The most important thing about rental determinations are the instructions – a set of guidelines which clearly detail the scope of the reporting required and the basis of rent to be assessed.
Independent advisors who provide a substantiated opinion of market rental value can use these instructions to understand factors which assist the client in negotiating a particular outcome.
The valuer must also confirm all instructions from the client or client’s representatives in writing, with these used to clarify if the instructing party believe the rental is subject to any legislation.
When handling instructions specific to rental determinations, the Australian Property Institute’s Assessing rent and rental determinations guidance paper highlights four key things to consider.
Full disclosure of all relevant information by the parties is critical to the assessment of rent and determinations, whether as an expert or arbitrator.
“Where a valuer suspects that information provided by a party to a dispute is false, incomplete and/or misleading, the valuer should advise the parties. If not resolved, the valuer may decide to delay proceedings or ultimately may decline the instructions,” the paper read.
“If the valuer ultimately accepts the instruction, then the basis of instructions must be agreed in writing with the instructing party and should include the necessary assumptions and limitations on use of the report.
“The report should be appropriately qualified. This may include detailing how any variations in the information provided could affect the results reported. Valuers should, if concerned, seek legal or other advice on any issues of concern.”
There are times when a material matter arises which is ambiguous during the rental determination or cases in which parties differ on the interpretation of the lease.
In this instance, a procedure agreed at the time of instructions needs to be established – the procedure should initially give the parties the opportunity to resolve the dispute and provide amended instructions in writing.
“If the parties are unable to resolve the ambiguity/different interpretation, it is likely legal advice will be required. There are several options. If the lease provides a dispute resolution process that process must be followed,” the paper read.
“Alternatively, the parties may directly engage a person to attempt to resolve the further dispute or the determining valuer may engage the person to provide advice. If the advice is relied on by the determining valuer, the cost of that advice is to be paid by the parties to the dispute.
“The determining valuer ought however to set the specific question that needs to be addressed and resolved. Any such delay must also result in an agreed extension of any time frames set as part of the determination.”
Set the time frame
As the basis of the instructions, the determining valuer must, having regard to the time frames set under the lease, establish the provision of information/submissions and when the determination will be completed.
“It is often the case that one or both of the parties to the lease delay in confirming the instructions or providing the required information,” the paper read.
“The time frames when set, should have the flexibility to cater for reasonable delays due to actions or inactions of the parties to the dispute.
There will also be instances where time frames are unrealistic, which creates a need to raise concerns with instructing parties.
“If the parties are unwilling to accept a reasonable time frame for completion of the determination the instructions should not be accepted,” the paper read.
Hold harmless provisions
A rental determination will rarely leave both parties to a dispute happy with the result – often one or both parties to the dispute will feel aggrieved, which can lead to unwarranted challenges against the determining valuer.
The Australian Property Institute recommends determining valuers seek an indemnity from both parties of the dispute.
“This does not absolve the determining valuer from maintaining appropriate professional indemnity insurance and membership of the APIV Limited Liability Scheme – indemnities are not valid against fraud and the approach does not guarantee action will not be taken,” the paper read.
“Valuers are strongly recommended to seek legal advice as to how best to word any indemnity.”
Read a detailed overview of this topic by downloading the guidance paper on the Australian Property Institute’s resources hub.