There are a variety of rent review mechanisms in leases – CPI adjustments, fixed percentage increases and market rent reviews. There are advantages and disadvantages to each approach. Market rent reviews are still popular, particularly when the lease is renewed to ensure that the rent hasn’t got too far out of sync with what the market is doing.

With market rent reviews landlords and tenants often agree on the rent but sometimes what the landlord is expecting and what the tenant wants to pay is just too far apart. In this case, a decision needs to be made about how the rent should be determined. Most leases provide for determination by arbitration or by valuers acting as experts and if the valuers can’t reach an agreement, by a third expert. Resolution by valuers and a third expert is often the preferred approach because it is typically less expensive than resolution by arbitration.

Although less expensive than arbitration, this exercise is not necessarily cheap! The landlord and tenant will need to pay their own valuers’ fees and also the third expert’s fees. The landlord or tenant may even end up with a cost award against them. What this means is that one party may be required to pay all or some of the costs incurred by the other party in resolving the dispute. This outcome is less than desirable, especially on top of getting less rent than you expected if you are the landlord or paying more rent than you wanted if you are the tenant. A cost award often comes as a surprise and those costs can be significant.

The third expert may decide that one party should pay all or some of the other party’s costs for several reasons. This can include the parties’ conduct during the process of endeavouring to agree the rent (including the conduct of the parties’ valuers and any other representatives involved), whether Calderbank offers were made (the parties may not even be aware that a settlement offer made constituted a Calderbank offer and what the implications of declining these offers are), and the outcome of the market rent determination.

For More Information

So, what should you do? And how do you avoid a cost award? There is no one size fits all answer. The key is to be proactive and take into consideration the factors at the start of the process.

For more information, give us a call to discuss your rent review options. We can advise you on the most appropriate course of action. Call our property expert Jamie Nunns on 04 495 8912 or Erica Tromp on 04 495 8904.

Property Lawyers | JB Morrison