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Tenant’s Improvements Did Not Increase Ground Rent

06 July 2011

A landlord’s attempt to obtain a rent based on the uplifted value of a property was rebuffed by the court because a term in the lease, which was worded in such a way that the rent set by the rent reviews would not take into account improvements made by a tenant, meant that a property erected on the land should be ignored.

The building had been erected by the tenant and the lease was undertaken pursuant to the erection of the building. The lease stipulated that in setting the ground rent on the rent review, the rent payable should be the ‘open market value’ of the demised premises. This did not include the tenant’s improvements, however. By the time the second rent review took place, the property had been sold to a new landlord, who claimed that the rent had to take account of the building.

The court found in the tenant’s favour. The building was an improvement and should therefore be disregarded under the rent review clause.

In general, unless expressly excluded, improvements made to property by tenants will be taken into account at the rent review if they enhance its market value. It is therefore important in similar circumstances to ensure that the lease is tightly worded enough to prevent a dispute arising over any works undertaken by a tenant.

In this case, the use of more precise wording in the lease would have obviated the need for a court appearance.

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