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Case Study - Rent Review & Lease Renewal 2

Case Study - Rent Review & Lease Renewal 2

Published on Sunday, 15 July 2007

Ref: JH/15/7’07           Jean Howe – Partner Kirkby & Diamond


Objective
The client had been in occupation of an office building since 1992. The 2002 rent review had been outstanding for a number of years on the basis that the Landlord had not served any notice. The freehold of the property was sold and subsequently the new Landlord served a retrospective rent review notice some four years after the rent review date. The tenants instructed Kirkby and Diamond to act on their behalf in the negotiation of the rent review.
 
Strategy

An inspection and measurement of the building was undertaken, a copy of the lease was obtained which was then studied very closely. As part of that process, the Kirkby & Diamond Valuer advised the tenant that part of the rent review clause referred to a hypothetical lease term of 25 years and that that would lead to a very substantial reduction in the revised rental as at 2002.
 
Implementation
The Valuer took this matter up with the freeholder’s Valuer who naturally took the opposite opinion.
 
Counsel’s opinion was obtained on behalf of the tenant which supported Kirkby & Diamond’s contention that the 25 year term was to be considered and would have a depreciating effect upon the rental payable.
 
Subsequently, because the freeholder would not accept this position, the matter was referred to arbitration and it was subsequently agreed that the arbitrator should take his own Counsel’s opinion on the matter.
 
The arbitrator’s award was on the basis that a 25 year hypothetical term was to be considered and that this would have a very significant detrimental effect on the rental value of an office building as at 2002.
 
The Result

As a result of the very careful reading of the terminology of the lease, background investigation and knowledge and experience of the Valuer, Kirkby & Diamond were able to negotiate a nil uplift in rent for the outstanding 2002 rent review and it is hoped that the same effect will be achieved on the 2007 rent review. This detailed advice has saved the clients many thousands of pounds in back rent and future rent payment.