The Rent Review Specialist
Rent
RPI Rent Calculator
RPI and Rent Calculator
To calculate the Retail Price Index percentage change and apply the percentage to the rent for the adjusted figure, please visit RPI and Rent Calculator.
How to use the RPI and Rent Calculator:
The pre-set display in each field is for example only. As soon as you click in a field, the preset will disappear.
To calculate the Retail Price Index (RPI) percentage change, enter the RPI figures for the start and end months. The percentage change for that period will be displayed. It's not necessary to also enter either the start month/year or end month/year: that information is simply a reminder, for your convenience.
To find out how much the rent should be to at least keep pace with the Retail Price Index (RPI), enter the rent per annum that you are receiving/paying at present. The adjusted rent will be displayed.
In the 'rent per annum' field, the rent may be entered with or without a £ sign or any commas, but the rent must be rounded to a whole number with no decimal point.
The 'rent per annum' field doesn't only have to be for rent, it may also be used for any figures such as price or cost of product or service where you want to calculate the RPI-adjusted equivalent. Although designed for yearly rent, the rent per month or any other period of time will work as well.
The calculator is for information only: no details will be stored.
To calculate the Retail Price Index percentage change and apply the percentage to the rent for the adjusted figure, please visit RPI and Rent Calculator.
How to use the RPI and Rent Calculator:
The pre-set display in each field is for example only. As soon as you click in a field, the preset will disappear.
To calculate the Retail Price Index (RPI) percentage change, enter the RPI figures for the start and end months. The percentage change for that period will be displayed. It's not necessary to also enter either the start month/year or end month/year: that information is simply a reminder, for your convenience.
To find out how much the rent should be to at least keep pace with the Retail Price Index (RPI), enter the rent per annum that you are receiving/paying at present. The adjusted rent will be displayed.
In the 'rent per annum' field, the rent may be entered with or without a £ sign or any commas, but the rent must be rounded to a whole number with no decimal point.
The 'rent per annum' field doesn't only have to be for rent, it may also be used for any figures such as price or cost of product or service where you want to calculate the RPI-adjusted equivalent. Although designed for yearly rent, the rent per month or any other period of time will work as well.
The calculator is for information only: no details will be stored.
Rent
Rent is a system of payment for the temporary use of something owned by someone else; the payments for such use are typically referred to as "rent".
In the open market, rent is a product; it does not occur naturally, as in, ‘this is the rent for the premises’. To value rent, all the terms and conditions of the tenancy must be known, stated in advance or defined. However, because the rent at a new letting is often agreed before the lease is drafted and/or approved, it is possible for a completed lease to contain terms and conditions that could produce a different rent to what was agreed. The test of efficacy is whether the rent would be identical if there were a rent review on the same date as the term commencement.
Whether the parties agree the rent and other outline terms between themselves, or with the help of surveyors, the precise wording and phrasing of the terms and conditions is not generally discussed and agreed before lawyers are instructed.
Sometimes, with a new letting, a draft lease will be available beforehand upon which the tenant’s rental offer would be based. On renewal involving LTA54 a draft lease for uncontentious matters would normally be agreed integral to proceedings, the amount of rent and other contentious items to be agreed thereafter or left blank pending court order. Even so, because there are cost consequences the parties are unlikely to want their lawyers to engage in detailed negotiations for finalising the renewal lease before the main terms are agreed in principle. It is only usually when the matter is actually likely to end up in court that it makes sense for the parties’ surveyors to delay the question of rent and other main terms until a draft lease has been finalised. Either that, or for each agreed item to be incorporated in the draft lease, with the other matters checked to ensure no conflict between what has been agreed previously and each new item.
In the open market, rent is a product; it does not occur naturally, as in, ‘this is the rent for the premises’. To value rent, all the terms and conditions of the tenancy must be known, stated in advance or defined. However, because the rent at a new letting is often agreed before the lease is drafted and/or approved, it is possible for a completed lease to contain terms and conditions that could produce a different rent to what was agreed. The test of efficacy is whether the rent would be identical if there were a rent review on the same date as the term commencement.
Whether the parties agree the rent and other outline terms between themselves, or with the help of surveyors, the precise wording and phrasing of the terms and conditions is not generally discussed and agreed before lawyers are instructed.
