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Emerald Group Publishing Limited
Copyright © 2004, Emerald Group Publishing Limited
Rent reviews and the Disability Discrimination Act
Rent reviews and the Disability Discrimination Act
Part III of the Disability Discrimination Act 1995 (the DDA) is being brought into effect in three main stages:
Since 2 December 1996 it has been unlawful for service providers to treat disabled people less favourably for any reason related to their disability.
Since 1 October 1999 service providers have had to make “reasonable adjustments” for disabled people, such as providing extra help or making changes to the way they provide their services.
From 1 October 2004 service providers may have to make other “reasonable adjustments” in relation to the physical features of their premises to overcome physical barriers to access.
There is already anecdotal evidence to suggest that the duty to make “reasonable adjustments” is having an effect on rent reviews. This may manifest itself as a discount at review to reflect the costs of making the premises DDA-compliant; alternatively, it may produce or support an increase where premises are perceived to be compliant, on the grounds that the hypothetical tenant would not need to incur significant expenditure (for example, to install wheelchair ramps).
The principal difficulty in addressing DDA issues in the context of rent review is that the DDA is not a property statute. It is concerned with discrimination in the provision of services and does not require a service provider to adopt one way of meeting its obligations rather than another: the focus is on results. Consequently, it is a matter for each service provider to interpret and apply the duties imposed by the DDA to its own services. In essence, there is no such thing as DDA-compliant premises.
The DDA makes it unlawful to discriminate against a disabled person:
by refusing to provide (or deliberately not providing) any service that it provides (or is prepared to provide) to members of the public;
in the standard of service that it provides to the disabled person or the manner in which it provides it;
in the terms on which it provides a service to the disabled person (such services to include the provision of goods or facilities);
by failing to comply with any duty imposed on it by section 21 (duty to make reasonable adjustments) in circumstances in which the effect of that failure is to make it impossible, or unreasonably difficult, for a disabled person to make use of any such service.
When deciding what constitutes “reasonable” adjustment the factors to be taken into account are:
effectuality and practicality of the adjustment;
financial and other costs;
the extent of the service provider’s resources;
the availability of financial and other assistance;
any resources already spent; and
accessibility audit report.
The onus is therefore on the service provider to show that it has taken reasonable steps within its own financial constraints.
Complying with the duty
Where a service provider offers services to the public, it has a duty to take such steps as are reasonable in all the circumstances. That duty comprises three main areas:
Changing practices, policies and procedures.
Providing auxiliary aids and services.
Overcoming a physical feature by removing, altering or avoiding it, or through alternative service provision methods.
In its May 2002 Code of Practice, the Disability Rights Commission (DRC) announced that it would be good practice to consider first whether a physical feature that creates a barrier to disabled people can be removed or altered. This is because removing or altering the barriers created by physical features is an “inclusive” approach to adjustments. It makes the services available to everyone in the same way. The DRC also considers removal or alteration to be preferable to any alternative arrangements from the standpoint of the dignity of disabled people. In its view, it is also likely to be in the long-term interests of the service provider, since it will avoid the ongoing costs of providing services by alternative means and may expand the customer base.
Nonetheless, both the DDA and the DRC’s Code of Practice emphasise that the focus is on non-discriminatory delivery of services, and not on the methods selected. Consequently, it may be possible for a service provider to fulfil its duties without making any physical adjustments at all. It is important to remember that while the DDA duty is prompted by physical features of premises, discharge of that duty will not necessarily mean adjustment to those premises. Consider, for example:
alternative venues for meetings;
assistance with shopping; and
adjustments to working practices.
Even where physical adjustments do need to be made, the extent of those adjustments are subject to a test of reasonableness, and, once again, that test relates to the provision of the particular services in question. Various factors need to be taken into account.
DDA duties are likely to play an increasingly significant role in rent review negotiations.
