In brief

In undertaking a market rent valuation, a valuer is permitted to take into account events (such as a major tunnel project), which the market understands may impact the rent being paid for leased premises.

What you need to know

  • If you are conducting a market rent review, and it is common market knowledge that future events may impact upon the rent, you are entitled to make reference to those future events and to adjust the rent accordingly.
  • If there is a change to legislation, or substantial works that will impact upon the leased premises, you are entitled to take such matters into account in determining the market rent.

Background

In the Serene Holdings case, VCAT relevantly stated the following:

“One can think of many hypothetical examples when knowledge of a likely or possible future event will undoubtedly have a bearing on the rent obtainable in the open market between a willing Landlord and a willing Tenant. That the forecast future event may or may not occur is beside the point. What is relevant is the effect that market knowledge of a possible future event, as assessed by a valuer, may have on the rent obtainable in an open market. In my view, section 37 (2) does not prohibit the consideration of possible future events.”

Currently, in Melbourne, valuers will be aware of the Metro Tunnel Project (the Project), which may have an effect on various retail businesses in Melbourne’s CBD, particularly along Swanston Street. As such, it is permissible for a valuer, in determining a market rent, to take into account the effect of the Project on any rent being paid under a lease affected by the Project. However, the market has been aware of the Project for some time and, if a valuer is taking into account comparable rents that were negotiated since the Project was announced, it may not be appropriate to then adjust the market rent for the premises affected by the Project.

Conclusion

In undertaking a market rent valuation for premises affected by a future event, it is permissible to make reference to the future event and the likely effect it will have upon the market rent for the leased premises. However, care must be taken to ensure whether the rent being paid for comparable premises has already taken into account the effect of the future event. If the rent being paid for the comparable premises was determined prior to the announcement of the future event, then it is proper for the valuer to adjust the rent accordingly.

About the Author

Rohan Ingleton

Partner
A telecommunications and retail leasing expert, Rohan is a property specialist with an enviable reputation.

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