In Brief
In the decision of Steambrook Pty Ltd v Boulton (Building and Property) [2021] VCAT 996, the rental determination issued on 2 July 2020 was set aside for not complying with section 37 of the Retail Leases Act 2003 (Vic). The valuer failed to provide detailed reasons in the report.
What you need to know
VCAT seems far more willing than Courts, to set aside rental valuations, where detailed reasons are not given. If you are undertaking a rental valuation, you should provide detailed reasons for the rental valuation, or there is a chance that if the lease is governed by the Act, it could be set aside by VCAT.
Background
As I have stated before, unless the parties have agreed on the area of the premises, you should, at the parties’ cost, engage a surveyor to determine the area of the premises. In this case, the parties agreed on the area, after it was initially contested. So no issue in this matter.
In this matter, the valuer referred to rental evidence the valuer had on the relevant files held by the valuation firm, at which he worked. The relevant files were not disclosed and VCAT could not determine the significance of those rentals. The valuer’s reasoning was “opaque” as no details were given of the properties in the relevant files.
VCAT criticised the valuation in not providing detailed reasons for the rent free period the valuer ascribed to the premises.
VCAT could not determine why a period of 4 months rent free was chosen by the valuer, instead of say 6 months.
VCAT stated that it could not determine how the valuer disregarded the goodwill and the tenant’s fixtures and fitting, as it is required to do under the Act.
Essentially, VCAT formed the view that the valuer failed to provide detailed reasons and made a “leap to judgement” without disclosing the steps of the valuer’s reasoning.
Conclusion
Detailed reasons must be given in a valuation report. This means, that the valuer must detail why a rent is selected. For instance, if the rental range identified by the valuer is between $500 and $700 per square metre and valuer selects $600 per square, the valuer must state why the valuer selected $600. Maybe it is worth less than $700 per square metre, because the street frontage is smaller.
If the valuers are concerned about breaching section 38 of the Act (keeping information confidential) the valuer is only required to ensure that the particular lease or tenant is not disclosed. So, in the valuation report, the valuer could refer to such properties but not disclose the address of the relevant property, or the parties.
If you have any questions, please call me.
