A more recent version of these Lease Open Market Rent Review notes – written by Cambridge And Oxilp And College Of Law students – is available here.
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Work Shop 9 Rent Review
Open Market Rent Review What is it?
Based on assessment of current rental markets the value of the rent will be replaced on the lease (value of rent in that market at that time). Rent Review can only be made if the lease allows it. There is an artificial hypothetical letting of the premises subject to the lease currently being usedAssume that both the premises and lease are being letAssume that there is a market (i.e. that the market is not dead) e.g. of dead market:
The basis of review TERMS P.385 P.385?
Examinin g an OMR clause See
Terms of the Hypothet ical Letting (HL)?where premises are outdated or exceptional, the current T is the only T and it is trying to dispose of the lease. In dead market, LL is in a bad position to increase rent, thus LL's only protection is an "upwards only" clause for rent review)
? willing LL and a willing T means the market is not dead (English Electric)
? willing T will be assumed so T can't argue market is 'dead'State date and length of the hypothetical lease Can't avoid 'upwards only' clause, but explain what it means Ensure the hypothetical letting is reviewed on a fixed date so LL cannot take advantage of market conditions Bad for T to use "best rent" - use "open market rent" instead. Otherwise valuer could consider the presence of a special bidder willing to pay more. T doesn't want to pay anomalously more. Bad for T "whole or in part" it allows the LL to deal with the land. Bad for T "rent and rent review" it excludes any future reviews.
e.g. of a bad OMR clause : "The Open Market" means the best rent at which the premises could be expected to be let in whole or in part on the open market by a willing landlord to a willing tenant subject to the provisions of this lease (excluding the provisions relation to rent and rent review) for a term of 10 years commencing on the Review Date)??Valuer will look at all the proposed terms The more onerous the clause & terms, the less attractive & the lower the value of the Property If a clause is silent, then assume it is by the existing T's terms A party may - by disregard/assumptions - exclude a term that is onerous, too narrow or wide Value as whole (not units, which would give greater income) Factor
Considera tion P.385
Possessio n P.386
Assumption that there's none during the HL
Assumes vacant possession during the HL
As in actual lease
LL wants to... Include a provision of "No rent-free period" to be granted to T, thus allowing LL to keep 'headline rent', but in real market, no-rent periods are offered P.386 Disregard low-value subletting that will not add value to rent & would prefer to value premises as whole. But would regard high-value sub-letting as good. Assume premises are kitted out so there's no 'rent-free' period Exclude excessive restrictions on alienation
T wants to... Account to be taken of 'effective rent' (rent-free period fitting-out periods) as inducements. This will mean lower annual rent Not to take valuable sub-letting into account. Assume T has removed all fixtures and fittings so new T would need to install its own Include them to keep rent lower
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