Sometimes, with a new letting, a draft lease will be available beforehand upon which the tenant’s rental offer would be based. On renewal involving LTA54 a draft lease for uncontentious matters would normally be agreed integral to proceedings, the amount of rent and other contentious items to be agreed thereafter or left blank pending court order. Even so, because there are cost consequences the parties are unlikely to want their lawyers to engage in detailed negotiations for finalising the renewal lease before the main terms are agreed in principle. It is only usually when the matter is actually likely to end up in court that it makes sense for the parties’ surveyors to delay the question of rent and other main terms until a draft lease has been finalised. Either that, or for each agreed item to be incorporated in the draft lease, with the other matters checked to ensure no conflict between what has been agreed previously and each new item.
Open Market
The open market is made up of different ‘afford-abilities’, so, in linking the review to “open market rent” (OMR) ‘open’ means everyone and anyone (A).
As indicative or comparable evidence, a new letting to an inexperienced first-time tenant at a rent that might amaze is as valid as any hard-driven bargain by a multiple retailer with hundreds of branches. So, since rents in the open market are unregulated, any tenant committing to a review to OMR is exposing its business to all manner of risks beyond its control (a situation that can strain compliance with the Turnbull report on internal control and risk management, to safeguard shareholders' investment and the company's assets). That is the nature of the system; and when tenants choose to agree to a rent review to the open market rent it is implicit the tenant is agreeing to the underlying purpose and overriding objective: namely to enable the landlord to obtain the open market rent at the valuation date per terms of the tenancy, not for the tenant to expect to pay any less.
Similarly, since, in the open market, different landlords are likely to have different investment performance strategies, risks also apply to the landlord’s investment. Hence, the only way the actual landlord and actual tenant can have any control over the direction of the rental relationship is by recording their requirements in the lease, per the rent review guidelines.
Hoffmann LJ commented on the concept of the open market in a capital transfer tax case, IRC v Gray [1994] STC 360:
"It cannot be too strongly emphasised that although the sale is hypothetical, there is nothing hypothetical about the open market in which it is supposed to have taken place. The concept of the open market involves assuming that the whole world was free to bid, and then forming a view about what in those circumstances would in real life have been the best price reasonably obtainable …"
As indicative or comparable evidence, a new letting to an inexperienced first-time tenant at a rent that might amaze is as valid as any hard-driven bargain by a multiple retailer with hundreds of branches. So, since rents in the open market are unregulated, any tenant committing to a review to OMR is exposing its business to all manner of risks beyond its control (a situation that can strain compliance with the Turnbull report on internal control and risk management, to safeguard shareholders' investment and the company's assets). That is the nature of the system; and when tenants choose to agree to a rent review to the open market rent it is implicit the tenant is agreeing to the underlying purpose and overriding objective: namely to enable the landlord to obtain the open market rent at the valuation date per terms of the tenancy, not for the tenant to expect to pay any less.
Similarly, since, in the open market, different landlords are likely to have different investment performance strategies, risks also apply to the landlord’s investment. Hence, the only way the actual landlord and actual tenant can have any control over the direction of the rental relationship is by recording their requirements in the lease, per the rent review guidelines.
Hoffmann LJ commented on the concept of the open market in a capital transfer tax case, IRC v Gray [1994] STC 360:
"It cannot be too strongly emphasised that although the sale is hypothetical, there is nothing hypothetical about the open market in which it is supposed to have taken place. The concept of the open market involves assuming that the whole world was free to bid, and then forming a view about what in those circumstances would in real life have been the best price reasonably obtainable …"
Market Rent
There are two types of market value: the capital value and the rental value. The matters to be taken into account for the market rental for purpose of a rent review will be defined in the actual lease and/or by reference to case-law; the market rent for a tenancy renewal is defined in s.34 and s35 Landlord and Tenant Act 1954.
For the capital value, the definition of "market value" has become institutionalised by the International Valuation Standards Council ("IVSC") and the Royal Institution of Chartered Surveyors ("RICS"). To the IVSC,“market value” means “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. "The market value shall be documented in a transparent and clear manner". The IVSC make it clear that a “willing seller” in that context is simply a seller motivated to sell at the best price obtainable on the valuation date.
In the Red Book, the RICS manual for valuers, the open market value ("OMV") is the best price obtainable in a transaction completed on the valuation date based upon the following assumptions:
(i) a willing seller (a hypothetical owner who is neither eager nor reluctant i.e. not forced but not at a price which suits only him/her).
(ii) prior to the valuation, a reasonable period to market the property and complete all the necessary legal formalities was available.
