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Rent Reviews

QuestionAnswer
Is it possible for a landlord and tenant to mutually agree the rent at any time? Yes
What does s12 of the AHA86 provide the mechanism for? for the Landlord of Tenant to have the question of rent payable for the holding refereed to arbitration without the co-operation of the other party.
What does Sch2 impose? Further limitations on when a rent review can be referred to arbitration under stature (the rent review cycle)
What does a S12 notice set the motion for? A formal rent review
Who can initiate a formal rent review? Either landlord or tenant - offering a unilateral resort to arbitration by serving a s12 notice on the other
Manai Investment Co Ltd V Eagle State Life Assurance Co Ltd. Courts are becoming more commercially minded, increasingly considering whether the reasonable recipient would be misled by the notice rather than insisting on absolute accuracy
What should a S12 notice contain? Properly identify the LL and T Properly identify the holding demand the rent properly payable be referred to arb at next termination date
Who can rely of the s12 notice once it have been served? Either party can rely on the notice to enforce a rent review by taking it forward to arbitration
What should the agent do before serving a s12 notice? Make sure they have authority for the client and explain the advantages and disadvantages of serving the notice. Price can go up as well as down.
How can a s12 notice be withdrawn once it has been served? The notice may only be withdrawn with the consent of both parties
When can the matter be referred to arbitration? At the next available termination date
s25 (1) of the AHA 86 defines the termination date as The next day following the date of demand on which the tenancy could have been determined by a Notice to quit given at the date of demand
Without a s12 notice can the matter still be referred to arbitration? No
As a result of complying with s25(1) when must a s12 notice be served? A s12 (1) notice must be served between 12 and 24 months prior to the potential termination date for a Rent review to be triggered on the date
How can the termination date be identified? From the tenancy agreement or where there is no written agreement, from the past actions of the parties
What is considered good practise when serving a s12 notice ? For the notice to be received on or before the start of the 12 months period before the termination date.
Thomson v Bradley what did the court of appeal decide? a tenancy commencing on the 29th, usually considered notice should be served at the latest on the 28th. case held that either the 28th or 29th was fine. tenancy could be construed as ending on the last moment of 28th or first moment of 29th
What does s12 (3) AHA 86 ensure? Ensures that the notice is only valid up until the next termination date. If an arbitrator has not been appointed within that time the notice is no longer valid
If parties want to hold the rent review until the following year what must they do? Either party must serve a new s12 notice
Where are the provisions related to the valid method of service of a s12 notice found in the AHA 86? s93
What does s93 (1) provide? That any notice, request or demand shall be duly served on the person to whom or on whom it is for or delivered to him, or left at his proper address, posted or recorded delivery
What are the options for delivering a notice? Post, fax/email, Physical delivery, recorded delivery
What happened in Blunden v Frogmore ? tenant was away when a n2q was delivery by recorded delivery. When he returned,received a recorded delivery card, did not contain the senders name or content - court of appeal held that the notice had been validly served even though not bee received.
What does Sch 2 impose? Imposes further restrictions on the frequency or recourse to arbitration
What dies Sch 2 para 4 set out? the basis rule providing a minimum of three years between rent reviews
Which part of the act provides the exceptions to when changes to rent does not re-trigger the rent review cycle? Sch2 Para 4 (2), 5, 6, 7 provide?
