An informed rent review surveyor and an experienced lawyer working as a team on the drafting and approval of the lease documentation is arguably the only way that the client’s interest can reasonably be described as properly served. Instead, what landlords or tenants often get is the lethal combination of a ‘half-hearted’ approach by agency-oriented surveyors and inexperienced lawyers.
A ‘half-hearted’ approach could be defined as enthusiasm for procuring a tenant for a new letting and/or negotiating outline terms for renewal of an existing lease, coupled with preparing and circulating ‘heads of terms’. Typically, what is stated to be ‘heads of terms’ would be better described as a ‘rough draft’ consisting of the parties’ contact details and a minimal synopsis of the terms. The information, which ought to go into detail so that the parties are clear from the onset what they are letting themselves in for, normally occupies no more than a couple of pages from which the parties’ lawyers are expected to expand a brief summary into a lengthy contract. Even where surveyors are not involved, the landlord dealing direct with the tenant, those parties handing over the matter to their respective lawyers for the documentation, a same casualness arises. Ultimately, the parties’ lawyers draft and approve the documentation.
Leases nowadays are rarely drafted from scratch. Instead, what the practitioner does is base the drafting of the terms and conditions for each transaction on a combination of any previous lease and the practitioner’s in-house standard form of lease, the template itself a product of research into the Encyclopaedia of Forms and Precedents, some 100+ volumes, a tome priced at around £12,000 excluding updates; that and the Model Form of Leases and other legal resources including current case-law, all of which with a word-processor provides the wherewithal for a practitioner to produce a lease at the touch of a button.
There is much to be said for using precedents when drafting a lease. Case-law, chiefly concerned with issues involving interpretation, generally prevents a repeating of wording and phrasing so convoluted to be open to differing interpretations that the only reasonable conclusion is that the lease approver was even less experienced than the lease draftsperson.
A lease at the touch of a button suits the goal of a universal standard form of lease, one size fits all. But, although cost-expedient and time-saving to use precedents when drafting, the snag with institutionalising the wording and phrasing of business leases is that without much or any input from experienced surveyors whether a subjective reading of the rent review clause would stand up to objective scrutiny is questionable.
On completion of the lease whether the result is what the client wishes to achieve is one thing: equally, if not more important is whether the lease is good enough to ensure what the client wishes to achieve in future. Where the client’s lawyer is left to her/his own devices, the success of the client’s aspiration depends upon a combination of the academic and practical experience of that lawyer.
Rent review involves a confrontation between the actual parties and the hypothetical parties. Where leases can go wrong for landlords is that following precedents is often slavish, frequently without enough or any thought given to the consequences in practice. All precedents derive from circumstances that were the subject of the dispute from which the particular issue arose. Converting the facts of a particular dispute into a principle enables that principle to be followed elsewhere. However, it is not whether the principle would apply to the nature of the demised premises and/or the nature of the lease, both factors that in themselves must be carefully considered before incorporating the terminology, but more importantly whether the precedent and its principle would facilitate the result the client wishes to achieve.
With a new letting, how the initial rent is calculated does not set a precedent for how the valuation for the rent review is to be approached. Unless the wording and phrasing in the rent review clause would result in at least the same figure as the initial rent, there is no certainty that on review the market rent as defined by the lease would be arrived at on the same basis as the initial rent. The test of integrity is whether a rent review on the same day as the initial rent commencement date would result in the same rent. All other factors remaining constant, and assuming experience competence, that a difference in approach can arise is rarely anything to do with the parties’ choice of surveyors to represent the respective interests, so much as what the parties and/or their respective lawyers have decided between themselves, without any input from experienced rent review surveyors. The existence of a difference that can often substantially affect the rent review could easily have been avoided had there been an informed someone on board providing input for the consequences in practice of the wording of the rent review clause.
At rent review, and rent on renewal, the valuation approach includes negotiating psychology. Combining the technical with human nature, or rather what I describe as “the adverse effect of cultural conditioning on human nature” can be better explained by remembering that the language of a lease is words and emotive, whereas the language of valuation is numbers and logical. Generally, agency-oriented surveyors are better at numbers and stifling their emotions with coffee, tobacco and alcohol which is why for them it is more comfortable to leave it to the lawyers to draft the lease. It does not explain why a landlord or a tenant for that matter would entrust an inexperienced lawyer, having no practical experience of rent review, to draft or approve the lease. For an explanation of that paradox perhaps one needs to remember that for a precedent to be followed what must be communicated is the nature of the demised premises, and the nature of the lease, and the result the client is wishing for.
The Rent Review Specialist