An important tool to have, you may have heard the two terms but never fully understood what they meant and how it would benefit you. You may think a rental review/determination is unnecessary, but it can play an important role in the relationship between a landlord and tenant whether you currently occupy a residential property or run a business. Rent is one of the most significant expenses you will incur and it’s important that the rent payable reflects the true market value.
You may be asking yourself, where do I even begin? This blog we will discuss the difference between the two and how to better understand the benefits of a valuation for these purposes as they are used in real estate business or property.
What is a rent review?
A report or documentation that has been completed to re-evaluate the current value of the rent within the market. Depending on your lease, a rent review can be requested or scheduled at any time.
With a commercial lease for any business, a rental review is usually completed in the middle of a lease period, “Mid-term lease” market review. This type of review is only used for a long term period of 5 years + for a lease.
In residential leases, a market rental review is less commonly used, as most leases vary from 6-12 months. A rental review for residential properties does not need to be completed annually, we do recommend every couple years as the market changes or there can be renewal stages with lease agreements.
To maintain a fair price, it’s essential to complete regular reviews to re-evaluate the market conditions as this in turn will sustain a steady relationship between landlord and tenant.
This is what our valuers take into consideration when they conduct the rental review valuation:
- The property size (both land size and floor layout)
- Comparable rental prices
- The location of the property
- The proximity of the property to local transport, recreational facilities, and public buildings
- The condition of the building including amenities and facilities
What is Rental Determination?
Compared to a rent review you will notice a few similarities. But the main purpose of a rental determination is entirely different when it comes to the expected outcome. For e.g. a landlord and tenant are not agreeing to the rental value of the property. This is where either the landlord or tenant can request a valuer to perform an independent valuation for the purpose of a rental determination, the valuation report will assist with negotiations between the two to come to an outcome that best benefits each party.
There are multiple reasons a rental determination is completed, in commercial leases the most common is due to an increase in conflict. We get requests for an independent valuer to be assigned to each party to maintain transparency, which helps regain confidence that the final outcome is based on an unbiased evaluation.
Out valuer complete a comprehensive report based on various factors, such as:
- The property’s proximity to the nearest city as well as street placement and road access
- Internal property factors and layout
- A review of the current rental market
- Comparable rental prices
- Historic sales and prices
- Current market conditions – including supply/demand
Do you need a rent review or rental determination valuation?
Overall, yes it’s to ensure that the rent payable is consistent with the current market value determined by our valuers. Know that any tenant has the right to request a rental review. Keep in mind the rental market is never dull, so it can easily be dismissed as a need to get a review and this can be due to convenience as well as cost.
Just keep in mind that these valuations are to be assigned and completed by a qualified professional that is specialized in the field of property valuations for both residential or commercial purposes.
We guarantee our team of valuers are the best in the business and will ensure you receive quality results tailored to your needs. Whether you are a tenant or landlord, having a comprehensive valuation is an essential tool to have.