What does the cycle established in Sch 3 mean? Makes a demand of arbitration under s12 ineffective if the next termination date following the notice is earlier than the end of the 3 years cycle
What are the 3 prior dates which the three cycle follows on from? 1. Commencement of the tenancy 2. The date from which they took effect a previous increase or decrease in rent 3. The date as which from a previous direction for arbitration under s 12 took effect that the rent should continue unchanged
What are two variations in rent that does not affect the 3 year rent review cycle? 1. where arbitrator varies the rent having reviewed the terms of the tenancy, or modifying the repairing obligations 2. If LL has made improvements to the holding and serves a written notice 6 months after completion that rent would increase
In the Rent Review Formula, what does AHA 86 assume? assumes a hypothetical tenant when assessing the rent payable
What does Sch 2 para 1 state the rent payable should be? the rent at which the holding might reasonably be expected to be let by a prudent and willing landlord to a prudent and willing tenant, taking into account all relevant factors
What should be taken into account under Sch 2 para 1 when deciding on what the rent should be? The terms of the tenancy the character/ situation of the holding The productive capacity & related earning capacity The related earning capacity sch 2 the divisible surplus The current levels of rent from comparable lettings
What is included in the character and situation of the holding ? 1. The type of the farm 2. The physical qualities e.g. layout, soil type, buildings, drainage 3. the availability of quotas 4. Features such as rights of way, easements and dwellings 5. Location of the holding and its access to markets and transport
What is considered in the productive capacity and related earning capacity? 1. Rent properly payable is related to its potential earning capacity. Sch 2 defines earning capacity as the productive earning assuming the holding is in the hands of a competent tenant practising a system of farming suitable to the holding
Sch 2 defines the related earning capacity as? the extent, in light of that productive capacity, a competent tenant practising such farming system could reasonably expect to profit from farming the holdings - the valuer must translate the physical earning capacity to a corresponding earning capacity
How is the productive capacity translated into a corresponding earning capacity? the valuer must prepare gross margins and fixed cost budget which shows the available divisible surplus
What is considered for comparables for current levels of rent? Important component of the rent review formula. Impossible to find and exact match important to consider the holding type, size and location and the dwellings, buildings an fixed equipment and the comparable have been review recently
What does Sch 2 suggest regarding comparables? Comparables must be let on similar terms, e.g. not FBTs however see Morrison-Low V Paterson (2012)
What does Sch 2 of the act direct the arbitrator to disregard? Any element of the rent for the comparable holdings which is due to an appreciable scarcity of the comp available for letting . Any element of the rent of the comp which is due to any marriage value. the affect of any premiums paid by the tenant.
What other relevant factors are considered in the rent review formula? e.g. the general tone of farm rents for similar holdings, sources of non-agricultural income and any marriage value of the subject holding
What should be ignored when calculating the rent payable? Tenant improvements & fixed equipment, Investment by the tenant (milk quotas or SFP entitlements) (see Morrison-Low v Paterson case). Grant aided landlord improvements, Dilapidation caused by the tenant and the fact the tenant in is occupation.
what occurred in the Scottish case of Morrison-Low V Paterson (2012)? Court found that subsidy payments could be a relevant factor in a rent review and that the Scottish equivalent of an FBT could be used as comparable evidence. The court ruled tat the open market agricultural rents have been sent in a subsidised market
What is it good practise to include with the s12 notice and why? A covering letter. the apparent formality of notice may appear aggressive where they are unfamiliar with procedure. Could express desire for amicable settlement and notice is in place to protect clients position.
Which section in the 83 Act define the termination date Section 25 (1)
What does the ruling in Thompson v Bradley mean? That effect of the s12 notice is not necessarily out of time if it is not received on the termination date - not recommended as still could be contested.
What did the case of Buckinghamshire County Council v Gordon (1986) provide? That one a section 12 notice is served either party can rely on the tenancy and it can only be withdrawn by the agreement of both parties
The 12 to 24 month in between serving the s12 and arbitration is a good opportunity for what? Negotiations
The party promoting the review should do what? Open up discussions and pursue negotiations over rent review
What should the valuer of the party promoting the review have in place? A timetable in mind to allow for timely resolution of issues with neither party having to negotiate against a deadline
What is the review often an opportunity for as well as rent? for the parties to resolve other issues such as future investment or succession. Timely progress should usually preclude the need to appoint an arbitrator.
What are the parties still entitle to do even is a s12 notice has been served? Do not have to pursue the notice if they come to a settlement through negotiation. The Acts provision only apply when they cannot agree and then only allows the dispute of rent to referred to arbitration
The arbitrator may only consider the rent under which schedule? Sch 2
What should the valuer consider if the review is heading towards arbitration? Consider making a Calderbank offer made on the principle of Calderbank v Calder Bank as a means of focusing attention and on the issues at stake as well helping to manage costs.
Which case rules that the s 12 and Sh2 provide complete statutory code to fixed rent should be applied without addition or subtraction? Childers v Anker
What is the divisible surplus? is the ‘pre-rent profit’. It is the amount that is available to reward the tenant for his management and investment. Usually 50:50 between LL and T
The hypothetical tenant is described as what? "the bidding farmer at the farm gate"
Created by: Joph