PARTIES/LEGAL REPRESENTATION/ TYPE OF DISPUTE The inquiry was with regard to the selling price of…
Submission to determining valuer
PARTIES/LEGAL REPRESENTATION/ TYPE OF DISPUTE
INSTRUCTION: Prepare submission to determining valuer for Tenant
Excellent example of NSW and Administrative Decisions Tribunal (‘ADT’) appointment of expert Specialist Retail Valuer working to settle dispute.
In the process, the operation of the market between willing Landlords and Tenants
starts working better
If parties pay current market rent, supply better matches demand
It has to be a more “environmentally” friendly than developing 10s of 1,000 of M2, dumping it on to the market, “plugging” it full of businesses who invest direct and indirect capital (time, effort, staff, branding, etc), when it was not viable in the first place
DESCRIPTION OF DISPUTE
Tenant paying $220,000 for supermarket in dysfunctional centre. Landlord sought $245,000 i.e. $240 to $260 /M2
Submitted “untested” evidence on $/M2 basis for 299 M2, 1500 M2 & 1000 M2 stores. i.e.
“pick a number”
Rental range $280.00 to $465.00 /M2; no link back to subject. Equivalent rents would equate to 7.5% to 12.4% of turnover
During process 23 determining valuers names submitted by ADT. After asking:
Do they have experience in determining supermarket rents?
Did valuer understand KPIs of supermarket operation?
Was the valuer independent and/or did they have conflicts of interest? Landlord said they would accept any of 23 names if nominated.
All but three valuers including valuers who did original feasibility studies for centre development were prepared to be nominated. One firm subsequently withdrew, for sake of firm who did original feasibility studies, Tenant withdrew their nomination. Landlord then opted to reject the last firm
ADT appointed valuer from Sydney
How it was settled
Tenant director forced to “protect” interest in valuable 10+5+5+5+5 year lease. Country area freight costs are prohibitive.
Forensic analysis of Financial Statements KPIs suggested operation of business to reasonable standards. Operator had track record of operating other similar businesses to reasonable standards.
Dysfunctional centre was trading at 1/3 of level of other supermarket based centres.
Necessary to:
Benchmark performance of centre and business
Estimating parameters of “reasonable” vs “unreasonable” rent under S 19 of the NSW Act
Linking recent leasing evidence of other similar “permitted” uses to business in question
Making adjustments (up or down) for same
Including or eliminating evidence and why
Suggesting to the determining valuer what might be the “reasonable” rent and why
Considering future events over 5-year lease term that might prevent on from entering a lease eg. opening of new Woolworths shopping centre
Valuer determined reasonable rent at $140,000 per annum.
This is not a “win” for either party. This is a win for:
The ADT of NSW
The process of independent expert determination
working as it ought to with no/limited interference in market other than “process”
working as it ought to with no/limited interference in market other than “process”
The NSW legislation (who protect their valuers) working
The GEM method works for both high and low performing sites and centres. It is unique methodology. It uses current established valuation principles and practices. Better. There is nothing like it world-wide
This benefits all stakeholders including: superannuants, landlords, tenants, the franchise industry, financiers, investors, potential investors, etc. It assists the market to operate as a market should, with less Government interference
The GEM method will also “add value” to leases & satisfy key criteria under AASB 138 for Landlord and Tenant leases
