A Valuation Perspective on Market Rent Review Clauses

Graham Kennedy Director

Jones Lang LaSalle

~galwise SEMINARS wwwiegalwiseseminarscomau

JONES LANG LASALLE

Page 11

A VALUATION PERSPECTIVE ON MARKET RENT REVIEW CLAUSES

GRAHAM KENNEDY

JONES LANG LASALLE

I venture to say that the common commercial lease agreement is one of the most complex

documents involved in property transactions and rent reviews The implications for property

performance funding and general function cannot be under estimated The wording in review

clauses can lead to very different results

Property market conditions change pursuant to the cycles of economic performance and

supplydemand fundamentals It follows that a lease document can be drafted to the

circumstances of a particular market or client requirements only to be exposed to the

vagaries of a completely different market

Examples include

bull The development of a 2 tiered market

bull The boom of the late 1980s

bull The subsequent recession

bull Incentives

While those matters provide an extreme range of discussion topics Im here today to discuss

or deal with the one issue of market rent review provisions I preface my comments by

saying I dont for a moment pretend to have the legal wisdom of our gathered colleagues so I

ask for their forgiveness in advance of my talk for any perceived indiscretions that might

arise

JONES LANG LASALLE

Pel 2

I CONTENTS OF PRESENTATION

The content of my presentation includes the following

What does rent mean

What valuation principles apply

Market rent review criteria

Avoiding traps in market rent review

Dealing with special characteristics and unusual premises

Summary

JONES LANG LASALLE

Page 13

IWHAT DOES RENT MEAN

Rent in its simplest form means a sum of money that is paid by a tenant to a landlord for the

use of premises

_ sle lH ckt$e ~~(~ 64~ ~ Gross rent Net rent plus all outgoings i~ ~cvlctv b I~~s yeuroltft

ot~IV~ ~ +qxpeWfcJ~ lMiJ~ Semi-Gross rent Net rent plus limited outgoings-usually ITmit~ to statutory costs and

insurance ~ lit t~ ~ (~I~~ caltA r- C~ cf MQIYIkJACUct)~

Net rent Base rent exclusive of all outgoings J

Face rent A quoted rental before adjustment for incentives It can be net or gross

Effective rent A quoted rental after adjustment for incentives The accepted calculation of an

effective rent is one which is calculated over the full lease term Its not simply a matter of

taking a rent of say $500-20 equals $400 ltt- usi- ~ cbsc~ bclct St ~ltfcf~ ~ IN ~ ~s

Base rent plus increases in outgoings Usually a gross rental inclusive of outgoings as at a

certain date but with the tenant to pay increases in outgoings over initial outgoings

(Woolworths is a good example) It is predominantly found in retail leases

Reasonable rent-Can mean something totally different from market rent Cases include

Ponsford v HMS Aerosols and Email Limited v Robert Bray (Langwarrin) PtyLimited This

case dealt with premises that were built for the tenants particular requirements ~~ IWlpnrved pngtp-

Best rent The court said the best rent should be established on the presumption of a

reasonable lease irrespective of the reasonableness or unreasonableness of the actual lease

involved

Open market rental v open market rental value The distinction being that the addition of the

word value requires an obligation to consider incentives and other matters which may

impact the value of the lease

JONES LANG LASALLE

Page 14

PRINCIPLES

Adherence to lease terms

Quite simply the valuer is required to comply with what the lease dictates to be done Ill

show a couple of examples of a rental brief at the end of this slide

Basis of rent

Is it gross semi-gross net face rent effective rent base rent plus outgoings reasonable

rent best rent or the distinction between OMR and OMRV J Impartiality

LAND VALUERS LICENSING ACT 1978

LICENSED VALUERS CODE OF CONDUCT

2 A licensed valuer shall notshy

28 adopt the role of advocate in a matter whereshy

(a) their duty is to exercise independence and impartiality

Comparability of Premises

Usually the valuers domain to determine this aspect but occasionally there is specific

direction Ideally one should have regard to similar quality accommodation in similar office

precincts

Spencer Concept (l~o7 )

Market rent is the estimated amount for which a property or space within a property should

lease on the date of valuation between a willing lessor and a willing lessee on appropriate

terms in an arms length transaction after proper marketing wherein the parties had each

acted knowledgeably prudently and without compulsion

JONES LANG LASALLE

Page IS

Analysis of rental evidence

V~~~ bull Evidence in accordance with lease direction

bull Comparable premises

bull Similar locations

bull As at similar date (Pre and post GFC relevant examples of date specific)

bull Circumstances behind a negotiation

bull Undertake a procesfgt of weighting the evidence (Look for the most probative evidence) I II 11 I

- 11 ~

Ii ~~j ~lt

II rO K - r Lt lt

t smiddot1gtshy

JONES LANG((C LASALLE

Page 16

I RETAIL LEASE EXAMPLE

Example 1

Section 11(a) - Rent Review of the Commercial Tenancy (Retail Shops) Agreements act

1985 states the following definition for Market Rent

That market rent shall for that purpose be taken to be the rent obtainable at the time of that

review in a free and open market as if all the relevant factors matters or variables used in

proper land valuation practice having been taken into account that retail shop were vacant

and to let on similar terms as are contained in the current retail shop lease

J

JONES LANG LASALLE

Page 17

ITYPICAL OFFICE REVIEW CLAUSE ~~ l

In determining the market Rent the Valuer must act as an expert and not as an arbitrator ~

and his determination shall be final and binding on the parties (except for manifest error) shy9

The assessment must be made on a GST -exclusive basis S~

tfl-~The annual market rent of the Premises as at the subject review date must be determined on

the basis of the following

(1) Rents as at the review date of any comparable premises

(2) The Permitted use I-p~ A_

(3) The period of time until the next Review Date ~-

(4) The Valuer must disregard as evidence for determining the market rent of the Premises

leases ofcomparable premises of less than a whole floor

(5) The length of the Term

(6) That any deleterious condition of the Premises is deemed not to have occurred if it has

been caused by the Tenant or the Tenants predecessors

(7) That if the Premises or any other part of the Building have been destroyed damaged

rendered inaccessible or are being refurbished they are deemed to have been fully

repaired and restored

(8) That no account must be taken of

(A) The value of any goodwill attached to the Premises due to the Tenants business

(B) The value of the Tenants Property

(C) Rents in respect of any sub-letting or licensing of the Premises or any

comparable premises

(9) That the Valuer should disregard any reduction in the Rent of any comparable

premises or in the annual market rent of the Premises to take account of any

abatement concession inducement or reduction paid payable granted or allowed to a

new tenant or any other person or to retain a potentially outgoing tenant in respect of

the Premises or this lease or any comparable premises or any lease of any comparable

premises that this lease is between a willing but not anxious Landlord and a willing but

not anxious Tenant and the Premises are ready for immediate use and occupation

(10) Any other criteria that may in the opinion of the person making the determination be

relevant to his determination of the annual market rent of the Premises as at the

JONES LANG((( LASAlLE

Page 18

subject review date (except for criteria that are not consistent with the criteria listed in

paragraphs (1) to (9)

Or

Example 2 (Cap and Collar)

On the commencement of Year 4 of the Lease the face rent (disregarding any incentives)

will be reviewed to the then open market and can be reduced up to a maximum of 10 or

increased up to a maximum of 10 of the previous years Annual Rent

Example 3 (Effective) bvl-- ea ( 0MA( ~ ~ t~ ~

The Valuer will be required to determine the effectie market rental value of the pre~t_(~~ being the rental that has not been inflated or distorted by the provision of any leasing bull V~

llt--t ~incentive to the Tenant c

Example 4 (Selective options)

The rent review clause provides for the reviewed rental to be the higher of

1 CPI increase

2 25 of sub-lease rents

3 Fair Market Rental

JONES LANG LASALLE

Pel 2

I CONTENTS OF PRESENTATION

The content of my presentation includes the following

What does rent mean

What valuation principles apply

Market rent review criteria

Avoiding traps in market rent review

Dealing with special characteristics and unusual premises

Summary

JONES LANG LASALLE

Page 13

IWHAT DOES RENT MEAN

Rent in its simplest form means a sum of money that is paid by a tenant to a landlord for the

use of premises

_ sle lH ckt$e ~~(~ 64~ ~ Gross rent Net rent plus all outgoings i~ ~cvlctv b I~~s yeuroltft

ot~IV~ ~ +qxpeWfcJ~ lMiJ~ Semi-Gross rent Net rent plus limited outgoings-usually ITmit~ to statutory costs and

insurance ~ lit t~ ~ (~I~~ caltA r- C~ cf MQIYIkJACUct)~

Net rent Base rent exclusive of all outgoings J

Face rent A quoted rental before adjustment for incentives It can be net or gross

Effective rent A quoted rental after adjustment for incentives The accepted calculation of an

effective rent is one which is calculated over the full lease term Its not simply a matter of

taking a rent of say $500-20 equals $400 ltt- usi- ~ cbsc~ bclct St ~ltfcf~ ~ IN ~ ~s

Base rent plus increases in outgoings Usually a gross rental inclusive of outgoings as at a

certain date but with the tenant to pay increases in outgoings over initial outgoings

(Woolworths is a good example) It is predominantly found in retail leases

Reasonable rent-Can mean something totally different from market rent Cases include

Ponsford v HMS Aerosols and Email Limited v Robert Bray (Langwarrin) PtyLimited This

case dealt with premises that were built for the tenants particular requirements ~~ IWlpnrved pngtp-

