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The purpose of this legal update is to examine the recent case law relating to rent review in England and Wales. The paper argues that as rent terms have reduced in length, and as market conditions have tended to produce nil-uplifts, there have been relatively few review cases before the court. Cases that reach court tend to fall into two broad categories: contractual interpretation and challenges to third-party determination.

Review and analysis of case law in England and Wales.

There are no special rules for interpreting rent review clauses. The court's approach to contractual interpretation follows House of Lords and Supreme Court rulings culminating in Rainy Sky SA v Kookmin Bank (2011). There are also very limited circumstances in which the court will set aside an arbitrator's award, informed by a policy that favours upholding arbitration awards as a quick and cost-effective way to settle rent review disputes.

Rent review clauses must be interpreted in accordance with the normal rules of contractual interpretation. The court is unlikely to be swayed by submissions asserting the “general purpose” of rent review.

This is an original analysis of case law.

Complicated leasing terms make both the valuation of lease contracts and the calculation of effective rent levels difficult. These complications are compounded by the existence of option‐like features in many contracts. For example, retail leases in the USA generally have overage rent clauses that allow the landlord additional rent if sales exceed a breakpoint, but set a minimum rent level under any sales conditions. Similarly, upward‐only rent review clauses are common in the UK and Australia (as well as other commonwealth countries). Here the rent is fixed at the commencement of the contract, with the option to review the rental figure in line with market conditions at pre‐determined intervals (normally every five years). If rents in the market have increased over the interim period, the rent of the subject property will be adjusted upwards accordingly and this higher level becomes the minimum possible future rent. However, if market rents have either remained static or decreased, the landlords would choose not to operate the rent review clause and the existing rent will continue. The US overage contract can be valued using a binomial approach. The upward‐only adjusting leases cannot because the value of the option is “path‐dependent”. Here, Monte Carlo valuation methods must be used. In this paper we describe both approaches. We show the relationship between the rents on these contracts relative to those without overage or with up and downward adjustment. The key determinants in establishing this relationship are the expected drift and the volatility of either sales (in the case of overage) or market rents (in the case of upward‐only leases).

As deregulation takes place in the UK, rent tribunals are confronted with the problem of setting a “market rent” for previously controlled property. A simple partial equilibrium model of a sector of the rented accommodation market is used to examine the question of setting a “market rent” in the controlled‐rent subsector. It is shown that setting the controlled rent equal to the rent prevailing in the uncontrolled part of the market is sub‐optimal, and a simple formula is suggested which will give a better estimate of the true free market rent.

This paper attempts to analyze the mechanism of land rent distribution under the Soviet and post‐Soviet conditions. The subject is examined from a purely theoretical point of view. The procedure is as follows: first, the socioeconomic meaning of the word “Soviet” is defined. Second, the difference between land rent production and land rent distribution is examined. Finally, Soviet land rent distribution is investigated. Also, changes which the collapse of the Soviet system brought to the process of land rent distribution during the post‐Soviet period are examined. Within this framework, the role of Soviet turnover taxes versus post‐Soviet value‐added taxes is discussed.

One of the features of the UK letting market has been the practice of giving new tenants a rent‐free period at the commencement of a lease. Such rent‐free periods seem to fall into one of two types. First, it appears that, even in a very buoyant market, most tenants are able to negotiate a modest rent‐free period for fitting out or, where the lease is a head lease, for arranging sublettings. These rent‐free periods (even where they are a slice of a longer rent‐free period) can be seen to have their own characteristics. They can be viewed as a one‐off concession at the commencement of the lease. Second, in a poor market rent‐free periods are used as incentives, in the sense that they are a direct alternative to an explicit reduction in the passing rent, and often form part of a wider package of inducements. These have an obvious and direct bearing on true rental value. Critically examines the various devices which have been used by those drafting rent review clauses to deal with rent‐free periods at review and comments on how these have been treated by the courts.

The purpose of this paper is to show how an optimization model previously published by the authors is employed to study the effects of rent control on income optimization for the owner and the manager, as well as on the principal‐agent relationship. The model explains effects on management, maintenance and housing quality observed under rent control.

The optimization model is developed by applying a transaction cost framework to the context of income structures in investment properties and their management. Rent control is introduced into the model as a rent maximum.

Under rent control, the manager is forced to optimize income solely through cost control, without motivation to provide above minimum services. The owner is unable to optimize income. Income and funds available for management and maintenance are reduced by costs uncontrollable by the owner. Consequently, management and maintenance are reduced, if not eliminated, resulting in deterioration of the housing stock, notwithstanding minimum habitability standards imposed by regulators. This dilemma argues against dropping management entirely and interferes with the owner's quest to find the right incentive structure for the agent.

Rent control is modeled as a cap on rents. Many rent control policies employ a maximum in rent increase instead, with the maximum often linked to inflation. As the results of the model are in line with real‐world observations, this simplification seems to be non‐critical.

Rent control was implemented with the intent to provide affordable housing to the less fortunate in society. Economic and social effects of rent control have since been heatedly discussed, in the public arena and in academia. This paper supports the view that rent control has unintended, negative consequences not only for the property owner, but also for the property manager (who is at the brink of elimination) and for the tenant (as housing quality deteriorates). This paper therefore encourages a renewed discussion and review of rent control policies.

The paper expands existing literature by analyzing the effects of rent control on property management. By using an optimization model, theory‐based results are provided that supplements real‐word observations, which is interesting for both academics and practitioners. Furthermore, the applicability of the previously developed optimization model is strengthened.

The upwards‐only rent review is a characteristic feature of the institutional property lease in the UK. It has been subject to increased attention by investors and regulators in the 1990s with various proposals which sought to make upwards‐only rent reviews illegal. Applies an arbitrage method based on market pricing which enables consistent valuations of different investment opportunities to be compared in a rigorous yet consistent approach. In this way the value of the upwards‐only option can be assessed. Uses the arbitrage approach to value the difference between a lease in which the rents are reviewed upwards‐only and that in which rents can be reviewed upwards or downwards. Starts by applying the arbitrage approach to a simple lease in which rent may take only two values. This simple approach is well established in the finance literature when analysing options, and the valuation of the upwards‐only lease may be seen as a multi‐option contract.

Because the legislation has never provided rent officers with precise and unambiguous rules on which to base their fair rent calculations, the rationale underlying trends in fair rent levels has generally been difficult to discern. Evidence given to the House of Commons Environment Committee and interpretation of data released by the Department of the Environment, however, suggest that in recent years there has been a marked development in the interpretation of the statutory formula. Essentially this seems to have followed from a judgement that, overall, rents in some registration areas have been set at too low a level, and in practice the general level of rents in these areas has been rapidly increased.

Considers Australian shopping centres which have used turnover rents. Examines the benefits for both landlord and tenant, the structure of turnover rent, its problems and effects on the landlord‐tenant relationship. Concludes that the use of turnover rents offers benefits to landlords and tenants, particularly during recession, provided lease agreements are appropriate and tenant turnover reported accurately.