PARTNER PROFILE CBRE
standard lease historically provided that a rent level was not to fall below the rent being paid, the likelihood of a reduced rent at review was nil. An adjustment will therefore need to be considered when seeking to compare these differing lease structures. The extent of the adjustment will depend upon such issues as: • the market conditions at the time • the level of rent • the length of the lease • the rent review provisions • the number of break options Another question to consider is what significance specific rent review provisions will hold under the new lease structure. Investors generally favour institutionally acceptable leases. However, within institutionally acceptable leases, there may be significant differences in the negotiation and inclusion of rent review provisions. Whilst the impact of these provisions may not have been largely significant in the historic lease structure (as rents could not be reduced at rent review) it is likely that the specific rent review provisions will now become more controversial. The interpretation and negotiation around the specific rent review and lease terms will therefore be crucial in maximising value at rent review.
RENTAL LEVELS Another question arises in assessing comparable rental levels, concerning how rent-free periods and other inducements will be analysed under the new regime. The impact of rentfree periods and inducements will continue to be an area of dispute, in terms of analysing their value. Traditionally, for the purposes of analysing comparable evidence at rent review, rent-free periods and landlords’ inducements have generally been deducted from ‘headline rent’ levels, in order to ascertain the real or ‘effective rent’ level. There are a variety of clauses
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included in rent review provisions that assume that a tenant has had the benefit of rent-free periods and inducements, or which disregard rent-free periods and inducements, in establishing the revised rent; the wording varies and so does their impact. Several of these clauses have been decided upon by the courts in England; it is currently unclear how the Irish courts would interpret them. In any case, the wording of the entire rent review clause together with the wording of the entire lease will have a bearing on the ultimate interpretation. Again, these are issues that only a specialist rent review surveyor will be able to advise on. We believe that there is likely to be an increase in the number of rent review negotiations going to arbitration over the coming years. As a result of the wider range – of possible revised rent levels – for both landlord and tenant at review, it is possible that a wider range of expectations may emerge when comparing the parties’ positions. The arbitration process may become the more common method of resolving rent reviews. It is crucial therefore to have full familiarity with the arbitration process when taking this option. The prevalence of carrying out an arbitration by documents only may become less used; oral hearings have the advantage of assisting an arbitrator understand the issues in dispute and clarifying areas that may not have been fully addressed or tested by way of written format. In any event, there is no doubt but
We believe that there is likely to be an increase in the number of rent review negotiations going to arbitration over the coming years. As a result of the wider range – of possible revised rent levels – for both landlord and tenant at review, it is possible that a wider range of expectations may emerge when comparing the parties’ positions. that the new ‘market rent’ rent review lease structure will add increased complexity to an already specialised area of practice. Whether you are a landlord or a tenant with a rent review looming, it would appear that obtaining professional advice from specialist rent review experts as early as you can in the process is highly advisable and will prove invaluable in the long run. For further details contact Enda on 01 618 5519 or email enda.macmahon@cbre.com. Contact Dervla on 01 6185754 or email dervla.gunne@cbre.com.
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