Best rent The court said the best rent should be established on the presumption of a

reasonable lease irrespective of the reasonableness or unreasonableness of the actual lease

involved

Open market rental v open market rental value The distinction being that the addition of the

word value requires an obligation to consider incentives and other matters which may

impact the value of the lease

JONES LANG LASALLE

Page 14

PRINCIPLES

Adherence to lease terms

Quite simply the valuer is required to comply with what the lease dictates to be done Ill

show a couple of examples of a rental brief at the end of this slide

Basis of rent

Is it gross semi-gross net face rent effective rent base rent plus outgoings reasonable

rent best rent or the distinction between OMR and OMRV J Impartiality

LAND VALUERS LICENSING ACT 1978

LICENSED VALUERS CODE OF CONDUCT

2 A licensed valuer shall notshy

28 adopt the role of advocate in a matter whereshy

(a) their duty is to exercise independence and impartiality

Comparability of Premises

Usually the valuers domain to determine this aspect but occasionally there is specific

direction Ideally one should have regard to similar quality accommodation in similar office

precincts

Spencer Concept (l~o7 )

Market rent is the estimated amount for which a property or space within a property should

lease on the date of valuation between a willing lessor and a willing lessee on appropriate

terms in an arms length transaction after proper marketing wherein the parties had each

acted knowledgeably prudently and without compulsion

JONES LANG LASALLE

Page IS

Analysis of rental evidence

V~~~ bull Evidence in accordance with lease direction

bull Comparable premises

bull Similar locations

bull As at similar date (Pre and post GFC relevant examples of date specific)

bull Circumstances behind a negotiation

bull Undertake a procesfgt of weighting the evidence (Look for the most probative evidence) I II 11 I

- 11 ~

Ii ~~j ~lt

II rO K - r Lt lt

t smiddot1gtshy

JONES LANG((C LASALLE

Page 16

I RETAIL LEASE EXAMPLE

Example 1

Section 11(a) - Rent Review of the Commercial Tenancy (Retail Shops) Agreements act

1985 states the following definition for Market Rent

That market rent shall for that purpose be taken to be the rent obtainable at the time of that

review in a free and open market as if all the relevant factors matters or variables used in

proper land valuation practice having been taken into account that retail shop were vacant

and to let on similar terms as are contained in the current retail shop lease

J

JONES LANG LASALLE

Page 17

ITYPICAL OFFICE REVIEW CLAUSE ~~ l

In determining the market Rent the Valuer must act as an expert and not as an arbitrator ~

and his determination shall be final and binding on the parties (except for manifest error) shy9

The assessment must be made on a GST -exclusive basis S~

tfl-~The annual market rent of the Premises as at the subject review date must be determined on

the basis of the following

(1) Rents as at the review date of any comparable premises

(2) The Permitted use I-p~ A_

(3) The period of time until the next Review Date ~-

(4) The Valuer must disregard as evidence for determining the market rent of the Premises

leases ofcomparable premises of less than a whole floor

(5) The length of the Term

(6) That any deleterious condition of the Premises is deemed not to have occurred if it has

been caused by the Tenant or the Tenants predecessors

(7) That if the Premises or any other part of the Building have been destroyed damaged

rendered inaccessible or are being refurbished they are deemed to have been fully

repaired and restored

(8) That no account must be taken of

(A) The value of any goodwill attached to the Premises due to the Tenants business

(B) The value of the Tenants Property

(C) Rents in respect of any sub-letting or licensing of the Premises or any

comparable premises

(9) That the Valuer should disregard any reduction in the Rent of any comparable

premises or in the annual market rent of the Premises to take account of any

abatement concession inducement or reduction paid payable granted or allowed to a

new tenant or any other person or to retain a potentially outgoing tenant in respect of

the Premises or this lease or any comparable premises or any lease of any comparable

premises that this lease is between a willing but not anxious Landlord and a willing but

not anxious Tenant and the Premises are ready for immediate use and occupation

(10) Any other criteria that may in the opinion of the person making the determination be

relevant to his determination of the annual market rent of the Premises as at the

JONES LANG((( LASAlLE

Page 18

subject review date (except for criteria that are not consistent with the criteria listed in

paragraphs (1) to (9)

Or

Example 2 (Cap and Collar)

On the commencement of Year 4 of the Lease the face rent (disregarding any incentives)

will be reviewed to the then open market and can be reduced up to a maximum of 10 or

increased up to a maximum of 10 of the previous years Annual Rent

Example 3 (Effective) bvl-- ea ( 0MA( ~ ~ t~ ~

The Valuer will be required to determine the effectie market rental value of the pre~t_(~~ being the rental that has not been inflated or distorted by the provision of any leasing bull V~

llt--t ~incentive to the Tenant c

Example 4 (Selective options)

The rent review clause provides for the reviewed rental to be the higher of

1 CPI increase

2 25 of sub-lease rents

3 Fair Market Rental

JONES LANG LASALLE

Page 13

IWHAT DOES RENT MEAN

Rent in its simplest form means a sum of money that is paid by a tenant to a landlord for the

use of premises

_ sle lH ckt$e ~~(~ 64~ ~ Gross rent Net rent plus all outgoings i~ ~cvlctv b I~~s yeuroltft

ot~IV~ ~ +qxpeWfcJ~ lMiJ~ Semi-Gross rent Net rent plus limited outgoings-usually ITmit~ to statutory costs and

insurance ~ lit t~ ~ (~I~~ caltA r- C~ cf MQIYIkJACUct)~

Net rent Base rent exclusive of all outgoings J

Face rent A quoted rental before adjustment for incentives It can be net or gross

Effective rent A quoted rental after adjustment for incentives The accepted calculation of an

effective rent is one which is calculated over the full lease term Its not simply a matter of

taking a rent of say $500-20 equals $400 ltt- usi- ~ cbsc~ bclct St ~ltfcf~ ~ IN ~ ~s

Base rent plus increases in outgoings Usually a gross rental inclusive of outgoings as at a

certain date but with the tenant to pay increases in outgoings over initial outgoings

(Woolworths is a good example) It is predominantly found in retail leases

Reasonable rent-Can mean something totally different from market rent Cases include

Ponsford v HMS Aerosols and Email Limited v Robert Bray (Langwarrin) PtyLimited This

case dealt with premises that were built for the tenants particular requirements ~~ IWlpnrved pngtp-

Best rent The court said the best rent should be established on the presumption of a

reasonable lease irrespective of the reasonableness or unreasonableness of the actual lease

involved

Open market rental v open market rental value The distinction being that the addition of the

word value requires an obligation to consider incentives and other matters which may

impact the value of the lease

JONES LANG LASALLE

Page 14

PRINCIPLES

Adherence to lease terms

Quite simply the valuer is required to comply with what the lease dictates to be done Ill

show a couple of examples of a rental brief at the end of this slide

Basis of rent

Is it gross semi-gross net face rent effective rent base rent plus outgoings reasonable

rent best rent or the distinction between OMR and OMRV J Impartiality

LAND VALUERS LICENSING ACT 1978

LICENSED VALUERS CODE OF CONDUCT

2 A licensed valuer shall notshy

28 adopt the role of advocate in a matter whereshy

(a) their duty is to exercise independence and impartiality

Comparability of Premises

Usually the valuers domain to determine this aspect but occasionally there is specific

direction Ideally one should have regard to similar quality accommodation in similar office

precincts

Spencer Concept (l~o7 )

Market rent is the estimated amount for which a property or space within a property should

lease on the date of valuation between a willing lessor and a willing lessee on appropriate

terms in an arms length transaction after proper marketing wherein the parties had each

acted knowledgeably prudently and without compulsion

JONES LANG LASALLE

Page IS

Analysis of rental evidence

V~~~ bull Evidence in accordance with lease direction

bull Comparable premises

bull Similar locations

bull As at similar date (Pre and post GFC relevant examples of date specific)

bull Circumstances behind a negotiation

bull Undertake a procesfgt of weighting the evidence (Look for the most probative evidence) I II 11 I

- 11 ~

Ii ~~j ~lt

II rO K - r Lt lt

t smiddot1gtshy

JONES LANG((C LASALLE

Page 16

I RETAIL LEASE EXAMPLE

Example 1

Section 11(a) - Rent Review of the Commercial Tenancy (Retail Shops) Agreements act

1985 states the following definition for Market Rent

That market rent shall for that purpose be taken to be the rent obtainable at the time of that

review in a free and open market as if all the relevant factors matters or variables used in

proper land valuation practice having been taken into account that retail shop were vacant

and to let on similar terms as are contained in the current retail shop lease

J

JONES LANG LASALLE

Page 17

ITYPICAL OFFICE REVIEW CLAUSE ~~ l

In determining the market Rent the Valuer must act as an expert and not as an arbitrator ~

and his determination shall be final and binding on the parties (except for manifest error) shy9

The assessment must be made on a GST -exclusive basis S~

tfl-~The annual market rent of the Premises as at the subject review date must be determined on

the basis of the following

(1) Rents as at the review date of any comparable premises

(2) The Permitted use I-p~ A_

(3) The period of time until the next Review Date ~-

(4) The Valuer must disregard as evidence for determining the market rent of the Premises

leases ofcomparable premises of less than a whole floor

(5) The length of the Term

(6) That any deleterious condition of the Premises is deemed not to have occurred if it has

been caused by the Tenant or the Tenants predecessors

(7) That if the Premises or any other part of the Building have been destroyed damaged

rendered inaccessible or are being refurbished they are deemed to have been fully

repaired and restored

(8) That no account must be taken of

(A) The value of any goodwill attached to the Premises due to the Tenants business