Key points include:
The assumed state of the premises – should the valuer be directed to assume that the premises comply with statutory obligations? If so, would DDA duties fall within the scope of a direction that the valuer should assume compliance with statutory duties in respect of the premises?
Should works carried out by the tenant in order to comply with its statutory obligations be disregarded at review?
Are works carried out “pursuant to an obligation to the landlord”, particularly where there is a tenant covenant to comply with statutes relating to the premises?
Will adjustments carried out by the actual tenant be identical to those that would be required by the hypothetical tenant?
If it can be shown that services of the type provided on or from the premises can reasonably be provided in any other way, an assumption that substantial alterations would be required will be unfounded.
Further, it must be remembered that in determining a rent review, the valuer is concerned not with the actual, but with the hypothetical tenant. The needs of the hypothetical tenant will not necessarily be the same as those of the actual tenant. On one view, this may drive valuers to assume that in fitting-out the unit to suit their needs, the hypothetical tenant is more likely to encompass the full DDA requirements beyond October 2004, and so will engage in an expensive programme involving: installation of wheelchair ramps, widened doorways and permanent induction loop system; relocating light switches, door handles and shelves; provision of contrasting decor to assist the safe mobility of a visually impaired person; and providing tactile buttons in lifts plus a whole host of other physical adjustments. Clearly, any hypothetical tenant faced with this list of expenditure would be likely to adjust its rent bid downwards.
However, to assume the necessity of such a programme is to miss the point of the DDA. Any actual tenant taking premises would, of course, have to consider making physical adjustments and would have to conduct an access audit. Having done so, that tenant might well conclude that its services could be provided in a non-discriminatory way by means of changed policies or procedures, improved staff training, or by adopting alternative means of service provision. The cost of making physical adjustments could therefore be far less than initial estimates might suggest. If an actual tenant is likely to go through that process, it should be assumed that a hypothetical tenant would do likewise. So the impact on the hypothetical tenant’s rent bid may well be minimal.
Difficult issues arise where an actual tenant has carried out substantial works to premises in the belief that such works were necessary to comply with its obligations under the DDA. If those works were not disregarded, the valuer might conclude that the hypothetical tenant, freed from the necessity of incurring expense on such works, would put in a higher bid than would otherwise be the case. There is a risk that the normal disregard of tenant’s improvements would not apply if a valuer considered that DDA duties were caught by the tenant’s covenant to comply with statutes in respect of the premises. On that argument, works to comply with the DDA would be carried out pursuant to an obligation to the landlord and so would fall outside that disregard. Their value could then be rentalised.
An assumption that there is such a thing as DDA-compliant premises could well lead to subjective assessments about DDA compliance that would, in effect, override the conclusions actually reached following an access audit. Whether the result is an uplift or a discount, it could well be unfair and might be open to challenge on the basis that the valuer had exceeded his contractual remit.
During the past decade the courts have leaned heavily on the presumption in favour of reality when interpreting rent review provisions. When looking at the assumed length of the hypothetical lease, judges have strained to find that it will be equal to the remaining term of the actual lease. However, as the recent case of Canary Wharf Investments (Three) v. Telegraph Group Limited  EWHC 1575 show, the presumption in favour of reality is merely a presumption. It is not a mechanistic rule of construction. So, if the lease unambiguously directs the valuer to depart from reality then he must do so – even if the results do not please the landlord or tenant.
The facts are as follows:
Telegraph Group Limited is the successor in title to a 25-year lease from 1 April 1992 of four and a half floors of an office building in Canary Wharf, together with some parking spaces. Canary Wharf Investments (Three) is the successor in title to the original landlord. For rent review purposes “open market rent” was defined as the rent at which the premises, subject to certain assumptions, “could be expected to be let as a whole at [the relevant review date] by a willing landlord to a willing tenant with vacant possession and without payment or receipt by any person of any premium or any consideration other than rent for the grant thereof, the term of 25 years and otherwise on the terms and conditions and subject to the covenants and provisions contained in the hypothetical lease, and making the assumptions but disregarding the disregarded matters”.
