Valuers may not be aware of the fact that they need to strictly comply with the terms of the market rent review clause in the lease and, if applicable, the provisions of section 37 of the Retail Leases Act 2003 (Vic) (Act) when undertaking a market rent review.
What you need to know
- Where a market rent review clause specifies matters that must be taken into account or that must be disregarded, the valuer must comply with that provision.
- In undertaking a market rent review, it is imperative that you comply with the terms of the lease, including the explicit directions in the market rent review clause, and the Act, if applicable.
- If there are no directions, or the directions are limited, Courts have stated that a valuer is to use his or her judgement and Courts will not set aside a valuation based upon a landlord’s or tenant’s view as to what matters should be taken into account, and matters that should be disregarded.
Madgwicks was recently asked to advise on a matter involving a petrol station owned by a petrol company, which leased an adjoining convenience store that was incorporated as part of the petrol station in the usual format. The issue was whether the valuer should value the convenience store as a separate standalone store, or as part of an integrated petrol station. The market rent review clause under the lease was silent on this issue and the lease was not governed by the Act.
As you may expect, there was no case law on point. However, from our extensive review of the case law, Courts have stated that it is a matter for the valuer to make such a determination based on the valuer’s expertise. So, we advised that the valuer was free to take into account, or disregard, the adjoining service station as the valuer saw fit. We formed the view that valuer should have regard to the joining service station, as it would be usual that a valuer would have regard to the surrounding environment and facilities.
In this circumstance, it was the valuer that highlighted the issue, which had not been considered by the landlord or the tenant.
If you are in doubt concerning matters to take into account or disregard, you must carefully review the lease and the Act (if applicable) for direction. Where both are silent, it is a matter for the valuer to use his or her expertise. If there is any doubt as to such a matter, we strongly recommend that you obtain legal advice.