(B) The value of the Tenants Property

(C) Rents in respect of any sub-letting or licensing of the Premises or any

comparable premises

(9) That the Valuer should disregard any reduction in the Rent of any comparable

premises or in the annual market rent of the Premises to take account of any

abatement concession inducement or reduction paid payable granted or allowed to a

new tenant or any other person or to retain a potentially outgoing tenant in respect of

the Premises or this lease or any comparable premises or any lease of any comparable

premises that this lease is between a willing but not anxious Landlord and a willing but

not anxious Tenant and the Premises are ready for immediate use and occupation

(10) Any other criteria that may in the opinion of the person making the determination be

relevant to his determination of the annual market rent of the Premises as at the

JONES LANG((( LASAlLE

Page 18

subject review date (except for criteria that are not consistent with the criteria listed in

paragraphs (1) to (9)

Or

Example 2 (Cap and Collar)

On the commencement of Year 4 of the Lease the face rent (disregarding any incentives)

will be reviewed to the then open market and can be reduced up to a maximum of 10 or

increased up to a maximum of 10 of the previous years Annual Rent

Example 3 (Effective) bvl-- ea ( 0MA( ~ ~ t~ ~

The Valuer will be required to determine the effectie market rental value of the pre~t_(~~ being the rental that has not been inflated or distorted by the provision of any leasing bull V~

llt--t ~incentive to the Tenant c

Example 4 (Selective options)

The rent review clause provides for the reviewed rental to be the higher of

1 CPI increase

2 25 of sub-lease rents

3 Fair Market Rental

JONES LANG LASALLE

Page 14

PRINCIPLES

Adherence to lease terms

Quite simply the valuer is required to comply with what the lease dictates to be done Ill

show a couple of examples of a rental brief at the end of this slide

Basis of rent

Is it gross semi-gross net face rent effective rent base rent plus outgoings reasonable

rent best rent or the distinction between OMR and OMRV J Impartiality

LAND VALUERS LICENSING ACT 1978

LICENSED VALUERS CODE OF CONDUCT

2 A licensed valuer shall notshy

28 adopt the role of advocate in a matter whereshy

(a) their duty is to exercise independence and impartiality

Comparability of Premises

Usually the valuers domain to determine this aspect but occasionally there is specific

direction Ideally one should have regard to similar quality accommodation in similar office

precincts

Spencer Concept (l~o7 )

Market rent is the estimated amount for which a property or space within a property should

lease on the date of valuation between a willing lessor and a willing lessee on appropriate

terms in an arms length transaction after proper marketing wherein the parties had each

acted knowledgeably prudently and without compulsion

JONES LANG LASALLE

Page IS

Analysis of rental evidence

V~~~ bull Evidence in accordance with lease direction

bull Comparable premises

bull Similar locations

bull As at similar date (Pre and post GFC relevant examples of date specific)

bull Circumstances behind a negotiation

bull Undertake a procesfgt of weighting the evidence (Look for the most probative evidence) I II 11 I

- 11 ~

Ii ~~j ~lt

II rO K - r Lt lt

t smiddot1gtshy

JONES LANG((C LASALLE

Page 16

I RETAIL LEASE EXAMPLE

Example 1

Section 11(a) - Rent Review of the Commercial Tenancy (Retail Shops) Agreements act

1985 states the following definition for Market Rent

That market rent shall for that purpose be taken to be the rent obtainable at the time of that

review in a free and open market as if all the relevant factors matters or variables used in

proper land valuation practice having been taken into account that retail shop were vacant

and to let on similar terms as are contained in the current retail shop lease

J

JONES LANG LASALLE

Page 17

ITYPICAL OFFICE REVIEW CLAUSE ~~ l

In determining the market Rent the Valuer must act as an expert and not as an arbitrator ~

and his determination shall be final and binding on the parties (except for manifest error) shy9

The assessment must be made on a GST -exclusive basis S~

tfl-~The annual market rent of the Premises as at the subject review date must be determined on

the basis of the following

(1) Rents as at the review date of any comparable premises

(2) The Permitted use I-p~ A_

(3) The period of time until the next Review Date ~-

(4) The Valuer must disregard as evidence for determining the market rent of the Premises

leases ofcomparable premises of less than a whole floor

(5) The length of the Term

(6) That any deleterious condition of the Premises is deemed not to have occurred if it has

been caused by the Tenant or the Tenants predecessors

(7) That if the Premises or any other part of the Building have been destroyed damaged

rendered inaccessible or are being refurbished they are deemed to have been fully

repaired and restored

(8) That no account must be taken of

(A) The value of any goodwill attached to the Premises due to the Tenants business

(B) The value of the Tenants Property

(C) Rents in respect of any sub-letting or licensing of the Premises or any

comparable premises

(9) That the Valuer should disregard any reduction in the Rent of any comparable

premises or in the annual market rent of the Premises to take account of any

abatement concession inducement or reduction paid payable granted or allowed to a

new tenant or any other person or to retain a potentially outgoing tenant in respect of

the Premises or this lease or any comparable premises or any lease of any comparable

premises that this lease is between a willing but not anxious Landlord and a willing but

not anxious Tenant and the Premises are ready for immediate use and occupation

(10) Any other criteria that may in the opinion of the person making the determination be

relevant to his determination of the annual market rent of the Premises as at the

JONES LANG((( LASAlLE

Page 18

subject review date (except for criteria that are not consistent with the criteria listed in

paragraphs (1) to (9)

Or

Example 2 (Cap and Collar)

On the commencement of Year 4 of the Lease the face rent (disregarding any incentives)

will be reviewed to the then open market and can be reduced up to a maximum of 10 or

increased up to a maximum of 10 of the previous years Annual Rent

Example 3 (Effective) bvl-- ea ( 0MA( ~ ~ t~ ~

The Valuer will be required to determine the effectie market rental value of the pre~t_(~~ being the rental that has not been inflated or distorted by the provision of any leasing bull V~

llt--t ~incentive to the Tenant c

Example 4 (Selective options)

The rent review clause provides for the reviewed rental to be the higher of

1 CPI increase

2 25 of sub-lease rents

3 Fair Market Rental

JONES LANG LASALLE

Page IS

Analysis of rental evidence

V~~~ bull Evidence in accordance with lease direction

bull Comparable premises

bull Similar locations

bull As at similar date (Pre and post GFC relevant examples of date specific)

bull Circumstances behind a negotiation

bull Undertake a procesfgt of weighting the evidence (Look for the most probative evidence) I II 11 I

- 11 ~

Ii ~~j ~lt

II rO K - r Lt lt

t smiddot1gtshy

JONES LANG((C LASALLE

Page 16

I RETAIL LEASE EXAMPLE

Example 1

Section 11(a) - Rent Review of the Commercial Tenancy (Retail Shops) Agreements act

1985 states the following definition for Market Rent

That market rent shall for that purpose be taken to be the rent obtainable at the time of that

review in a free and open market as if all the relevant factors matters or variables used in

proper land valuation practice having been taken into account that retail shop were vacant

and to let on similar terms as are contained in the current retail shop lease

J

JONES LANG LASALLE

Page 17

ITYPICAL OFFICE REVIEW CLAUSE ~~ l

In determining the market Rent the Valuer must act as an expert and not as an arbitrator ~

and his determination shall be final and binding on the parties (except for manifest error) shy9

The assessment must be made on a GST -exclusive basis S~

tfl-~The annual market rent of the Premises as at the subject review date must be determined on

the basis of the following

(1) Rents as at the review date of any comparable premises

(2) The Permitted use I-p~ A_

(3) The period of time until the next Review Date ~-

(4) The Valuer must disregard as evidence for determining the market rent of the Premises

leases ofcomparable premises of less than a whole floor

(5) The length of the Term

(6) That any deleterious condition of the Premises is deemed not to have occurred if it has

been caused by the Tenant or the Tenants predecessors

(7) That if the Premises or any other part of the Building have been destroyed damaged

rendered inaccessible or are being refurbished they are deemed to have been fully

repaired and restored

(8) That no account must be taken of

(A) The value of any goodwill attached to the Premises due to the Tenants business

(B) The value of the Tenants Property

(C) Rents in respect of any sub-letting or licensing of the Premises or any

comparable premises

(9) That the Valuer should disregard any reduction in the Rent of any comparable

premises or in the annual market rent of the Premises to take account of any

abatement concession inducement or reduction paid payable granted or allowed to a

new tenant or any other person or to retain a potentially outgoing tenant in respect of

the Premises or this lease or any comparable premises or any lease of any comparable

premises that this lease is between a willing but not anxious Landlord and a willing but

not anxious Tenant and the Premises are ready for immediate use and occupation

(10) Any other criteria that may in the opinion of the person making the determination be

relevant to his determination of the annual market rent of the Premises as at the

JONES LANG((( LASAlLE

Page 18

subject review date (except for criteria that are not consistent with the criteria listed in

paragraphs (1) to (9)

Or

Example 2 (Cap and Collar)

On the commencement of Year 4 of the Lease the face rent (disregarding any incentives)

will be reviewed to the then open market and can be reduced up to a maximum of 10 or

increased up to a maximum of 10 of the previous years Annual Rent

Example 3 (Effective) bvl-- ea ( 0MA( ~ ~ t~ ~

The Valuer will be required to determine the effectie market rental value of the pre~t_(~~ being the rental that has not been inflated or distorted by the provision of any leasing bull V~

llt--t ~incentive to the Tenant c

Example 4 (Selective options)

The rent review clause provides for the reviewed rental to be the higher of

1 CPI increase

2 25 of sub-lease rents

3 Fair Market Rental

JONES LANG((C LASALLE

Page 16

I RETAIL LEASE EXAMPLE

Example 1

Section 11(a) - Rent Review of the Commercial Tenancy (Retail Shops) Agreements act

