DETERMINING CURRENT MARKET RENTThe Supreme Court has provided guidance on the standard of review expected of a valuer under the Retail Leases Act 1994 (NSW) (the Act), with specific emphasis put towards the factors a valuer must take into account when determining market rent. The decision in Hanave Pty Ltd v Nomad Sydney Pty Ltd (formerly Wine Nomad Pty Ltd) [2023] NSWSC 265 (Nomad) is significant for retail landlords and tenants in NSW that have market rent review provisions in their leases. Current market rent Pursuant to the Act, “current market rent” must be assessed on an “effective rent basis”, meaning the valuer must consider the factors that are set out in section 31(1)(a) of the Act which include the:
The valuation, which is often conducted by an independent valuer, must exclude the value of any goodwill relating to the tenant’s occupation or any value of fixtures. Standard of review In Nomad, the Court determined that a valuer’s sole focus when determining the “current market rent” should only be on the factors set out in section 31(1)(a) of the Act, and that the valuation will be considered as a “legitimate methodology” provided the valuation adequately considers the section 31(1)(a) factors. The weight to be given to each of the factors is not a legal test and is a matter for the valuer to determine. Providing reasons In Nomad, the Court confirmed that for a valuation to be legally binding on the landlord and tenant under the Act, the valuer must provide legally adequate reasons for its determination. As per section 31(1)(e) of the Act, the valuation must be in writing and must explain how the relevant section 31(1)(a) factors influenced the valuer’s determination in detail. Importantly, where a factor has not been included in a valuation itself, courts and tribunals will infer that it was not considered as part of the valuation, and valuers should now ensure that they expressly note and explain why a factor has been omitted to ensure the valuation meets the standard of compliance now required as a result of the decision in Nomad. Courts and tribunals are now empowered to scrutinise valuations that do not adequately justify the reasons for a valuer’s determination of “current market rent”, and landlords and tenants should be mindful of the now heightened scrutiny available to these judicial bodies in this regard to invalidate a valuation. Comparable leases and rent incentives It is ultimately up to a valuer to adopt whatever methodology of valuation provided such method adequately considers the section 31(1)(a) factors and the valuer provides reasons for its determination in detail. In Nomad, the Court confirmed that whether a valuer needs to consider the provisions of comparable leases ultimately depends upon the selected methodology (i.e., if a valuer adopts the direct comparison method, comparable leases will need to be considered pursuant to section 31(1)(a)(i) of the Act). With respect to rent incentives, if a valuer chooses to consider some but omits referring to other incentives provided for comparable properties, the valuer must provide an explanation for those omissions to ensure compliance with the need to “have regard to” rent incentives as per section 31(1)(a)(iv) of the Act. However, where incentives are identified, the weight given to the same is ultimately up to the valuer to determine. Matthews Folbigg Lawyers has an experienced team dedicated to property related matters. If you would like more information or advice in relation to the determination of “current market rent” under your retail lease, or another property related matter, please contact our Property team on (02) 02 9635 7966 or email info@matthewsfolbigg.com.au DISCLAIMER: This article is provided to clients and readers for their general information and on a complimentary basis. It contains a brief summary only and should not be relied upon or used as definitive or complete statement of the relevant law. |
