee would pay for the premises having regard to the terms and conditions of the lease.
CASE
Involved a 30-year lease with 5 yearly rent review periods. The fixing of rental with allowance for longer review periods was fair - upheld.
At arbitration, most of the evidence had 3 yearly rent reviews. The arbitrator fixed rent with reference to comparables and then applied a 10% adjustment for the longer term of 5 years.
Lessee claimed this methodology was unfair and negated any benefit gained from the long term lease commitment.
HELD
+The rental should be what a prudent lessee would pay for the premises having regard to the terms and conditions of the lease, i.e. the long gap between rent reviews.
+It was correct for the valuer to make an adjustment for the period between reviews as it was of benefit to the lessee. With a 5 year lease expected to command a higher rent than a 3 year reviewed rent.