1985 states the following definition for Market Rent

That market rent shall for that purpose be taken to be the rent obtainable at the time of that

review in a free and open market as if all the relevant factors matters or variables used in

proper land valuation practice having been taken into account that retail shop were vacant

and to let on similar terms as are contained in the current retail shop lease

J

JONES LANG LASALLE

Page 17

ITYPICAL OFFICE REVIEW CLAUSE ~~ l

In determining the market Rent the Valuer must act as an expert and not as an arbitrator ~

and his determination shall be final and binding on the parties (except for manifest error) shy9

The assessment must be made on a GST -exclusive basis S~

tfl-~The annual market rent of the Premises as at the subject review date must be determined on

the basis of the following

(1) Rents as at the review date of any comparable premises

(2) The Permitted use I-p~ A_

(3) The period of time until the next Review Date ~-

(4) The Valuer must disregard as evidence for determining the market rent of the Premises

leases ofcomparable premises of less than a whole floor

(5) The length of the Term

(6) That any deleterious condition of the Premises is deemed not to have occurred if it has

been caused by the Tenant or the Tenants predecessors

(7) That if the Premises or any other part of the Building have been destroyed damaged

rendered inaccessible or are being refurbished they are deemed to have been fully

repaired and restored

(8) That no account must be taken of

(A) The value of any goodwill attached to the Premises due to the Tenants business

(B) The value of the Tenants Property

(C) Rents in respect of any sub-letting or licensing of the Premises or any

comparable premises

(9) That the Valuer should disregard any reduction in the Rent of any comparable

premises or in the annual market rent of the Premises to take account of any

abatement concession inducement or reduction paid payable granted or allowed to a

new tenant or any other person or to retain a potentially outgoing tenant in respect of

the Premises or this lease or any comparable premises or any lease of any comparable

premises that this lease is between a willing but not anxious Landlord and a willing but

not anxious Tenant and the Premises are ready for immediate use and occupation

(10) Any other criteria that may in the opinion of the person making the determination be

relevant to his determination of the annual market rent of the Premises as at the

JONES LANG((( LASAlLE

Page 18

subject review date (except for criteria that are not consistent with the criteria listed in

paragraphs (1) to (9)

Or

Example 2 (Cap and Collar)

On the commencement of Year 4 of the Lease the face rent (disregarding any incentives)

will be reviewed to the then open market and can be reduced up to a maximum of 10 or

increased up to a maximum of 10 of the previous years Annual Rent

Example 3 (Effective) bvl-- ea ( 0MA( ~ ~ t~ ~

The Valuer will be required to determine the effectie market rental value of the pre~t_(~~ being the rental that has not been inflated or distorted by the provision of any leasing bull V~

llt--t ~incentive to the Tenant c

Example 4 (Selective options)

The rent review clause provides for the reviewed rental to be the higher of

1 CPI increase

2 25 of sub-lease rents

3 Fair Market Rental

JONES LANG LASALLE

Page 17

ITYPICAL OFFICE REVIEW CLAUSE ~~ l

In determining the market Rent the Valuer must act as an expert and not as an arbitrator ~

and his determination shall be final and binding on the parties (except for manifest error) shy9

The assessment must be made on a GST -exclusive basis S~

tfl-~The annual market rent of the Premises as at the subject review date must be determined on

the basis of the following

(1) Rents as at the review date of any comparable premises

(2) The Permitted use I-p~ A_

(3) The period of time until the next Review Date ~-

(4) The Valuer must disregard as evidence for determining the market rent of the Premises

leases ofcomparable premises of less than a whole floor

(5) The length of the Term

(6) That any deleterious condition of the Premises is deemed not to have occurred if it has

been caused by the Tenant or the Tenants predecessors

(7) That if the Premises or any other part of the Building have been destroyed damaged

rendered inaccessible or are being refurbished they are deemed to have been fully

repaired and restored

(8) That no account must be taken of

(A) The value of any goodwill attached to the Premises due to the Tenants business

(B) The value of the Tenants Property

(C) Rents in respect of any sub-letting or licensing of the Premises or any

comparable premises

(9) That the Valuer should disregard any reduction in the Rent of any comparable

premises or in the annual market rent of the Premises to take account of any

abatement concession inducement or reduction paid payable granted or allowed to a

new tenant or any other person or to retain a potentially outgoing tenant in respect of

the Premises or this lease or any comparable premises or any lease of any comparable

premises that this lease is between a willing but not anxious Landlord and a willing but

not anxious Tenant and the Premises are ready for immediate use and occupation

(10) Any other criteria that may in the opinion of the person making the determination be

relevant to his determination of the annual market rent of the Premises as at the

JONES LANG((( LASAlLE

Page 18

subject review date (except for criteria that are not consistent with the criteria listed in

paragraphs (1) to (9)

Or

Example 2 (Cap and Collar)

On the commencement of Year 4 of the Lease the face rent (disregarding any incentives)

will be reviewed to the then open market and can be reduced up to a maximum of 10 or

increased up to a maximum of 10 of the previous years Annual Rent

Example 3 (Effective) bvl-- ea ( 0MA( ~ ~ t~ ~

The Valuer will be required to determine the effectie market rental value of the pre~t_(~~ being the rental that has not been inflated or distorted by the provision of any leasing bull V~

llt--t ~incentive to the Tenant c

Example 4 (Selective options)

The rent review clause provides for the reviewed rental to be the higher of

1 CPI increase

2 25 of sub-lease rents

3 Fair Market Rental

JONES LANG((( LASAlLE

Page 18

subject review date (except for criteria that are not consistent with the criteria listed in

paragraphs (1) to (9)

Or

Example 2 (Cap and Collar)

On the commencement of Year 4 of the Lease the face rent (disregarding any incentives)

will be reviewed to the then open market and can be reduced up to a maximum of 10 or

increased up to a maximum of 10 of the previous years Annual Rent

Example 3 (Effective) bvl-- ea ( 0MA( ~ ~ t~ ~

The Valuer will be required to determine the effectie market rental value of the pre~t_(~~ being the rental that has not been inflated or distorted by the provision of any leasing bull V~

llt--t ~incentive to the Tenant c

Example 4 (Selective options)

The rent review clause provides for the reviewed rental to be the higher of

1 CPI increase

2 25 of sub-lease rents

3 Fair Market Rental

JONES LANG( LASA1LE p g e 19

[MARKET RENT REVIEW CRITERIAAVOIDING TRAPS

The market rent review criteria is that drawn from the lease

Quite simply the valuer is required to comply with what the lease dictates to be done We

saw a few examples earlier where the valuer was directed to consider or disregard certain

matters in the determination process There are countless examples of such matters Clarity

in such examples is highly desirable although Im sure that the difficulty associated with the

construction of rent review clauses is not lost on the legal profession

The review criteria is often referred to as assumptions and disregards Such directions

can be in direct conflict with normal industry convention and for this reason there is a

compelling case to simplify the wording for the benefit of clarity

It becomes frustrating when there is ambiguity or perceived contradictions

It can be extremely beneficial to seek real estate input as to interpretations of potential

clauses and to simplify the content and procedure I dont think there is enough of this

connectivity

The concept of determining rent based on certain criteria is to assess the relevant rent for the

subject premises as at a date is considered objective The objectivity will therefore depend

on what can and what cannot be taken into account Dont overly constrain the valuer

Ive said earlier that an incentive generally is agreed between landlord and tenant on the

basis of a discount of a certain amount for taking a long term lease It is more often than not

an initial rent free with subsequent reviews to pre agreed amounts I have seen leases where

the subsequent reviews permit having regard for incentives hence subsequent incentives

have occurred Clearly this is trap for double dipping on incentives

Note silence on incentives does not preclude them being considered in a rent review

JONES LANG((C LASALLE P g e 110

~NUSUAL_P_R_EM_I_S_E_S___________

There are a number of industry sectors that have a need for specialised buildings or

operations a sample of which is listed hereunder

bull hotels

bull restaurants

caryardsbull bull airports

bull schools J bull hospitals

bull sporting facilities and

bull cinemas

bull quarries

The general industry rentals for these buildings vary and include basic rates per square

metre percentages of turnover or net profit percentage of trading volumes or throughput

dollars per head and rentals per seat per week Understandably there tends to be specialist

operators or groups unique to those related industries that tenant these properties

As a consequence the valuer would need considerable information from these industry

sectors to assess an appropriate market based rental Scarcity of data only heightens the

difficulty of his task J It would be preferable to have an agreed basis of review for these sectors based on

~ agreement between operator (tenant) and landlord Equally the availability of related

( information to be provided by the operator would be of assistance

~tr$ ~r

~ ~ V9v~ frr ~~1

~ iUJ~ v ~ iv ampts(~9lt ~~~~

JONES LANG LASALLE

age 111

Market rent review clauses within lease documents have become more detailed over recent

years as both landlord and tenant and their lawyers strive to optimise their positions as at

rent review date The extent of review criteria can run for pages and deal with numerous

issues Equally the performance of commercial property for the institutional funds is

monitored very closely and this includes a strong focus on income and growth

The review mechanism can be pivotal to this performance

I have had the need on several occasions to seek legal advice on clause definition

Awareness of prevailing market conditions by tenants has grown considerably in the past few

decades particularly with in house expertise or tenant advocate input This enables them to

be savvy to circumstances revolving around rent review criteria when negotiating lease terms

