Please Note: This Article is 6 years old. This increases the likelihood that some or all of it's content is now outdated.

Amongst the ways to agree or ascertain the (open) market rent at rent review or on renewal of a lease, (per s.34-s35 Landlord and Tenant Act 1954), is the use of comparable evidence.

At rent review, the market rent for the premises is not what rent the actual tenant would agree or could afford, but what rent the hypothetical willing tenant, which might include the actual tenant unless  otherwise stated in the lease, would pay for the premises. Conversely, the market rent is not what the actual landlord would want, but the rent the hypothetical willing landlord would reasonably expect. The definition of  ‘hypothetical willing’ is enshrined in case-law.

The actual market rent for the premises cannot be tested because the property is not physically available to let with vacant possession. Instead, the market rent is fixed by agreement or via the dispute resolution procedure and the valuation approach is objective. Since the market rent is usually based on what other properties are let for, evidence of those transactions is taken into account.

Rent is a product of the terms and conditions of the lease upon which the property is let. For evidence to be comparable, comparison is not limited to the type of property and its rent only, but extends to all the terms and conditions of the lease for each particular property. As far as possible, everything should be alike in all respects but, since each property is unique and the perfect comparable is rare, surveyors make technical adjustments and allowances in order to cater for any differences.

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For commercial property surveyors, sourcing comparable evidence is relatively straightforward, depending upon the whereabouts and type of property, and the availability of evidence. The commercial property market thrives upon the free circulation of evidence even though such information is confidential and there is rarely any legal obligation for the parties concerned to be forthcoming. Experienced surveyors have a bush telegraph for gathering evidence; but it is not accessible to all surveyors because some surveyors are less popular than others. When acting for a landlord, it can also be more difficult to obtain evidence from tenants, because tenants tend to close ranks, understandably so since tenants see no reason to help landlords and don’t want to risk the evidence being used against them in  future.

For landlords and tenants that like to negotiate between themselves, without involving surveyors, the parties may not bother with the provisions of the lease, preferring instead to barter a mutually-acceptable figure. However, in the event of dispute, unrepresented landlords and/or unrepresented tenants may find that sourcing evidence is more difficult, there being no reason why surveyors should want to be forthcoming when there is no benefit to the surveyor. Since surveyors can be susceptible to the prospect of being instructed should the landlord or tenant have an opportunity to do so, some surveyors fall into the trap of being forthcoming with evidence. I for one am usually happy to help and indeed am perhaps overly generous with my time but even I draw the line at helping people that, to my way of thinking, have no intention of ever following through.

The evidence has to be reliable, and relevant. Reliability generally means that at least one party knew what it was doing as regards the provisions of the lease. For relevance, the valuation date is important: a rent agreed a few years ago may be historic depending what has happened in the market since. Generalities, such as the tenant next door pays £x so our rent must be the same (pro-rata) is of little or no consequence if the valuation dates differ, if the premises are not the same size and/or do not have the same attributes, or there is something in the wording of next door’s lease that resulted in a higher or lower rent for that particular property.  Incidentally, a property available to let ‘subject to contract’ is not evidence, it is evidence of the asking rent, but that is all; for use as evidence, a tenancy must be in force.

Since it is not compulsory for surveyors and/or landlords and/or tenants to be helpful to one another when asked to provide evidence, generalities are rife, so too are the devaluations (analysis) of a settlement rent which might be the one side’s opinion alone, rather than both sides having agreed upon the analysis.  It is important to verify the facts including whether the other side would consider the devaluation would be correct.

Sources of comparable  evidence range from personal involvement, press releases in the public domain, to agents’ particulars of properties to let and leases for sale, including leasehold businesses for sale as going concerns, to commercial property agents and portal websites and industry subscriber-only databases. A quirk of subscriber-databases is that the database provider generally obtains details free of charge from property agents, only to sell the information back to us! For those that do not want to fork out at least £6000 a year for information that is cobbled together on a spreadsheet and generally only good for clues have to find alternative methods for obtaining evidence. Firms that have been established for some time are likely to have internal record systems. My own computerised database, developed over many years, comprises at least 100,000 details of premises, with new information added daily from a variety of different sources. Thanks to pdf, several bookshelves accommodating hundreds of auction catalogues and piles of printed details, can be scanned electronically and condensed to a USB memory stick a inch or so long, and instead of wading through information in random order, indexed for instant access at the touch of a button.

Another source is copy documents from the Land Registry, if available, at a few pounds each. Verification is essential: surveyors are not necessarily aware of all the facts that the parties agreed once the lawyers got going on the transaction.  It’s not just surveyor ignorance of the facts, it might also be deliberately disclosure by the surveyor’s client. I’ve lost count of the number of times information about a property has been presented as factual only to find that the terms of the lease differ slightly from what I’ve been told.

Ascertaining valuation areas of comparable evidence is also important. Different surveyors measuring independently can come up with different areas, but joint-measurement is less common than one might imagine. A few square feet/metres difference here and there might be resolved by compromise. A popular on-line source is rating areas for Rateable Value. Rating areas can only be a rough guide because they are notoriously unreliable as evidence of area for market rent on review or renewal. Theoretically, the ratepayer is supposed to notify the Valuation Office Agency (VOA) of any physical alterations to the premises but mostly ratepayers don’t because no ratepayer wants to risk paying more business rates than they have to. I appreciate what I am about to say might be contentious for some but I reckon the ratal revenue for the government  would be much improved if the VOA were to re-reference (remeasure) every non-domestic hereditament to ensure all rating valuation areas were up-to-date. As it stands, the only rating areas that can be reasonably assumed correct are those involving premises whose RVs have been appealed against successfully. Where the appellant has withdrawn the appeal, it doesn’t follow that the areas themselves are correct. With shop property where the areas are zoned, the rating depths for each zone are not necessarily consistent throughout the (rating) list or the same as the depths used when devaluing the evidence.

Having narrowed the issues and identified the differences, the application of comparable evidence becomes a matter of informed opinion and technical reasoning. Since landlords are generally intent upon maximising rental, while tenants are intent upon minimising, the slightest nuance or variation from a norm might be enough to tip the balance.

 

Please Note: This Article is 6 years old. This increases the likelihood that some or all of it's content is now outdated.
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