(iii) during this period, the state of the market was the same as at the date of valuation.
(iv) any bid from a special purchaser is excluded.(vi) all parties acted knowledgeably, prudently and without compulsion
In 1994, agreed with the British Bankers Association, the RICS Valuation Guidance Note introduced "Estimated Realisation Price", ("ERP") a basis of valuation to be used solely for loan valuation purposes. ERP is identical to OMV in representing an exchange price in the market place, but it differs on a number of points, two of which are fundamental. ‘Reasonably expected’ is retained in the ERP definition but the two fundamental points are:
(i) the marketing period commences on the date of valuation, with the sale completed after a reasonable marketing period to be specified by the valuer.
(ii) the market is dynamic and is not assumed to be static over the marketing period.
The opinion must be informed and given by a knowledgeable and experienced person. Valuation is not just a science, but also an art. To arrive at an opinion of value, a surveyor considers a host of factors, including intuition. In my opinion, surveyors that ignore intuition do so at their peril. The market is not always logical. Prediction may be frowned upon as esoteric, but knowing what is going to happen or at least attempting to forecast realistically is, in my opinion, just as important as basing opinion on the past or present. However, because many surveyors are focussed more on the past - for example, talking about when the market returns to 'normal' - or prejudiced by their own experience in acting for retailers whose business model depends on being able to rent shops for next to nothing - the future prospects are often ignored.
The market comprises buyers and sellers. Although surveyors do not make the market, it is the surveyor's interpretation of the behaviour and attitude of buyers and sellers that will have an often a profound influence upon the state and direction of the market. The reason surveyors have so much say is that, unlike the seller and/or buyer's opinion which is likely to be subjective and sentimental, the surveyor's opinion is objective. With 'subjective' the seller or buyer will assess the proposition in relation to the buyer's individual requirements, whereas with 'objective' the surveyor will assess the proposition in relation to the market.
In theory, objectivity is neutral; in practice it may be bias. Without training, and even then it can be difficult, it is virtually impossible for a human being to be emotionally detached. The partisan of professional standards may also overshadow. For example, chartered surveyors, as members of an institution with a code of conduct, are subject to fear of a disciplinary committee or at worst expelled. It does not help that, from my observations, the RICS is prone to issuing and revising practice statements and guidance notes for its members after the event, rather than in anticipation of market trends. One difficulty I suspect is conflict of interest between valuation surveyors and their colleagues in investment departments, and quite possibly of shareholders where surveyors operate as public or private limited companies. Ultimately, the law and the view of the courts in case-law is paramount. To quote from a textbook of Professional Negligence, the authors Jackson and Powell state "a professional is not entitled slavishly to follow the provisions of a code of practice". Per PK Finans International (UK) Ltd v Andrew Downs and Co Ltd [1992], the court's reservations about the status of the RICS guidance notes are made apparent: "I suspect that they are as much for the protection of surveyors as anything else, in that they set out various recommendations which, if followed, it is hoped will protect the surveyor from the unpleasantness of being sued". In my view, where a surveyor has informed knowledge of the market there is a duty of care to anyone whom the surveyor is advising. When a surveyor has a feeling that all is not as it should be, to keep quiet and toe the party-line is not an option.
So, since there is a difference between the value of a property and as an investment, how does one go about separating the two values? The question is by no means that easy to answer. To begin with, it is a question of how far back one should go. Arguably, one should go back approximately 30 years to the time before buyer inexperience took hold and when there was a marked difference between yields in different parts of the country. If so then what has happened to the shop investment market in the after-math of the sub-prime crisis, ensuing recession and downturn generally (2008 onwards) could be said to be a return to the 'norm'. In other words, values nowadays are not on the low side because they have fallen from the peak, but have merely reverted to the rightful level. When that approach is adopted, prospects become a lot clearer.
For the capital value, the definition of "market value" has become institutionalised by the International Valuation Standards Council ("IVSC") and the Royal Institution of Chartered Surveyors ("RICS"). To the IVSC,“market value” means “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. "The market value shall be documented in a transparent and clear manner". The IVSC make it clear that a “willing seller” in that context is simply a seller motivated to sell at the best price obtainable on the valuation date.
In the Red Book, the RICS manual for valuers, the open market value ("OMV") is the best price obtainable in a transaction completed on the valuation date based upon the following assumptions:
(i) a willing seller (a hypothetical owner who is neither eager nor reluctant i.e. not forced but not at a price which suits only him/her).
