Download - COMMERCIAL LEASES LECTURE 5
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Jennifer Slade
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Rent
Rent review
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AmountPayment datesRent suspension/abatementPayments defined as “Rent” Interest
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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
Fallingmarket
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Rising market
Fallingmarket
Reviewed rent
Reviewed rent(upwards only)
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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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(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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(d) willing landlord and willing tenant… with vacant possession Is VP always realistic?
(e) fully fitted out
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(f) Hypothetical Lease contains same terms as [actual] Lease save for Initial Rent…and… any rent-free period [for fitting out]
Rent-free’s 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.
1 2 3 4 5
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Take a five year lease – “rent” is £100K p.a.
1 2 3 4 5
Rent-free of 12 months
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Take a five year lease – “rent” is £100K p.a.
1 2 3 4 5
Rent-free of 12 months
£0 £100K £100K £100K £100K
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Take a five year lease – “rent” is £100K p.a.
1 2 3 4 5
Rent-free of 12 months
£0 £100K £100K £100K £100K
Headline rent = £100K p.a.
BUT
Effective rent = 400/5 = £80K p.a.
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(f) (continued)… including provisions for rent review
(g) term of hypothetical lease
(h) (i) 1954 Act renewal / VAT recovery
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See s34 LTA 1954
(a) occupation
(b) goodwill
(c) improvements
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Experts vs arbitrators
Formalistic reviews
Time of the essence