Given the above comments and concerted input from both landlord and tenant from opposing

viewpoints it is highly unlikely that we will ever have a generic rent review clause for

commercial office space Equally the commercial acumen of informed tenants would

probably preclude any industry reform akin to what has happened to the retail sector since

the mid 1980s

I still believe that lawyers and leasingvaluation operatives can work more closely for their

mutual clientele There is a need for owners to secure a positive commercial and valuation

flavour from a lease document but equally the legal structure of the lease should work in the

commercial world

Unusual properties can provide some difficulty in relation to basis of rental structure and

indeed review of rent The divergence of revenue structures and unique operational

peculiarities from hotels through to hospitals and airports creates a challenge for the

commercial drafting of leases and review mechanisms Ideally an agreement between

landlord and tenant up front would alleviate much of this difficulty and the provision of

relevant information on operational aspects would be of assistance

On a closing note I would say market rent review criteria with so many dos and donts

generally is a touch restrictive on the valuation profession The courts have repeatedly said

JONES LANG(((1 LASALLE Page 112

they do not want to trespass on the valuers territory so the direction we are given to

undertake our brief is critical

Copyright copy These materials are subject to copyright which is retained by the author No part may be reproduced adapted or communicated without consent except as permitted under applicable copyright law

Disclaimer This seminar paper is intended only to provide a summary of the subject matter covered It does not purport to be comprehensive or to render legal advice Readers should not act on the basis of any matter contained in this seminar paper without first obtaining their own professional advice

(f JONES LANGWJJ LASALLE

A Valuation Perspective on Market Rent Review clauses

Graham director

Valuations and Consulting September 2011

Contents

bull What does rent mean

bull What valuation principles apply

bull Market rent review criteria

bull Avoiding traps in market rent review

bull Unusual premises

bull Summary

What does rent mean

bull Rent

bull Gross rent

bull Semi-gross rent

bull Net rent

bull Face rent

bull Effective rent

bull Base rent plus increases in outgoings

bull Reasonable rent

bull Best rent

bull Open market rental vOpen market rental value

~ JONES 1ANGWJ LASALLE

Valuation Principles 2 A licensed valuer shall notshy26 adopt the role of advocate in a matter whereshybull Adherence to lease terms-basis of review (a) their duty is to exercise independence and impartiality~bull What basis of rent is apDIicttbre

bull Impartiality

bull Comparability of premises

bull Spencer concep~

bull Analysis of rental evidence

Mar1ltet rent is the estimated amount for which a property or space within a property should lease on the date of valuation between awilling lessor and awilling lessee on appropriate terms in an arms length transaction after proper mar1lteling wherein the parties had each acted knowledgeably prudently and without compulsion

laquo0)) JONES LANe LASAIU 4

Retai 1 lease

Section 11 (2)(a) Rent Review of the Commercial Tenancy (Retail Shops) Agreements act 1985 states the following definition for Market Rent

The market rent shall for that purposes be taken to be the rent obtainable at the time ofthat review in a free and open market as if all the relevant factors matters or variables used in proper land valuation practice having been taken into account that retail shop were vacant and to let on similar terms as are contained in the current retail shop lease

First halfof review clause

bull In determining the market Rent the Valuer must act as an expert and not as an arbitrator and his determination shall be final and binding on the parties (except for manifest error) The assessment must be made on a GST-exclusive basis

bull The annual market rent of the Premises as at the subject review date must be determined on the basis of the following

bull Rents as at the review date ofany comparable premises

bull The Permitted use

bull The period of time until the next Review Date

The Valuer must disregard as evidence for determining the market rent of the Premises Jeases of comparable premises of less than a whole floor

bull The length of the Term

That any deleterious condition of the Premises is deemed not to have occurred if it has been caused by the Tenant or the Tenants predecessors

bull That if the Premises or any other part of the Building have been destroyed damaged rendered inaccassible or are being refurbished they are deemed to have been fully repaired and restored

Second half of review clause

-That no account must be taken of

-The value of any goodwill attached to the Premises due to the Tenants business

-The value of the Tenants Property

-Rents in respect of any sub-letting or licensing of the Premises or any comparable premises

-That the Valuer should disregard any reduction in the Rent ofany comparable premises or in the annual market rent of the Premises to take account of any abatement concession inducement or reduction paid payable granted or allowed to anew tenant or any other person or to retain apotentially outgoing tenant in respect of the Premises or this lease or any comparable premises or any lease of any comparable premises that this lease is between a willing but not anxious Landlord and awilling but not anxious Tenant and the Premises are ready for immediate use and occupation

-Any other criteria that may in the opinion of the person making the determination be relevant to his determination of the annual market rent of the Premises as at the subject review date (except for criteria that are not consistent with the criteria listed in DaraaraDhs ftl to (9)

11amp) JONES LANG YJ) lASAI1E

Lease terms-basis of review bull Example 2 (Cap and Collar)

bull On the commencement of Year 4of the Lease the face rent (disregarding any incentives) will be reviewed to the then open market and can be reduced up to amaximum of 10 or increased up to amaximum of 10 of the previous years Annual Rent

- Example 3 (Effective)

- The Valuer will be required to determine the effective market rental value of the Premises being the rental that has not been inflated or distorted by the provision ofany leasing incentive to the Tenant

Example 4 (Selective options)

bull The rent review clause provides for the reviewed rental to be the higher of

bull 1 CPI increase

bull 2 25 of sub-lease rents

bull 3 Fair Market Rental

Market review criteria Avoiding traps

bull Adherence to lease terms-basis of review

bull Assumption and disregards

bull Avoid ambiguity and contradictions

bull Seek valuation input for interpretation

bull Dont constrain the valuer

bull Preclude 2nd incentive in review process

Unusual Premises

bull Hotels restaurants caryards airports schools hospitals sporting facilities cinemas amp quarries

bull Different rental basis

bull Rental assessment is difficult

bull Preferable to have an agreed basis of review

bull Disclosure of information

(11 JONES LANG WI) LASALLpound 10

Summary

bull Market review clauses have become more difficult and often require legal guidance

bull Owners and tenants are far more informed

bull Common commercial review clause not possible

bull More industry collaboration required

bull Preferable to have an agreed basis of review for special properties

bull Market review criteria often restrictive on valuer J

11

JONES LANG((0)) LASALLE

Disclaimer TIlisdocument is confideotlal t0the recipient of he documeAt No reference 10 he document or any part Ihereof may be published stated or circulated in any communication with third parties without prior written approval from Jones Lang laSalle TIlis document has been produced solely as ageneral guide and does not constitute advice WhHstlhe document has been prepared in good failh and willi due care no representation is made for Ihe accuracy of Ihe whole or any part of Ihe document Jones Lang laSalle accepts no liability for damages suffered by any party resulting from thQir use of his document

JONES LANG LASALLE

age 111

Market rent review clauses within lease documents have become more detailed over recent

years as both landlord and tenant and their lawyers strive to optimise their positions as at

rent review date The extent of review criteria can run for pages and deal with numerous

issues Equally the performance of commercial property for the institutional funds is

monitored very closely and this includes a strong focus on income and growth

The review mechanism can be pivotal to this performance

I have had the need on several occasions to seek legal advice on clause definition

Awareness of prevailing market conditions by tenants has grown considerably in the past few

decades particularly with in house expertise or tenant advocate input This enables them to

be savvy to circumstances revolving around rent review criteria when negotiating lease terms

Given the above comments and concerted input from both landlord and tenant from opposing

viewpoints it is highly unlikely that we will ever have a generic rent review clause for

commercial office space Equally the commercial acumen of informed tenants would

probably preclude any industry reform akin to what has happened to the retail sector since

the mid 1980s

I still believe that lawyers and leasingvaluation operatives can work more closely for their

mutual clientele There is a need for owners to secure a positive commercial and valuation

flavour from a lease document but equally the legal structure of the lease should work in the

commercial world

Unusual properties can provide some difficulty in relation to basis of rental structure and

indeed review of rent The divergence of revenue structures and unique operational

peculiarities from hotels through to hospitals and airports creates a challenge for the

commercial drafting of leases and review mechanisms Ideally an agreement between

landlord and tenant up front would alleviate much of this difficulty and the provision of

relevant information on operational aspects would be of assistance

On a closing note I would say market rent review criteria with so many dos and donts

generally is a touch restrictive on the valuation profession The courts have repeatedly said

JONES LANG(((1 LASALLE Page 112

they do not want to trespass on the valuers territory so the direction we are given to

undertake our brief is critical

Copyright copy These materials are subject to copyright which is retained by the author No part may be reproduced adapted or communicated without consent except as permitted under applicable copyright law

Disclaimer This seminar paper is intended only to provide a summary of the subject matter covered It does not purport to be comprehensive or to render legal advice Readers should not act on the basis of any matter contained in this seminar paper without first obtaining their own professional advice

(f JONES LANGWJJ LASALLE

A Valuation Perspective on Market Rent Review clauses

Graham director

Valuations and Consulting September 2011

Contents

bull What does rent mean

bull What valuation principles apply

bull Market rent review criteria

bull Avoiding traps in market rent review

bull Unusual premises

bull Summary

What does rent mean

bull Rent

bull Gross rent

bull Semi-gross rent

bull Net rent

bull Face rent

bull Effective rent

bull Base rent plus increases in outgoings

bull Reasonable rent

bull Best rent

bull Open market rental vOpen market rental value

~ JONES 1ANGWJ LASALLE

Valuation Principles 2 A licensed valuer shall notshy26 adopt the role of advocate in a matter whereshybull Adherence to lease terms-basis of review (a) their duty is to exercise independence and impartiality~bull What basis of rent is apDIicttbre

bull Impartiality

bull Comparability of premises

bull Spencer concep~

bull Analysis of rental evidence

Mar1ltet rent is the estimated amount for which a property or space within a property should lease on the date of valuation between awilling lessor and awilling lessee on appropriate terms in an arms length transaction after proper mar1lteling wherein the parties had each acted knowledgeably prudently and without compulsion

laquo0)) JONES LANe LASAIU 4

Retai 1 lease

Section 11 (2)(a) Rent Review of the Commercial Tenancy (Retail Shops) Agreements act 1985 states the following definition for Market Rent