(ii) prior to the valuation, a reasonable period to market the property and complete all the necessary legal formalities was available.
(iii) during this period, the state of the market was the same as at the date of valuation.
(iv) any bid from a special purchaser is excluded.(vi) all parties acted knowledgeably, prudently and without compulsion
In 1994, agreed with the British Bankers Association, the RICS Valuation Guidance Note introduced "Estimated Realisation Price", ("ERP") a basis of valuation to be used solely for loan valuation purposes. ERP is identical to OMV in representing an exchange price in the market place, but it differs on a number of points, two of which are fundamental. ‘Reasonably expected’ is retained in the ERP definition but the two fundamental points are:
(i) the marketing period commences on the date of valuation, with the sale completed after a reasonable marketing period to be specified by the valuer.
(ii) the market is dynamic and is not assumed to be static over the marketing period.
The opinion must be informed and given by a knowledgeable and experienced person. Valuation is not just a science, but also an art. To arrive at an opinion of value, a surveyor considers a host of factors, including intuition. In my opinion, surveyors that ignore intuition do so at their peril. The market is not always logical. Prediction may be frowned upon as esoteric, but knowing what is going to happen or at least attempting to forecast realistically is, in my opinion, just as important as basing opinion on the past or present. However, because many surveyors are focussed more on the past - for example, talking about when the market returns to 'normal' - or prejudiced by their own experience in acting for retailers whose business model depends on being able to rent shops for next to nothing - the future prospects are often ignored.
The market comprises buyers and sellers. Although surveyors do not make the market, it is the surveyor's interpretation of the behaviour and attitude of buyers and sellers that will have an often a profound influence upon the state and direction of the market. The reason surveyors have so much say is that, unlike the seller and/or buyer's opinion which is likely to be subjective and sentimental, the surveyor's opinion is objective. With 'subjective' the seller or buyer will assess the proposition in relation to the buyer's individual requirements, whereas with 'objective' the surveyor will assess the proposition in relation to the market.
In theory, objectivity is neutral; in practice it may be bias. Without training, and even then it can be difficult, it is virtually impossible for a human being to be emotionally detached. The partisan of professional standards may also overshadow. For example, chartered surveyors, as members of an institution with a code of conduct, are subject to fear of a disciplinary committee or at worst expelled. It does not help that, from my observations, the RICS is prone to issuing and revising practice statements and guidance notes for its members after the event, rather than in anticipation of market trends. One difficulty I suspect is conflict of interest between valuation surveyors and their colleagues in investment departments, and quite possibly of shareholders where surveyors operate as public or private limited companies. Ultimately, the law and the view of the courts in case-law is paramount. To quote from a textbook of Professional Negligence, the authors Jackson and Powell state "a professional is not entitled slavishly to follow the provisions of a code of practice". Per PK Finans International (UK) Ltd v Andrew Downs and Co Ltd [1992], the court's reservations about the status of the RICS guidance notes are made apparent: "I suspect that they are as much for the protection of surveyors as anything else, in that they set out various recommendations which, if followed, it is hoped will protect the surveyor from the unpleasantness of being sued". In my view, where a surveyor has informed knowledge of the market there is a duty of care to anyone whom the surveyor is advising. When a surveyor has a feeling that all is not as it should be, to keep quiet and toe the party-line is not an option.
So, since there is a difference between the value of a property and as an investment, how does one go about separating the two values? The question is by no means that easy to answer. To begin with, it is a question of how far back one should go. Arguably, one should go back approximately 30 years to the time before buyer inexperience took hold and when there was a marked difference between yields in different parts of the country. If so then what has happened to the shop investment market in the after-math of the sub-prime crisis, ensuing recession and downturn generally (2008 onwards) could be said to be a return to the 'norm'. In other words, values nowadays are not on the low side because they have fallen from the peak, but have merely reverted to the rightful level. When that approach is adopted, prospects become a lot clearer.
Economical Rent
In business tenancy law, the actual tenant’s ability to afford the rent at review is generally considered irrelevant. So, the actual tenant faces a dilemma, because - unless the review goes to ‘arbitration’ - the tenant must decide what rent to agree and no tenant will willingly agree more than they can afford. Since affordability is a big issue, solicitors acting for tenant-retailers can encounter difficulties in obtaining instructions when the client is at a loss to know what to do.
