As noted in my email last Thursday, last week another valuation was set aside in The Bay and Bridge Hotel Pty Ltd v Ventofond Pty Ltd (Building and Property) VCAT 1489.
VCAT determined that a valuer, in determining a market rent, should disregard an extension to the liquor licence and gaming machine entitlements successfully applied for by the tenant, as such extended liquor licence and the gaming machine entitlements were “improvements” to be disregarded under the terms of the lease. The tenant in this decision was successful in having the valuation set aside.
What you need to know
The valuer would have determined the rent based upon the turnover of the tenant’s business, rather than on a comparative approach. When using this method (which is perfectly permissible) a valuer needs to take careful notice of the terms of the market rent review clause in the lease and where there is any doubt, obtain specialist legal advice at the cost of the parties.
A clause in the lease required that a valuer, in determining a market rent, must “ignore the tenants’ installations and all improvements made by the tenants to the hotel and to its business”. VCAT determined that the extended liquor licence and the gaming machine entitlements were “improvements” for the purposes of the clause in the lease.
When drafting the clause, I am sure that the drafter did not intend or consider an extension to the liquor licence or to obtaining a gaming machine licence. In fact, the above words from the clause in the lease usually refer to building works that a tenant may undertake to the leased premises. The difficulty for the landlord in this case were the words “and to its business” and VCAT determined that the extension to the liquor licence and the gaming machine entitlements were improvements to the tenant’s business.
Further, VCAT determined that the words in the lease noted above were not inconsistent with section 37(2) of the Retail Leases Act 2003 (Vic) and so were enforceable.
The decision is limited to the wording in the lease and so I doubt will set any new precedent. However, it serves to show that a valuer must be very careful in reviewing the market rent review clause in the lease and obviously, where there is any issue as to the market rent review clause, seek specialist legal advice at the cost of the parties.