COMMERCIAL LEASES LECTURE 5

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COMMERCIAL LEASESLECTURE 5

• Jennifer Slade

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Commercial Leases Lecture 5Todays topics

• Rent
• Rent review

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Commercial Leases Lecture 5Rent

• Amount
• Payment dates
• Rent suspension/abatement
• Payments defined as Rent
• Interest

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Commercial Leases Lecture 5Rent Review

• Purpose
• Periodic reassessment of rent
• Valuation exercise determined by provisions
• Open Market Rental Value (OMRV)
• RPI
• Turnover rent
• Upwards only rent review?

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Rising market
Falling market
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Reviewed rent
Rising market
Reviewed rent (upwards only)
Falling market
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Commercial Leases Lecture 5 Rent Review

• Rent review provisions directions to valuer
• Use of comparables
• Hypothetical lease is subject of valuation
• Based on actual lease
• Assumptions and Disregards introduced to
• Eliminate contingencies of actual letting
• Create level playing field
• Produce fair valuation?

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Hypothetical letting lease provisions
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Hypothetical letting lease provisions
Take actual clause
Widen (i.e. less restrictive)
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Hypothetical letting lease provisions
Take actual clause
Widen (i.e. less restrictive)
Lease more attractive to hypothetical bidders
More/higher hypothetical rental bids
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Hypothetical letting lease provisions
Take actual clause
Widen (i.e. less restrictive)
Lease more attractive to hypothetical bidders
More/higher hypothetical rental bids
Rent inflated at review (landlords objective)
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Hypothetical letting circumstances
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Hypothetical letting circumstances
Take actual circumstances of letting/market
Increase competition for hypothetical
letting/adjust circumstances
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Hypothetical letting circumstances
Take actual circumstances of letting/market
Increase competition for hypothetical
letting/adjust circumstances
More/higher hypothetical rental bids
Rent inflated at review (landlords objective)
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Commercial Leases Lecture 5Rent Review
assumptions

• (a) no works that have diminished the rental
  value
• (b) if destroyed Premises rebuilt
• (c) L and T covenants have been performed
• Is this fair to T?

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Commercial Leases Lecture 5Rent Review
assumptions

• (d) willing landlord and willing tenant with
  vacant possession
• Is VP always realistic?
• (e) fully fitted out

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Commercial Leases Lecture 5Rent Review
assumptions

• (f) Hypothetical Lease contains same terms as
  actual Lease save for Initial Rent
• and any rent-free period for fitting out
• Rent-frees and other inducements
• Broadgate Square v Lehman Brothers
• headline rent vs effective rent

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Take a five year lease rent is 100K p.a.
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1
2
4
5
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Take a five year lease rent is 100K p.a.
Rent-free of 12 months
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1
2
4
5
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Take a five year lease rent is 100K p.a.
Rent-free of 12 months
100K
0
100K
100K
100K
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1
2
4
5
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Take a five year lease rent is 100K p.a.
Rent-free of 12 months
100K
0
100K
100K
100K
3
1
2
4
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Headline rent 100K p.a. BUT Effective rent
400/5 80K p.a.
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Commercial Leases Lecture 5Rent review
assumptions

• (f) (continued) including provisions for rent
  review
• (g) term of hypothetical lease
• (h) (i) 1954 Act renewal / VAT recovery

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Commercial Leases Lecture 5Rent review
disregards

• See s34 LTA 1954
• (a) occupation
• (b) goodwill
• (c) improvements

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Commercial Leases Lecture 5Rent review
mechanics

• Experts vs arbitrators
• Formalistic reviews
• Time of the essence