It is vital the tenant understands the review process. When premises are offered to let in the open market, as well as negotiating the best deal it can, a tenant will do one or both of two things. All tenants decide whether, on their projected figures, the rent would be affordable. The second thing, which is not something all tenants do, is to check whether the proposed rent is realistic, compared with what other tenants nearby pay for their premises. Ascertaining what others pay for their premises helps avoid a hike in the rental benchmark, which can happen if the transaction were cited as evidence for nearby reviews. With shop property, for example, the Zone A value could destabilise the cost of the trading position for those retailers whose established presence is one attraction of the position in the first place. Few tenants care about the wider long-term consequences of their business expansion plans and most are single-minded. Some deliberately pay top rents to ingratiate themselves with landlords, whilst others agree what they can afford at the time, expecting future rent reviews also to be based on affordability.
As soon as the lease is completed, affordability and business tenancy law part company. At rent review, it is assumed the actual tenant can afford, pro-rata, the same as everyone else, because the purpose of a review is to enable the landlord to receive the market rent. However, although each new letting reflects that particular tenant’s affordability, the profit margin and rate of stock-turn mean not all tenants can afford the same as everyone else. Furthermore - and this point is frequently overlooked - because rent is payable regardless of the profitability of the business, it is assumed the tenant is of independent means, even though most tenants rely entirely on business cash-flow.
Although retailers in trouble are managing to persuade landlords to accept rents paid monthly, a growing number of retailers that are not in any difficulty are expecting the same treatment.
Some landlords can afford to be accommodating, but many cannot. Landlords that themselves are borrowing money are likely to be paying their interest quarterly, so accepting rents monthly from the tenant will mean the landlord subsidising the tenant.
In any event, such an arrangement, where it is a departure from the terms and conditions of the lease, should only be temporary, and subject to notice to end the arrangement if the landlord should so desire. Landlords should also put the agreement in writing, in a side-letter with the lease, setting out clearly the terms and conditions of the arrangement.
To avoid problems should the landlord want to sell the investment, the arrangement should be personal to the tenant and landlord and non-transferable.
In my opinion, the investment value of a property where the tenant is being allowed to pay monthly could well be lower than where payments are quarterly.
It is vital the tenant understands the review process. When premises are offered to let in the open market, as well as negotiating the best deal it can, a tenant will do one or both of two things. All tenants decide whether, on their projected figures, the rent would be affordable. The second thing, which is not something all tenants do, is to check whether the proposed rent is realistic, compared with what other tenants nearby pay for their premises. Ascertaining what others pay for their premises helps avoid a hike in the rental benchmark, which can happen if the transaction were cited as evidence for nearby reviews. With shop property, for example, the Zone A value could destabilise the cost of the trading position for those retailers whose established presence is one attraction of the position in the first place. Few tenants care about the wider long-term consequences of their business expansion plans and most are single-minded. Some deliberately pay top rents to ingratiate themselves with landlords, whilst others agree what they can afford at the time, expecting future rent reviews also to be based on affordability.
As soon as the lease is completed, affordability and business tenancy law part company. At rent review, it is assumed the actual tenant can afford, pro-rata, the same as everyone else, because the purpose of a review is to enable the landlord to receive the market rent. However, although each new letting reflects that particular tenant’s affordability, the profit margin and rate of stock-turn mean not all tenants can afford the same as everyone else. Furthermore - and this point is frequently overlooked - because rent is payable regardless of the profitability of the business, it is assumed the tenant is of independent means, even though most tenants rely entirely on business cash-flow.
Although retailers in trouble are managing to persuade landlords to accept rents paid monthly, a growing number of retailers that are not in any difficulty are expecting the same treatment.
Some landlords can afford to be accommodating, but many cannot. Landlords that themselves are borrowing money are likely to be paying their interest quarterly, so accepting rents monthly from the tenant will mean the landlord subsidising the tenant.
In any event, such an arrangement, where it is a departure from the terms and conditions of the lease, should only be temporary, and subject to notice to end the arrangement if the landlord should so desire. Landlords should also put the agreement in writing, in a side-letter with the lease, setting out clearly the terms and conditions of the arrangement.
To avoid problems should the landlord want to sell the investment, the arrangement should be personal to the tenant and landlord and non-transferable.
In my opinion, the investment value of a property where the tenant is being allowed to pay monthly could well be lower than where payments are quarterly.