Commercial rent review determinations
Rent review provisions are common place in commercial business tenancies.
Whilst the rent review mechanism is governed by the specific provisions in each lease in question, it is common to find that in the absence of agreement, the reviewed rent is to be determined by an independent expert.
As is frequently the case with determinations of any kind, one party is likely to be less happy with the result than the other! This is particularly the case if the lease allows the independent expert to make an award of costs against the “unsuccessful” party.
In that event, the question sometimes posed is what can be done to challenge an independent expert’s determination?
The answer in the vast majority of cases is not very much.
There are very limited circumstances in which a Court will set aside an independent expert determination and these are essentially:
- Where the determination discloses a manifest error (and challenges are permitted in such circumstances).
- Where the determination has been made fraudulently or through collusion.
- Where the expert has departed materially from the instruction.
- Where the expert has made an error of law.
By way of example, fraud or collusion will be incredibly rare (and even in those very few cases when it is suspected, it will be very difficult to prove) and for an error to be “manifest” any error will need to be significant, plain and obvious. It is well accepted that valuation is not an exact science, and in the circumstances of a rent review determination, it will be rare for any error to be regarded as so significant as to be “manifest”.
However, it is also possible to take action against an independent expert for negligence if he or she fails to take due care or to exercise reasonable professional skill in carrying out the functions of an independent expert.
The question to be asked is whether the independent expert satisfied the requirement “to use the reasonable care and skill of such persons of ordinary competence measured by their professional standard of the time”.
It is also well established that an independent expert will not be negligent unless the rent determined is “significantly outside the bracket which the evidence shows to be acceptable”.
Whilst there are grounds available to challenge an independent expert’s determination, in many cases there will be a significant hurdle that the party seeking to raise a challenge will need to navigate.
Accordingly, after receiving an expert determination that is considered to be “wrong”, the recommendation is to take early advice and for the determination to be carefully analysed to understand the options that may be available.
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