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How to do a rent review - Part 1

Review|Commercial Building

In 1978, I published a pamphlet "The Framework of Rent Review Clauses" which was given free publicity in leading law and property journals. In 1983, I published a 28-page booklet ' How to do a Rent Review'; priced at �5 it was an instant hit and in a letter to me was described by Professor John Ratcliffe, then Dean of the Faculty of the Built Environment at the Polytechnic of the South Bank, London (now University of the South Bank, London) as an "excellent digest of a particular complex area of professional practice and study"Whilst re-reading what I wrote all those years ago, I am aware just how much some things have changed, while others have not. Arguably, rent review has not become more complicated, so much as more time-consuming. With commercial property attracting a multitude of new investors whose grasp of the basics is lacking, for those that would require detailed explanation taking the time to explain is no more time-consuming than before. Even amongst the more experienced and long-established commercial property investors, the sometimes overwhelming amount of information to impart can cause a mental switch-off. Only listening to what they want to hear is not a recipe for investment success, but it still doesn't stop such investors thinking they know it all. But quite apart from vastly increased body of case-law, had I known then what I know now I would have had more regard to the one thing that is different between writing about how to do a rent review and actually doing a rent review. The difference is experience and in common with all experiences not simply about knowing how to do something but equally important, arguably more so, also knowing what to do if something goes wrong. And better still knowing how to avoid going wrong in the first place.Recently, I was reminded of the importance of that difference while chatting with a qualified professional electrician about a mutual-acquaintance youngster who is studying to become an electrician. I had asked whether the examinations include how to crouch awkwardly when standing on a ladder to unscrew a ceiling light fitting and connecting wiring in situ, or clambering across dusty roof space between joists; apparently not. As someone just about ok on the first few rungs of a folding step-ladder, I admire anyone with the ability to climb a long ladder to great height without any noticeable concern for the distance to the ground. To me, such fearlessness demands respect.At rent review, property inspecting generally does not entail climbing ladders: measuring height can be done quite easily with a laser device. In my experience, typical obstacles at floor level include shop fitting a few inches proud of structural walls, plant and machinery positioned without any thought given to the possibility someone would want to measure the length or width from unimpeded wall-to-wall Talking of which, for years I had been content to use a 100 metre tape measure and it was only when inspecting the first floor of a large shop where a pen (enclosure) full of rubber balls had been positioned such that the only way I could measure the width of the space was to attach one end of the tape to one wall and then walk through the pen to the opposite wall. About half way along my mind wandered whereupon I fell over. Lying on my back surrounded by rubber balls, I realised I was alone in about 2,000 sqft, and out of earshot of the shop staff on the ground floor. Enough was enough. I stood up, had another go, and concentrated. When I got back to my office, I ordered a laser measuring device whose features include a camera for positioning the laser spot on reflective surfaces and calculating the horizontal distance when measuring at an angle from floor to ceiling.How to do a rent review (presupposing review to 'market rent') without experience of review in practice is academic stuff. Occasionally, I get enquiries from students wanting help in answering some convoluted question. In theory, there shouldn't be any difference between the text-book example and the 'real world', But unlike in text-books where for both parties (the landlord and the tenant) the market rent is the shared objective, in practice a well-advised tenant will want to pay less than the market rent so as to enjoy a competitive edge and quite possibly the lease would become a more saleable asset. Conversely, a well-advised landlord will want to capitalise on the wording and phrasing in the lease.Unlike a text-book 'how to' approach where figures are imaginary and the only resistance between the author and the reader is in reader not- or mis- understanding the imparting of knowledge, the practicality at rent review is that actual money, sometimes a substantial amount, is at stake so resistance is either the landlord not agreeing with the tenant or the tenant disagreeing with the landlord. The discussions aimed at reaching agreement are known as negotiation. Agreeing common ground, that is matters that are not in dispute, is straightforward. The challenge is how to overcome resistance and even if impossible to avoid resistance entirely then at least after all else has failed, rather than prematurely. In my experience, landlords and tenants generally can often lose out as a result of adopting a line of least resistance, and of approaching rent review with the wrong attitude at the onset.