Establishing the market rent for commercial premises on rent review, or on the renewal of a lease, requires careful analysis of numerous factors. The valuer will ascertain the rent by reference to the size, type, age and location of the property, taking into account the terms on which it is let, and will also draw heavily on comparable evidence.
Comparable evidence may come from a variety of transactions. A recent transaction involving the premises, such as a subletting, may provide strong evidence of what a willing tenant would be prepared to pay for the premises.
The decision in Trans-World Investments Ltd v Dadarwalla [2007] EWCA Civ 480; [2007] PLSCS 110 reminds us that the rent agreed for premises at a previous rent review is also a relevant factor that should not be ignored.
The tenant was renewing a lease of a property in a small parade of lock-up shops. She had taken an assignment of the lease in 2000, and had agreed to a reviewed rent in the sum of £6,250 pa. The annual rent for the adjoining premises was £7,500. Rents in the area had increased, but the tenant asked the county court to fix the rent under her new lease at £3,150 pa.
The county court judge accepted that the rent under the expired lease was relevant to the valuation exercise. However, he decided that he was unable to take it into account in this particular case because he had not been offered any evidence as to how the rent had been negotiated. Consequently, he fixed the rent at £3,937.50 pa.
The Court of Appeal directed the county court to reconsider the matter. It ruled that the rents payable under the expired lease, and for the adjoining premises, were both relevant factors in the valuation exercise. It was not up to the landlord to provide positive evidence of the circumstances in which those rents were determined. It was up to the tenant, since it was challenging the evidence offered by the landlord, to show why rents offered as a comparable were not relevant factors, when establishing the open market rent for the premises.
The decision confirms that valuers can take account of rent agreed at a previous rent review, or at the beginning of a lease, when fixing the market rent for a property. Indeed, the authors of Hill and Redman’s Law of Landlord and Tenant suggest that, although it would be unusual to use calculations like these as a primary method of valuation, it may be possible to check rental valuations by adjusting the previous rent for a property to reflect any changes in the price of comparable premises since the previous rent was agreed.
Allyson Colby is a property law consultant