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LPC Law Notes Property Law and Practice Notes

Lease Open Market Rent Review Notes

Updated Lease Open Market Rent Review Notes

Property Law and Practice Notes

Property Law and Practice

Approximately 490 pages

A collection of the best LPC PLP notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through dozens of LPC samples from outstanding students with the highest results in England and carefully evaluating each on accuracy, formatting, logical structure, spelling/grammar, conciseness and "wow-factor".

In short these are what we believe to be the strongest set of PLP notes available in the UK this year. This collection of notes is fully updated for recent exams, a...

The following is a more accessible plain text extract of the PDF sample above, taken from our Property Law and Practice Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

What is it?

P.382-383

  • 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 used

The basis of review

P.385

  • Assume that both the premises and lease are being let

  • Assume that there is a market (i.e. that the market is not dead) e.g. of dead market: where premises are outdated or exceptional, the current T is the only T and it is trying to dispose of the lease.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

Examining an OMR clause

See

  • 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)

Terms of the Hypothetical Letting (HL)
  • 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 Typical clause LL wants to... T wants to...

Consideration

P.385

Assumption that there’s none during the HL 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 Account to be taken of ‘effective rent’ (rent-free period fitting-out periods) as inducements. This will mean lower annual rent

Possession

P.386

Assumes vacant possession during the HL

Disregard low-value sub-letting 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

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

Alienation covenant

P.387

alienation = exclusion of certain types of tenants

As in actual lease Exclude excessive restrictions on alienation (for example, only the named T can occupy) from terms of hypothetical letting to get higher rent Include them to keep rent lower
User covenant As in actual lease

Rent review clause

P.388

Upon terms of lease, “other than the amount of rent” Have this disregarded. Long leases w/out review clauses attract higher rent Include them. Leases w/ rent review clauses are cheaper b/c less risky 4 LL

Length of term

P.389

  • Clearly defines length of hypothetical let.

  • Neutral provision could be length of unexpired lease and would benefit both

Take into account possibility of renewal under the LTA 1954: rent would be higher if good prospect of renewal Depends. Some like short-term (businesses) for flexibility. Some like longer for stability.

Assumptions &

Disregards

(certain assumptions are made and certain aspects are disregarded during the hypothetical evaluation to make it more accurate, fair, and just)

  • Ask: if I didn’t have this assumption/disregard, what would the effect be at rent review (see table from workshop)

  • Ask: is the assumption/disregard fair?

  • Disregard for goodwill: accumulated by T; it would be unfair for LL to benefit from the T’s hardwork

  • Assumption that premises are fully restored: this is fair otherwise rent would decrease because of T’s lack of work and care

Assumptions Effect Fair?
Premises fitted out and ready to use P.389 Increases rent: no rent-free period may be requested Arguable: depends on current lease and typical market offers of the time

Covenants performed

[NB: courts may imply this as principle that party should not benefit from own wrongdoing]

P.389-290

Increases rent: hypothetical T will pay more for property in good repair

T has complied with its covenants…

Yes: T should not get lower rent for not repairing

LL has complied with its covenants…

No: T should not allow this. This could lead to an increased rent unfairly if they’re not performed. T paying for something they didn’t receive

Tenant can recover VAT in full

P.390

Increases rent: ignores presence of VAT sensitive Ts in the hypothetical market

T should resist this and argue for valuation on actual lease terms

VAT sensitive Ts would reduce their bid to account for VAT (b/c cannot set it off against input tax)

Overall rent should be less without this assumption

Disregards Effect Fair?

Goodwill

P.390

Decreases rent Fair to include this so LL doesn’t benefit from T’s hardwork

Occupation

[NB: if this is disregarded, but silent to goodwill, then disregard both (Prudential Assurance)] P.391

Decreases rent: a hypothetical T would bid more to stay in same place so won’t have to move. Also applies where T owns adjoining premises Fair, also in relation to goodwill

Improvements

P.391

Decreases...

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