---To begin with, it is important to remember that a 'lease' is a contract. A contract, normally legally-enforceable, may be defined as an agreement with specific terms between two or more persons or entities in which there is a promise to do somethingin return for a valuable benefit known as consideration. With commercial property, the contract, commonly known as a lease, itself the document that embodies the contract in writing, is an agreement between landlord and tenant for the use and occupation of the premises.As a form of communications, words are a means by which people of different backgrounds and different languages can understand one another; and in the event of any misunderstanding for explanation in a way that makes sense. At a socio-economic level, understanding leads to progress: at a personal level, understanding sustains self-confidence. Language is a system that governs the use of agreed sounds or other symbols in order to exchange information. Our grasp of language, in this case British English, and our ability to understand one another through each word read, without having to look up the meaning of each word in a dictionary, enables the experience of reading to flow easily. The more technical the subject, the more likely the language of the particular subject would need to be learned before understanding could be reached. Hence, there is a need for the basics and in the interest of succinctness a generally recognised system of abbreviations and short-cuts. For example, a mathematician invented the '=' sign as a symbol to save time writing about what it means. Surveyors and valuers of retail property have ITZA and Zone A �.The language of leases is in a world of its own. Without a knowledge of the language, without an understanding of the words and phrases and the terminology that are commonly found in leases, the words on their own and read literally could result in a different meaning. With business tenancies, the wording of a lease (also known as its "construction') is open to interpretation. Per Co-operative Wholesale Society v National Westminster Bank (1994) "the principles to be applied to the construction of commercial rent review clauses are no different from those applying to the construction of any other commercial document". A lease is open to interpretation because despite the neutral meaning of each word, each word is in context, within a phrase or sentence, and attracts connotations. Connotations are positive or negative depending upon the relationship between your point of view and your objective. People are different: how you 'see' things, how you use your senses, may not be the same as how I see things, how I use my senses. (In my philosophy, there is a stage (a deep level of understanding) where different people's senses are used the same but at relatively superficial levels there might be differences.) In context, within a phrase, or sentence, or paragraph, the meaning that the parties may have intended might be capable of a different interpretation if it would suit either of those same parties and/ or since the respective interests of the landlord and tenant are normally transferable, a successor landlord or successor tenant might also have a different objective.The snag with reading the words literally, of not learning let alone understanding the language of leases, is that the casual use of words can imply something different to the correct meaning of the terminology. For example, in popular parlance, and amongst the uninitiated, the phrase 'upward-only rent review' is interpreted as meaning the rent would go up whereas, as I have said elsewhere - - all it means is that the rent payable after the review is agreed or ascertained would not be less than the rent payable beforehand. In other words, because 'upward only rent review' does not mean that the rent necessarily has to go up, (assuming the review is to market rent, as distinct from some formulaic calculation), the phrase 'upward-only rent review' might be thought a misrepresentation because the market rent could be the same or less than the rent payable. To think like that would also be casual: it is not the rent itself that is upward-only, but the review.At rent review, the word "review" does not mean "look at again" or "reconsider'�, but is the extended sense of "revise". However, there can be exceptions. And it is because exceptions can arise that is it so essential to both rationally acknowledge and emotionally accept that the language of leases comprises three interdependent levels of understanding. Interdependency is the relationship between all levels, rather than just any two at a time. It is if you like a whole or holistic approach to lease analysis.Basically, at elementary or novice level, the words are read literally: this level I shall call 'obvious". At intermediate level, I shall call this level "legislation", the wording of the terms and conditions is governed by any overriding legislation. At advanced level, which I shall call "mysterious", the words and phrases might or might not be read literally but depending upon the context interpreted by reference to case-law or a new way of thinking that hasn't been ruled upon before.Commercial. property is a sector of the property market that is divided into descriptive segments: shops, offices, industrial, leisure, and so on. Although commercial property let on lease is subject to the same business tenancy law, (including rent review), regardless of segment, rent review can feel like a vast ocean but actually it is a small pool, whose pond size varies according to the type of property. In the pool, there is only a shallow end at rent review if landlord and tenant are none the wiser and/or if the amounts at stake are hardly worth arguing over. Towards and at the deep level where the stakes are higher, to do a rent review by diving straight in is high risk. Coming unstuck, coming up against such resistance that overcoming and defeating seems insurmountable.---In part 02 of this series, I shall consider the obvious. in part 03, the legislation. Thereafter, I shall consider the mysterious. If you have any questions then please do not hesitate to ask.


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