MR is the estimated amount for which a property, or space within a property, should lease (let) on the date of valuation between a willing lessor and a willing lessee on appropriate lease terms in an arm’s-length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion. (Practice Standard (PS) 3.4, RICS, 2004).
Comments on the definition of MR by RICS
The definition of Market Rent is the Market Value (MV) definition modified by the substitution of a willing lessor and willing lessee for a willing buyer and willing seller, and an additional Assumption that the letting will be on ‘appropriate lease terms’. RICS (2004) emphasise that the definition of market rent as given above definition must be applied in accordance with the conceptual framework of MV at PS3.2, together with the following supplementary commentary:
‘. . .willing lessor and willing lessee. . .’
The change in the description of the parties simply reflects the nature of the transaction. The willing lessor is possessed with the same characteristics as the willing seller, and the willing lessee with the same characteristics as the willing buyer, save that the word ‘price’ in the interpretive commentary to MV should be changed to ‘rent’, the word ‘sell’ changed to ‘let’ and the word ‘buy’ changed to ‘lease’.
‘. . . appropriate lease terms. . .’
MR will vary significantly according to the terms of the assumed lease contract. The appropriate lease terms will normally reflect current practice in the market in which the property is situated, although for certain purposes unusual terms may need to be stipulated. Matters such as the duration of the lease, the frequency of rent reviews, and the responsibilities of the parties for maintenance and outgoings, will all impact on MR. … MR will normally be used to indicate the amount for which a vacant property may be let, or for which a let property may re-let when the existing lease terminates. Market Rent is not a suitable basis for settling the amount of rent payable under a rent review provision in a lease, where the actual definitions and Assumptions have to be used.
