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When determining market rent in commercial property, not all evidence carries the same weight. Valuers, landlords, and tenants rely on a hierarchy of evidence to ensure rent reviews are fair, transparent, and grounded in real market conditions. The following is a general hierarchy that is adopted by the industry,
1. New Lease to a New Tenant
The strongest indicator of market rent is a newly negotiated lease with a new tenant. These transactions reflect genuine market forces—willing landlords and tenants negotiating without the influence of existing lease terms or goodwill considerations.
2. Market Rent Agreed
Where landlords and tenants agree to market rent (without a determination process), this also provides useful evidence. However, care must be taken to ensure the agreement was made at arm’s length and not influenced by broader commercial arrangements.
3. Market Rent by Determination
If parties cannot agree, market rent may be set by an independent determining valuer. While this carries weight, it is one step removed from the open market, as the determination process is influenced by expert opinion rather than a negotiated transaction.
4. Renewal of an Existing Lease
The weakest form of evidence comes from lease renewals. These can be affected by premiums paid to protect goodwill or fit-out, or by the tenant’s desire to remain in place for business continuity. Such factors may inflate or suppress rent, making renewals less reliable as evidence of true market rent.
Why This Matters
Understanding this hierarchy helps landlords, tenants, and valuers focus on the most reliable data points when reviewing rent. It reduces disputes and ensures rental outcomes that reflect the actual state of the market rather than isolated or biased circumstances.