The market rent shall for that purposes be taken to be the rent obtainable at the time ofthat review in a free and open market as if all the relevant factors matters or variables used in proper land valuation practice having been taken into account that retail shop were vacant and to let on similar terms as are contained in the current retail shop lease

First halfof review clause

bull In determining the market Rent the Valuer must act as an expert and not as an arbitrator and his determination shall be final and binding on the parties (except for manifest error) The assessment must be made on a GST-exclusive basis

bull The annual market rent of the Premises as at the subject review date must be determined on the basis of the following

bull Rents as at the review date ofany comparable premises

bull The Permitted use

bull The period of time until the next Review Date

The Valuer must disregard as evidence for determining the market rent of the Premises Jeases of comparable premises of less than a whole floor

bull The length of the Term

That any deleterious condition of the Premises is deemed not to have occurred if it has been caused by the Tenant or the Tenants predecessors

bull That if the Premises or any other part of the Building have been destroyed damaged rendered inaccassible or are being refurbished they are deemed to have been fully repaired and restored

Second half of review clause

-That no account must be taken of

-The value of any goodwill attached to the Premises due to the Tenants business

-The value of the Tenants Property

-Rents in respect of any sub-letting or licensing of the Premises or any comparable premises

-That the Valuer should disregard any reduction in the Rent ofany comparable premises or in the annual market rent of the Premises to take account of any abatement concession inducement or reduction paid payable granted or allowed to anew tenant or any other person or to retain apotentially outgoing tenant in respect of the Premises or this lease or any comparable premises or any lease of any comparable premises that this lease is between a willing but not anxious Landlord and awilling but not anxious Tenant and the Premises are ready for immediate use and occupation

-Any other criteria that may in the opinion of the person making the determination be relevant to his determination of the annual market rent of the Premises as at the subject review date (except for criteria that are not consistent with the criteria listed in DaraaraDhs ftl to (9)

11amp) JONES LANG YJ) lASAI1E

Lease terms-basis of review bull Example 2 (Cap and Collar)

bull On the commencement of Year 4of the Lease the face rent (disregarding any incentives) will be reviewed to the then open market and can be reduced up to amaximum of 10 or increased up to amaximum of 10 of the previous years Annual Rent

- Example 3 (Effective)

- The Valuer will be required to determine the effective market rental value of the Premises being the rental that has not been inflated or distorted by the provision ofany leasing incentive to the Tenant

Example 4 (Selective options)

bull The rent review clause provides for the reviewed rental to be the higher of

bull 1 CPI increase

bull 2 25 of sub-lease rents

bull 3 Fair Market Rental

Market review criteria Avoiding traps

bull Adherence to lease terms-basis of review

bull Assumption and disregards

bull Avoid ambiguity and contradictions

bull Seek valuation input for interpretation

bull Dont constrain the valuer

bull Preclude 2nd incentive in review process

Unusual Premises

bull Hotels restaurants caryards airports schools hospitals sporting facilities cinemas amp quarries

bull Different rental basis

bull Rental assessment is difficult

bull Preferable to have an agreed basis of review

bull Disclosure of information

(11 JONES LANG WI) LASALLpound 10

Summary

bull Market review clauses have become more difficult and often require legal guidance

bull Owners and tenants are far more informed

bull Common commercial review clause not possible

bull More industry collaboration required

bull Preferable to have an agreed basis of review for special properties

bull Market review criteria often restrictive on valuer J

11

JONES LANG((0)) LASALLE

Disclaimer TIlisdocument is confideotlal t0the recipient of he documeAt No reference 10 he document or any part Ihereof may be published stated or circulated in any communication with third parties without prior written approval from Jones Lang laSalle TIlis document has been produced solely as ageneral guide and does not constitute advice WhHstlhe document has been prepared in good failh and willi due care no representation is made for Ihe accuracy of Ihe whole or any part of Ihe document Jones Lang laSalle accepts no liability for damages suffered by any party resulting from thQir use of his document

JONES LANG(((1 LASALLE Page 112

they do not want to trespass on the valuers territory so the direction we are given to

undertake our brief is critical

Copyright copy These materials are subject to copyright which is retained by the author No part may be reproduced adapted or communicated without consent except as permitted under applicable copyright law

Disclaimer This seminar paper is intended only to provide a summary of the subject matter covered It does not purport to be comprehensive or to render legal advice Readers should not act on the basis of any matter contained in this seminar paper without first obtaining their own professional advice

(f JONES LANGWJJ LASALLE

A Valuation Perspective on Market Rent Review clauses

Graham director

Valuations and Consulting September 2011

Contents

bull What does rent mean

bull What valuation principles apply

bull Market rent review criteria

bull Avoiding traps in market rent review

bull Unusual premises

bull Summary

What does rent mean

bull Rent

bull Gross rent

bull Semi-gross rent

bull Net rent

bull Face rent

bull Effective rent

bull Base rent plus increases in outgoings

bull Reasonable rent

bull Best rent

bull Open market rental vOpen market rental value

~ JONES 1ANGWJ LASALLE

Valuation Principles 2 A licensed valuer shall notshy26 adopt the role of advocate in a matter whereshybull Adherence to lease terms-basis of review (a) their duty is to exercise independence and impartiality~bull What basis of rent is apDIicttbre

bull Impartiality

bull Comparability of premises

bull Spencer concep~

bull Analysis of rental evidence

Mar1ltet rent is the estimated amount for which a property or space within a property should lease on the date of valuation between awilling lessor and awilling lessee on appropriate terms in an arms length transaction after proper mar1lteling wherein the parties had each acted knowledgeably prudently and without compulsion

laquo0)) JONES LANe LASAIU 4

Retai 1 lease

Section 11 (2)(a) Rent Review of the Commercial Tenancy (Retail Shops) Agreements act 1985 states the following definition for Market Rent

The market rent shall for that purposes be taken to be the rent obtainable at the time ofthat review in a free and open market as if all the relevant factors matters or variables used in proper land valuation practice having been taken into account that retail shop were vacant and to let on similar terms as are contained in the current retail shop lease

First halfof review clause

bull In determining the market Rent the Valuer must act as an expert and not as an arbitrator and his determination shall be final and binding on the parties (except for manifest error) The assessment must be made on a GST-exclusive basis

bull The annual market rent of the Premises as at the subject review date must be determined on the basis of the following

bull Rents as at the review date ofany comparable premises

bull The Permitted use

bull The period of time until the next Review Date

The Valuer must disregard as evidence for determining the market rent of the Premises Jeases of comparable premises of less than a whole floor

bull The length of the Term

That any deleterious condition of the Premises is deemed not to have occurred if it has been caused by the Tenant or the Tenants predecessors

bull That if the Premises or any other part of the Building have been destroyed damaged rendered inaccassible or are being refurbished they are deemed to have been fully repaired and restored

Second half of review clause

-That no account must be taken of

-The value of any goodwill attached to the Premises due to the Tenants business

-The value of the Tenants Property

-Rents in respect of any sub-letting or licensing of the Premises or any comparable premises

-That the Valuer should disregard any reduction in the Rent ofany comparable premises or in the annual market rent of the Premises to take account of any abatement concession inducement or reduction paid payable granted or allowed to anew tenant or any other person or to retain apotentially outgoing tenant in respect of the Premises or this lease or any comparable premises or any lease of any comparable premises that this lease is between a willing but not anxious Landlord and awilling but not anxious Tenant and the Premises are ready for immediate use and occupation

-Any other criteria that may in the opinion of the person making the determination be relevant to his determination of the annual market rent of the Premises as at the subject review date (except for criteria that are not consistent with the criteria listed in DaraaraDhs ftl to (9)

11amp) JONES LANG YJ) lASAI1E

Lease terms-basis of review bull Example 2 (Cap and Collar)

bull On the commencement of Year 4of the Lease the face rent (disregarding any incentives) will be reviewed to the then open market and can be reduced up to amaximum of 10 or increased up to amaximum of 10 of the previous years Annual Rent

- Example 3 (Effective)

- The Valuer will be required to determine the effective market rental value of the Premises being the rental that has not been inflated or distorted by the provision ofany leasing incentive to the Tenant

Example 4 (Selective options)

bull The rent review clause provides for the reviewed rental to be the higher of

bull 1 CPI increase

bull 2 25 of sub-lease rents

bull 3 Fair Market Rental

Market review criteria Avoiding traps

bull Adherence to lease terms-basis of review

bull Assumption and disregards

bull Avoid ambiguity and contradictions

bull Seek valuation input for interpretation

bull Dont constrain the valuer

bull Preclude 2nd incentive in review process

Unusual Premises

bull Hotels restaurants caryards airports schools hospitals sporting facilities cinemas amp quarries

bull Different rental basis

bull Rental assessment is difficult

bull Preferable to have an agreed basis of review

bull Disclosure of information

(11 JONES LANG WI) LASALLpound 10

Summary

bull Market review clauses have become more difficult and often require legal guidance

bull Owners and tenants are far more informed

bull Common commercial review clause not possible

bull More industry collaboration required

bull Preferable to have an agreed basis of review for special properties

bull Market review criteria often restrictive on valuer J

11

JONES LANG((0)) LASALLE

Disclaimer TIlisdocument is confideotlal t0the recipient of he documeAt No reference 10 he document or any part Ihereof may be published stated or circulated in any communication with third parties without prior written approval from Jones Lang laSalle TIlis document has been produced solely as ageneral guide and does not constitute advice WhHstlhe document has been prepared in good failh and willi due care no representation is made for Ihe accuracy of Ihe whole or any part of Ihe document Jones Lang laSalle accepts no liability for damages suffered by any party resulting from thQir use of his document

