In Commonwealth of Australia v MTAA Superannuation Fund (RG Casey Building) Property Pty Ltd (2009) 168 ACTR 55, the ACT Supreme Court held that the Commonwealth's exclusive use as tenant of the public areas of a building was a valid consideration in determining the current market rent.
Background
The Department of Foreign Affairs and Trade (DFAT) leased the majority of a commercial office building under a registered lease from MTAA Superannuation Fund Property (R G Casey Building) Property Pty Ltd and Sparad (No. 24) Pty Limited (Landlord).
Under the lease, unless the parties agreed to the rent amount, the rent was to be reviewed every two years to the current market rent value. The parties' valuers failed to reach a joint valuation and, in accordance with the lease, a third valuer was appointed as an umpire to determine the rent (Umpire).
A dispute arose as to whether the requirement for the Umpire not to take into account areas other than the "net letable area" of the premises in determining the market rent was breached when, in making his determination, the Umpire added a premium amount for DFAT's exclusive right to access and use the "public areas" of the building.
Judgment
The legal principles permitting a challenge to a valuation under a rent review clause were first considered by the NSW Court of Appeal in Legal and General Life of Australia Limited v A Hudson Pty Limited (1985) 1 NSWLR 314. In that case it was held that whether a valuation is binding on the parties will depend on the terms of the contract between the landlord and tenant and "whether the valuation complies with the terms of the contract". These principles were not disputed in the current case.
This principle has been subsequently accepted by other courts, including the Supreme Court of Victoria in Commonwealth of Australia v Wawbe Pty Ltd [1998] VSC 82 where the Court held that any mistake in the valuation process "must be of a kind which demonstrates that the valuer did not perform his tasks as required by the contract" in order to enable the court to set aside the valuation.
In the current case, the Umpire was required to take into account the terms and conditions generally of the lease. The Landlord had granted significant rights to DFAT under the lease in respect of the use of public areas of the building, including installation of artworks and the right to exclusively operate the reception desk in the foyer of the building.
Accordingly, the Court held that by taking into account the public areas of the building, the Umpire had not made a mistake which would invalidate the determination, as this was not a matter which the lease stipulated should not to be taken into account.
The Court confirmed that a valuer acting as an expert is not expected to obtain independent legal advice in respect of the provisions of the lease concerning the rental review. As such, if significant exclusive use rights or particular provisions of the lease are not intended to be taken into account in the determination of the market rent, then the provisions governing the rent review must specify this intention or the parties risk these matters being taken into account by a determining valuer.
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