The landlord contended that the 25-year term ran from 1 April 1992; the tenant that it was assumed to begin afresh on each rent review date.
Neuberger J. considered the authorities both as to circumstances where the presumption of reality might apply and where the Court had been required to supply a term for the notional lease at review. In Basingstoke and Dean Borough Council v. Host Group Limited  1 WLR 348 the Court took a purposive approach and declared the actual lease terms would apply in the absence of a direction to the contrary in the actual lease. In Norwich Union Life Insurance Society v. Trustee Savings Bank  1 EGLR 136, where the lease was silent about the term of the notional lease, the Court felt able to choose either the original term or the residue left at the review date. In this case (as in others subsequently) the Court chose the latter on the basis that an unexpired residue assumption accords with the reality of the situation for the parties. In British Gas Corporation v. Universities Superannuation Scheme  1 WLR 398 it was held that the notional lease should be taken to include the actual rent review provisions, except where clear words required them to be disregarded.
Having established that there was no authority for a mechanistic rule of construction of universal application, Neuberger J. analysed the rent review clause in this case. He found that the natural meaning of the clause was that the assumed term was 25 years from the rent review date. This view was reinforced by two other provisions in the Lease. The first was a requirement that provisions designed to disregard other provisions of the Lease (relating to a five-yearly review of the rent of the car parking spaces included in the Lease) would, on the Landlord’s construction of the review provisions, be unnecessary. The relevant events would not recur in the balance of the lease term. The second was to be found in the provisions of the Lease relating to the car parking spaces. The rent for these was to be reviewed separately from the offices. They were dealt with on the basis of a five-year term from the relevant date of review. The words used to achieve this (“could be expected to be let... at [the relevant] rent review date by a willing landlord to a willing tenant... for a term of five years”) were identical to the relevant section of the main review provision (“could be expected to be let... at [the relevant] review date by a willing landlord to a willing tenant... for a term of 25 years”).
Neuberger J. therefore held that the term of the hypothetical lease for rent review purposes was 25 years from the relevant review date. He would not accept the imposition of a presumption of reality to upset this conclusion. Indeed, he thought that to do so would elevate the presumption to a “mechanistic rule”.
Throughout the 1960s and 1970s, landlords of large office buildings considered that on rent review it would favour them if the hypothetical term was as long as possible, perhaps 25 or even 35 years, as opposed to a fairly short unexpired residue, which might give rise to a discount from the full rental value of the property. During the 1980s, with American companies’ preference for short leases being a particular influence, lease lengths reduced and a well-advised landlord would have been cautious as to the term assumption on rent reviews. By 1992, when the lease in question was granted in Canary Wharf, it is doubtful whether the landlord would have chosen a 25 year term to be assumed on each rent review, although a well-advised tenant might very easily have accepted this, knowing that there would have been a possibility of achieving a discount when the rent reviews came around.
In today’s market, landlords are providing flexibility to tenants by granting shorter leases, very often with breaks – an approach which, one hopes, meets the requirements of the Commercial Lease Code. This flexible approach is mirrored on review. For a large office building, even on the last review, five years before expiry, it is unlikely that the landlord would choose, or the tenant would accept, a term assumption of more than 15 years, unless there are breaks included in the assumed term. For smaller properties, almost without exception, the presumption of reality will be accepted by landlords and tenants, meaning the assumption of the unexpired residue when reviews occur. Retail warehouses are an exception to this principle, with 25-year terms commonly accepted and not being regarded by tenants as onerous or inflexible, unlike the situation for office tenants.
It remains possible to draft a rent review provision requiring the valuer to depart from reality, but clear words must be used. It is evident that the courts will not help a party to achieve a better result by imposing reality where the clause clearly directs the valuer to assume facts which do not accord with that reality.