(f JONES LANGWJJ LASALLE

A Valuation Perspective on Market Rent Review clauses

Graham director

Valuations and Consulting September 2011

Contents

bull What does rent mean

bull What valuation principles apply

bull Market rent review criteria

bull Avoiding traps in market rent review

bull Unusual premises

bull Summary

What does rent mean

bull Rent

bull Gross rent

bull Semi-gross rent

bull Net rent

bull Face rent

bull Effective rent

bull Base rent plus increases in outgoings

bull Reasonable rent

bull Best rent

bull Open market rental vOpen market rental value

~ JONES 1ANGWJ LASALLE

Valuation Principles 2 A licensed valuer shall notshy26 adopt the role of advocate in a matter whereshybull Adherence to lease terms-basis of review (a) their duty is to exercise independence and impartiality~bull What basis of rent is apDIicttbre

bull Impartiality

bull Comparability of premises

bull Spencer concep~

bull Analysis of rental evidence

Mar1ltet rent is the estimated amount for which a property or space within a property should lease on the date of valuation between awilling lessor and awilling lessee on appropriate terms in an arms length transaction after proper mar1lteling wherein the parties had each acted knowledgeably prudently and without compulsion

laquo0)) JONES LANe LASAIU 4

Retai 1 lease

Section 11 (2)(a) Rent Review of the Commercial Tenancy (Retail Shops) Agreements act 1985 states the following definition for Market Rent

The market rent shall for that purposes be taken to be the rent obtainable at the time ofthat review in a free and open market as if all the relevant factors matters or variables used in proper land valuation practice having been taken into account that retail shop were vacant and to let on similar terms as are contained in the current retail shop lease

First halfof review clause

bull In determining the market Rent the Valuer must act as an expert and not as an arbitrator and his determination shall be final and binding on the parties (except for manifest error) The assessment must be made on a GST-exclusive basis

bull The annual market rent of the Premises as at the subject review date must be determined on the basis of the following

bull Rents as at the review date ofany comparable premises

bull The Permitted use

bull The period of time until the next Review Date

The Valuer must disregard as evidence for determining the market rent of the Premises Jeases of comparable premises of less than a whole floor

bull The length of the Term

That any deleterious condition of the Premises is deemed not to have occurred if it has been caused by the Tenant or the Tenants predecessors

bull That if the Premises or any other part of the Building have been destroyed damaged rendered inaccassible or are being refurbished they are deemed to have been fully repaired and restored

Second half of review clause

-That no account must be taken of

-The value of any goodwill attached to the Premises due to the Tenants business

-The value of the Tenants Property

-Rents in respect of any sub-letting or licensing of the Premises or any comparable premises

-That the Valuer should disregard any reduction in the Rent ofany comparable premises or in the annual market rent of the Premises to take account of any abatement concession inducement or reduction paid payable granted or allowed to anew tenant or any other person or to retain apotentially outgoing tenant in respect of the Premises or this lease or any comparable premises or any lease of any comparable premises that this lease is between a willing but not anxious Landlord and awilling but not anxious Tenant and the Premises are ready for immediate use and occupation

-Any other criteria that may in the opinion of the person making the determination be relevant to his determination of the annual market rent of the Premises as at the subject review date (except for criteria that are not consistent with the criteria listed in DaraaraDhs ftl to (9)

11amp) JONES LANG YJ) lASAI1E

Lease terms-basis of review bull Example 2 (Cap and Collar)

bull On the commencement of Year 4of the Lease the face rent (disregarding any incentives) will be reviewed to the then open market and can be reduced up to amaximum of 10 or increased up to amaximum of 10 of the previous years Annual Rent

- Example 3 (Effective)

- The Valuer will be required to determine the effective market rental value of the Premises being the rental that has not been inflated or distorted by the provision ofany leasing incentive to the Tenant

Example 4 (Selective options)

bull The rent review clause provides for the reviewed rental to be the higher of

bull 1 CPI increase

bull 2 25 of sub-lease rents

bull 3 Fair Market Rental

Market review criteria Avoiding traps

bull Adherence to lease terms-basis of review

bull Assumption and disregards

bull Avoid ambiguity and contradictions

bull Seek valuation input for interpretation

bull Dont constrain the valuer

bull Preclude 2nd incentive in review process

Unusual Premises

bull Hotels restaurants caryards airports schools hospitals sporting facilities cinemas amp quarries

bull Different rental basis

bull Rental assessment is difficult

bull Preferable to have an agreed basis of review

bull Disclosure of information

(11 JONES LANG WI) LASALLpound 10

Summary

bull Market review clauses have become more difficult and often require legal guidance

bull Owners and tenants are far more informed

bull Common commercial review clause not possible

bull More industry collaboration required

bull Preferable to have an agreed basis of review for special properties

bull Market review criteria often restrictive on valuer J

11

JONES LANG((0)) LASALLE

Disclaimer TIlisdocument is confideotlal t0the recipient of he documeAt No reference 10 he document or any part Ihereof may be published stated or circulated in any communication with third parties without prior written approval from Jones Lang laSalle TIlis document has been produced solely as ageneral guide and does not constitute advice WhHstlhe document has been prepared in good failh and willi due care no representation is made for Ihe accuracy of Ihe whole or any part of Ihe document Jones Lang laSalle accepts no liability for damages suffered by any party resulting from thQir use of his document

What does rent mean

bull Rent

bull Gross rent

bull Semi-gross rent

bull Net rent

bull Face rent

bull Effective rent

bull Base rent plus increases in outgoings

bull Reasonable rent

bull Best rent

bull Open market rental vOpen market rental value

~ JONES 1ANGWJ LASALLE

Valuation Principles 2 A licensed valuer shall notshy26 adopt the role of advocate in a matter whereshybull Adherence to lease terms-basis of review (a) their duty is to exercise independence and impartiality~bull What basis of rent is apDIicttbre

bull Impartiality

bull Comparability of premises

bull Spencer concep~

bull Analysis of rental evidence

Mar1ltet rent is the estimated amount for which a property or space within a property should lease on the date of valuation between awilling lessor and awilling lessee on appropriate terms in an arms length transaction after proper mar1lteling wherein the parties had each acted knowledgeably prudently and without compulsion

laquo0)) JONES LANe LASAIU 4

Retai 1 lease

Section 11 (2)(a) Rent Review of the Commercial Tenancy (Retail Shops) Agreements act 1985 states the following definition for Market Rent

The market rent shall for that purposes be taken to be the rent obtainable at the time ofthat review in a free and open market as if all the relevant factors matters or variables used in proper land valuation practice having been taken into account that retail shop were vacant and to let on similar terms as are contained in the current retail shop lease

First halfof review clause

bull In determining the market Rent the Valuer must act as an expert and not as an arbitrator and his determination shall be final and binding on the parties (except for manifest error) The assessment must be made on a GST-exclusive basis

bull The annual market rent of the Premises as at the subject review date must be determined on the basis of the following

bull Rents as at the review date ofany comparable premises

bull The Permitted use

bull The period of time until the next Review Date

The Valuer must disregard as evidence for determining the market rent of the Premises Jeases of comparable premises of less than a whole floor

bull The length of the Term

That any deleterious condition of the Premises is deemed not to have occurred if it has been caused by the Tenant or the Tenants predecessors

bull That if the Premises or any other part of the Building have been destroyed damaged rendered inaccassible or are being refurbished they are deemed to have been fully repaired and restored

Second half of review clause

-That no account must be taken of

-The value of any goodwill attached to the Premises due to the Tenants business

-The value of the Tenants Property

-Rents in respect of any sub-letting or licensing of the Premises or any comparable premises

-That the Valuer should disregard any reduction in the Rent ofany comparable premises or in the annual market rent of the Premises to take account of any abatement concession inducement or reduction paid payable granted or allowed to anew tenant or any other person or to retain apotentially outgoing tenant in respect of the Premises or this lease or any comparable premises or any lease of any comparable premises that this lease is between a willing but not anxious Landlord and awilling but not anxious Tenant and the Premises are ready for immediate use and occupation

-Any other criteria that may in the opinion of the person making the determination be relevant to his determination of the annual market rent of the Premises as at the subject review date (except for criteria that are not consistent with the criteria listed in DaraaraDhs ftl to (9)

11amp) JONES LANG YJ) lASAI1E

Lease terms-basis of review bull Example 2 (Cap and Collar)

bull On the commencement of Year 4of the Lease the face rent (disregarding any incentives) will be reviewed to the then open market and can be reduced up to amaximum of 10 or increased up to amaximum of 10 of the previous years Annual Rent

- Example 3 (Effective)

- The Valuer will be required to determine the effective market rental value of the Premises being the rental that has not been inflated or distorted by the provision ofany leasing incentive to the Tenant

Example 4 (Selective options)

bull The rent review clause provides for the reviewed rental to be the higher of

bull 1 CPI increase

bull 2 25 of sub-lease rents

bull 3 Fair Market Rental

Market review criteria Avoiding traps

bull Adherence to lease terms-basis of review

bull Assumption and disregards

bull Avoid ambiguity and contradictions

bull Seek valuation input for interpretation

bull Dont constrain the valuer

bull Preclude 2nd incentive in review process

Unusual Premises

bull Hotels restaurants caryards airports schools hospitals sporting facilities cinemas amp quarries

bull Different rental basis

bull Rental assessment is difficult

bull Preferable to have an agreed basis of review

bull Disclosure of information

(11 JONES LANG WI) LASALLpound 10

Summary

bull Market review clauses have become more difficult and often require legal guidance

bull Owners and tenants are far more informed

bull Common commercial review clause not possible

bull More industry collaboration required

bull Preferable to have an agreed basis of review for special properties

bull Market review criteria often restrictive on valuer J

11

JONES LANG((0)) LASALLE

Disclaimer TIlisdocument is confideotlal t0the recipient of he documeAt No reference 10 he document or any part Ihereof may be published stated or circulated in any communication with third parties without prior written approval from Jones Lang laSalle TIlis document has been produced solely as ageneral guide and does not constitute advice WhHstlhe document has been prepared in good failh and willi due care no representation is made for Ihe accuracy of Ihe whole or any part of Ihe document Jones Lang laSalle accepts no liability for damages suffered by any party resulting from thQir use of his document

