Market Rent Reviews – The process of determination

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It is important to maintain a good working relationship with a Landlord, and we strive to achieve this with the Landlords of all our clients. There may come a time when negotiations reach an impasse, which can often happen when negotiating a market rent review – either mid term or at exercise of option.

All leases should provide for the opportunity to have market rent determined by an expert (this is required under the Retail Leases Act), whose determination is final and binding on both parties.

Before heading down the road of rental determination, it is imperative that your assessment of market rent is accurate as the cost, time and effort involved may outweigh the end result.

In my 18 years in the property industry, I have been through three rental determinations on behalf of the tenant, and we have ‘won’ all three. This doesn’t mean that the determination has come in at the market rental amount that we proposed, but has been significantly less than what the Landlord proposed. In these circumstances, it was worth fighting for as the variance in costs was hundreds of thousands of dollars over the term of the lease. If you’re looking at a few thousand, or even tens of thousands, it is probably best to reach an agreement with the Landlord.

We recommend that a tenant who is unable to reach agreement with the Landlord on market rent follow the below steps to determination:

  1. Ensure that your estimate of market rent is accurate, and have evidence to back you up. The tenant should be prepared for this, and research market rent well in advance of the rent review date. A tenant representative will be able to provide you with a market assessment, or you may engage a certified Valuer for a sworn rental valuation.
  2. Notify the Landlord within the specified time period that you reject their estimate of market rent and would like to begin the process of determination. This is where notice periods are crucial, as being outside of the dates may mean that your request is invalid and the Landlord’s estimate stands.
  3. If the Retail Leases Act applies, the Landlord and Tenant are to agree on who to appoint as the determining Valuer (you can read more here about being a retail tenant). If they cannot agree, then either party may write to the Small Business Commissioner to request they appoint a Valuer.  If the Act does not apply, then generally either party can write to the Australian Property Institute requesting they appoint a Valuer.
  4. You will have the opportunity to present a written submission to the determining Valuer. Within this you should include any of your own research, the sworn valuation if you had one prepared, and any other information that would be imperative to the market rent. For example, if you have installed a mezzanine floor at your own cost be sure to note this, as the added area should be excluded from the valuation.
  5. The Landlord and Tenant are to share the cost equally of the determining Valuer. Payment is usually required before any determination is given.
  6. Both Landlord and Tenant will receive the final rental determination from the Valuer which is binding on both parties. The new rent will then become the rent stated by the Valuer.

The process for market rental determination may seem quite straightforward, but it can be long and arduous and best avoided if possible. It is in everyone’s best interest for the parties to reach a mutual agreement on market rent.

If you require assistance with assessing market rent for your property or negotiating a market rental, please get in contact – info@eveproperty.com.au