Open market rent
26 July 2025(2025 Jul) – Sometimes I tell landlord-clients that, despite the rent review to open market rent, it’s unlikely they’ll get it. Instead, they’ll get a rent pro rata that another unrelated landlord got for a different property. It’s a methodology that compares each rent review with what rent someone else has agreed, so that each subsequent review follows suit, rather than taking the lead.
The reason for such a daft system is that surveyors generally do not know how to value; they only know how to compare. If there’s nothing to compare with, then the tenant’s surveyor’s contention is no increase. Which is a nonsense. I suspect the root cause is academic training. Teacher provides an example question for pupil to answer. When self-taught, you learn to think for yourself.
To avoid surveyors better at comparing than valuing, the solution, despite extra costs, is to refer the review to someone with no vested interest in the outcome.
Another daft is two types of third party: independent expert and arbitrator; as for which that depends on the lease. The roles differ, but the RICS has decided almost the same. The RICS’s definition of professional standards differs from mine.
An IE is a valuer whose opinion of rent the parties have covenanted to accept. The only question for an IE to answer is: “what rent would the IE expect to achieve if instructed to let the premises in the open market on the review valuation date on the same terms and conditions as the lease in question?” With no need for either or both parties to be represented – generally, they are, to ensure the IE doesn’t miss anything: some surveyors accepting the appointment are not as expert as should be – IEs invite representations to avail lazily of Wallshire Ltd v Aarons 1988, for the question to be answered by the parties’ surveyors. A crafty IE can get away with charging as much as possible for doing as little as possible.
With an arbitrator, it’s the same question, except an award on rent has to be at or in between the extremes of evidence. The typical “I know the rent’s a lot higher, but I can’t prove it” arises. While an arbitrator can adopt a robust approach and research evidence, inviting comment before making the award, in my experience, arbitrators rarely do. Instead, they rely on what the parties tell them, ignoring the question and excluding personal opinion. Contrary to the strictures of the lease.
So how can landlords get what the lease wants? One possibility is a minimum increase. That’s unrealistic where the open market rent is lower or the same. Another is index-linked rent. Well-advised tenants insist on cap and collar, a maximum increase, a minimum 1-2% which is unrepresentative of a rent for years before the next review. A combination of the two? No easy answer, it all depends. All I can say is that in every case in recent years I have obtained some increase even if the third party’s costs have been extortionate commensurate to the result.
The alternative is not invest in commercial property, as numerous armchair investors wish they hadn’t.
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