Retai 1 lease

Section 11 (2)(a) Rent Review of the Commercial Tenancy (Retail Shops) Agreements act 1985 states the following definition for Market Rent

The market rent shall for that purposes be taken to be the rent obtainable at the time ofthat review in a free and open market as if all the relevant factors matters or variables used in proper land valuation practice having been taken into account that retail shop were vacant and to let on similar terms as are contained in the current retail shop lease

First halfof review clause

bull In determining the market Rent the Valuer must act as an expert and not as an arbitrator and his determination shall be final and binding on the parties (except for manifest error) The assessment must be made on a GST-exclusive basis

bull The annual market rent of the Premises as at the subject review date must be determined on the basis of the following

bull Rents as at the review date ofany comparable premises

bull The Permitted use

bull The period of time until the next Review Date

The Valuer must disregard as evidence for determining the market rent of the Premises Jeases of comparable premises of less than a whole floor

bull The length of the Term

That any deleterious condition of the Premises is deemed not to have occurred if it has been caused by the Tenant or the Tenants predecessors

bull That if the Premises or any other part of the Building have been destroyed damaged rendered inaccassible or are being refurbished they are deemed to have been fully repaired and restored

Second half of review clause

-That no account must be taken of

-The value of any goodwill attached to the Premises due to the Tenants business

-The value of the Tenants Property

-Rents in respect of any sub-letting or licensing of the Premises or any comparable premises

-That the Valuer should disregard any reduction in the Rent ofany comparable premises or in the annual market rent of the Premises to take account of any abatement concession inducement or reduction paid payable granted or allowed to anew tenant or any other person or to retain apotentially outgoing tenant in respect of the Premises or this lease or any comparable premises or any lease of any comparable premises that this lease is between a willing but not anxious Landlord and awilling but not anxious Tenant and the Premises are ready for immediate use and occupation

-Any other criteria that may in the opinion of the person making the determination be relevant to his determination of the annual market rent of the Premises as at the subject review date (except for criteria that are not consistent with the criteria listed in DaraaraDhs ftl to (9)

11amp) JONES LANG YJ) lASAI1E

Lease terms-basis of review bull Example 2 (Cap and Collar)

bull On the commencement of Year 4of the Lease the face rent (disregarding any incentives) will be reviewed to the then open market and can be reduced up to amaximum of 10 or increased up to amaximum of 10 of the previous years Annual Rent

- Example 3 (Effective)

- The Valuer will be required to determine the effective market rental value of the Premises being the rental that has not been inflated or distorted by the provision ofany leasing incentive to the Tenant

Example 4 (Selective options)

bull The rent review clause provides for the reviewed rental to be the higher of

bull 1 CPI increase

bull 2 25 of sub-lease rents

bull 3 Fair Market Rental

Market review criteria Avoiding traps

bull Adherence to lease terms-basis of review

bull Assumption and disregards

bull Avoid ambiguity and contradictions

bull Seek valuation input for interpretation

bull Dont constrain the valuer

bull Preclude 2nd incentive in review process

Unusual Premises

bull Hotels restaurants caryards airports schools hospitals sporting facilities cinemas amp quarries

bull Different rental basis

bull Rental assessment is difficult

bull Preferable to have an agreed basis of review

bull Disclosure of information

(11 JONES LANG WI) LASALLpound 10

Summary

bull Market review clauses have become more difficult and often require legal guidance

bull Owners and tenants are far more informed

bull Common commercial review clause not possible

bull More industry collaboration required

bull Preferable to have an agreed basis of review for special properties

bull Market review criteria often restrictive on valuer J

11

JONES LANG((0)) LASALLE

Disclaimer TIlisdocument is confideotlal t0the recipient of he documeAt No reference 10 he document or any part Ihereof may be published stated or circulated in any communication with third parties without prior written approval from Jones Lang laSalle TIlis document has been produced solely as ageneral guide and does not constitute advice WhHstlhe document has been prepared in good failh and willi due care no representation is made for Ihe accuracy of Ihe whole or any part of Ihe document Jones Lang laSalle accepts no liability for damages suffered by any party resulting from thQir use of his document

Second half of review clause

-That no account must be taken of

-The value of any goodwill attached to the Premises due to the Tenants business

-The value of the Tenants Property

-Rents in respect of any sub-letting or licensing of the Premises or any comparable premises

-That the Valuer should disregard any reduction in the Rent ofany comparable premises or in the annual market rent of the Premises to take account of any abatement concession inducement or reduction paid payable granted or allowed to anew tenant or any other person or to retain apotentially outgoing tenant in respect of the Premises or this lease or any comparable premises or any lease of any comparable premises that this lease is between a willing but not anxious Landlord and awilling but not anxious Tenant and the Premises are ready for immediate use and occupation

-Any other criteria that may in the opinion of the person making the determination be relevant to his determination of the annual market rent of the Premises as at the subject review date (except for criteria that are not consistent with the criteria listed in DaraaraDhs ftl to (9)

11amp) JONES LANG YJ) lASAI1E

Lease terms-basis of review bull Example 2 (Cap and Collar)

bull On the commencement of Year 4of the Lease the face rent (disregarding any incentives) will be reviewed to the then open market and can be reduced up to amaximum of 10 or increased up to amaximum of 10 of the previous years Annual Rent

- Example 3 (Effective)

- The Valuer will be required to determine the effective market rental value of the Premises being the rental that has not been inflated or distorted by the provision ofany leasing incentive to the Tenant

Example 4 (Selective options)

bull The rent review clause provides for the reviewed rental to be the higher of

bull 1 CPI increase

bull 2 25 of sub-lease rents

bull 3 Fair Market Rental

Market review criteria Avoiding traps

bull Adherence to lease terms-basis of review

bull Assumption and disregards

bull Avoid ambiguity and contradictions

bull Seek valuation input for interpretation

bull Dont constrain the valuer

bull Preclude 2nd incentive in review process

Unusual Premises

bull Hotels restaurants caryards airports schools hospitals sporting facilities cinemas amp quarries

bull Different rental basis

bull Rental assessment is difficult

bull Preferable to have an agreed basis of review

bull Disclosure of information

(11 JONES LANG WI) LASALLpound 10

Summary

bull Market review clauses have become more difficult and often require legal guidance

bull Owners and tenants are far more informed

bull Common commercial review clause not possible

bull More industry collaboration required

bull Preferable to have an agreed basis of review for special properties

bull Market review criteria often restrictive on valuer J

11

JONES LANG((0)) LASALLE

Disclaimer TIlisdocument is confideotlal t0the recipient of he documeAt No reference 10 he document or any part Ihereof may be published stated or circulated in any communication with third parties without prior written approval from Jones Lang laSalle TIlis document has been produced solely as ageneral guide and does not constitute advice WhHstlhe document has been prepared in good failh and willi due care no representation is made for Ihe accuracy of Ihe whole or any part of Ihe document Jones Lang laSalle accepts no liability for damages suffered by any party resulting from thQir use of his document

Market review criteria Avoiding traps

bull Adherence to lease terms-basis of review

bull Assumption and disregards

bull Avoid ambiguity and contradictions

bull Seek valuation input for interpretation

bull Dont constrain the valuer

bull Preclude 2nd incentive in review process

Unusual Premises

bull Hotels restaurants caryards airports schools hospitals sporting facilities cinemas amp quarries

bull Different rental basis

bull Rental assessment is difficult

bull Preferable to have an agreed basis of review

bull Disclosure of information

(11 JONES LANG WI) LASALLpound 10

Summary

bull Market review clauses have become more difficult and often require legal guidance

bull Owners and tenants are far more informed

bull Common commercial review clause not possible

bull More industry collaboration required

bull Preferable to have an agreed basis of review for special properties

bull Market review criteria often restrictive on valuer J

11

JONES LANG((0)) LASALLE

Disclaimer TIlisdocument is confideotlal t0the recipient of he documeAt No reference 10 he document or any part Ihereof may be published stated or circulated in any communication with third parties without prior written approval from Jones Lang laSalle TIlis document has been produced solely as ageneral guide and does not constitute advice WhHstlhe document has been prepared in good failh and willi due care no representation is made for Ihe accuracy of Ihe whole or any part of Ihe document Jones Lang laSalle accepts no liability for damages suffered by any party resulting from thQir use of his document

Summary

bull Market review clauses have become more difficult and often require legal guidance

bull Owners and tenants are far more informed

bull Common commercial review clause not possible

bull More industry collaboration required

bull Preferable to have an agreed basis of review for special properties

bull Market review criteria often restrictive on valuer J

11

JONES LANG((0)) LASALLE

Disclaimer TIlisdocument is confideotlal t0the recipient of he documeAt No reference 10 he document or any part Ihereof may be published stated or circulated in any communication with third parties without prior written approval from Jones Lang laSalle TIlis document has been produced solely as ageneral guide and does not constitute advice WhHstlhe document has been prepared in good failh and willi due care no representation is made for Ihe accuracy of Ihe whole or any part of Ihe document Jones Lang laSalle accepts no liability for damages suffered by any party resulting from thQir use of his document