Is it important to carefully consider the provisions relating to notional premises in rent review clauses when drafting a lease?

The Court considered this issue in relation to a building occupied by McDonalds. The building was a 1930's factory which had been converted in the mid 1980's to a McDonalds drive through. The rent review provisions provided for the rent on review to be increased to the higher of the open market value of the actual premises i.e. as a McDonalds drive through or as notional premises being "a modern single storey warehouse comprising of 20,000 net usable square feet of which 15% in area were usable as ancillary offices and constructed to a high standard.....".  Whether valued as a drive through or a warehouse, there were various disregards expressly set out, the significant one being a disregard of "any restriction as to the permitted use of the demised premises".  There was no expressed disregard of tenant's improvements in respect of either the actual drive through or the notional warehouse premises.

The dispute between the parties related to the valuation of the notional warehouse. The tenant argued that the direction to a notional modern warehouse required the valuer to value both a physical entity, being a modern warehouse, and a use, i.e. warehouse use, this excluding the potentially higher value retail warehouse used for.

The judge held that the reference to the notional warehouse meant a "second generation standard warehouse unit", i.e. it described a physical entity. However, the future use of the building was not confined to use for storage and distribution and accordingly the prospect of obtaining planning permission for the use of the notional warehouse for retail purposes could be taken into account in the valuation.

Disclaimer - This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice.  It is intended to only highlight general issues or changes in the law which might be of interest to our clients and contacts.