U6. LH Rent and Rent Review

Question 1

What is Rent Review?

Answer 1

Most Leases will provide ‘Rent Review Provisions’, subjecting them to a single review, or periodic reviews through the term (such as every 3 years).

Question 2

Give 3 ways Rent can be reviewed?

Answer 2

1. Rent will increase by a set amount at set times (‘The Rent will increase every year by £200 / Rent is £1,800 for first 6 months, then £2,200’)
2. Turn Over Rent Review - Rent increases linked to the tenants turnover at the time of set rent review
3. Open Market Rent Review - Rent is reviewed to the ‘Hypothetical’ open market rental value , considering stated assumptions and disregards, at time of set rent review.

Question 3

What is Open Market Rent Review?

Answer 3

Rent is reviewed to the ‘Hypothetical’ open market rental value, considering stated assumptions and disregards.

It is usually on an upwards-only basis (rather than an upwards-downwards basis) as landlords want guaranteed income.

Question 4

What are assumptions and disregard for the purposes of Open Market Rent Review?

What is their purpose?

Answer 4

The open market rent will be reviewed considering stated assumptions and disregards.

They are designed to ensure that the reviewed rent under the terms of the hypothetical lease is fair to both parties

Question 5

What are the 6 assumptions for the purposes of Open Market Rent Review?

Answer 5

1. There is a willing land lord and tenant
2. The Property is to be let with vacant possession
3. The lease will be on the same terms, excluding the rent, but including the rent review provisions
4. The term will be equal to the unexpired residue of term
5. The tenant has complied with its covenants (for example if they let the property fall into disrepair, a hypothetical tenant would pay less as a result, which would be unfair.)
6. The property has been reinstated if it has been damaged or destroyed

Question 6

What are the 3 disregards for the purposes of Open Market Rent Review?

Answer 6

1.The tenants occupation (ie the tenant would pay more for the convince of not moving)

2. The Goodwill of the tenant (ie how well the business is doing)
3. The effect of voluntary improvements by the tenant (avoids the tenant paying for improvements twice) (ie if the tenant renovated voluntarily, this would make the market value go up, but this needs to be disregarded.)