Crystal clear clauses benefit all parties - Tenant

If there is a single rule of thumb for tenants negotiating rent review provisions, it is that the premises should be valued as they are. Tenants should resist any suggestion that the premises should be valued in an assumed state that differs from reality.

The definition of market value

Tenants should ensure that any bid by a special purchaser, which might inflate the market rent, is excluded. As a matter of law, a reference to 'best rent' may not have this effect, but it is safest to shy away from it. Equally, any value attributed to goodwill or the special price the actual tenant might be prepared to pay to stay in the premises at the end of the term should be excluded. Most leases exclude any effect on rent of the tenant's occupation.

Notional premises

Where the premises are unusual and there is no comparable evidence on which to base the review, the landlord may argue that the lease should direct the valuer to set the rent at the level achieved for a hypothetical building. The Dukeminster case illustrates the dangers.

Even where the property to be valued is not 'hypothetical', tenants should watch out for artificial assumptions, for example that the landlord has complied with all its obligations under the lease. It is reasonable to include an assumption that the tenant has complied with its obligations. But there is no reason why the valuation should not reflect any failure by the landlord to comply with its obligations, especially in a building where the landlord is responsible for its repair and maintenance. Landlords argue that this will give the tenant a five-year rent advantage for what may be a transitory breach. Yet, the valuer can take into account the fact that the breach is likely to be a fleeting one.

Tenants should ensure that the lease is clear and that their improvements are not valued on rent review. A common trap is that improvements carried out during the term of the lease will be disregarded, but if the tenant has fitted out under an agreement for lease, before it was granted, the fitting-out works may not be disregarded. This may also apply to improvements carried out by sub-tenants.

If the landlord has handed over the building for the tenant to fit out, it is best for the lease to include a detailed schedule to describe to the valuer the state the premises are in.

Watch out too for any direction that the property is to be valued ready for and fit for immediate occupation and use. There will be an implication that the property is fully fitted out to a modern standard.

Rent-free periods & inducements

Watch out for any direction that the property is to be valued ready and fit for occupation and use. There will be an implication that it is fully fitted out to a modern standard

It is hard to argue with the proposition that the valuer should not discount the rent to reflect the fact that a new tenant would require a rent-free period to fit out or to find under-tenants. However, the dangers of wording the assumption, which might produce a headline rent by disregarding all rent-free periods and concessions, are now well known.

Letting of whole or part

Many leases direct the valuer to set the rent at the higher of the rent for the whole property, or the aggregate of the rents which could be obtained on sub-lettings of part. Tenants should ensure that this is limited to sub-lettings of part permitted under the lease.

However, the landlord benefits from the fact that the tenant has a lease of the whole. If the landlord is being spared the management headache of a series of lettings of part, the rent should not disregard any discount a tenant of the whole would be able to negotiate.

Permitted use

The lease should not permit the valuer to assume that the property can be used for any purpose other than the one permitted under the lease, particularly where the user clause is narrow and does not permit a change of use with the landlord's consent, not to be unreasonably withheld.

Conclusion

The worst injustices for tenants on rent reviews have stemmed from artificial assumptions – agree them at your peril.