Agreements for lease with development obligations—measurement
Agreements for lease with development obligations—measurement

The following Property guidance note provides comprehensive and up to date legal information covering:

  • Agreements for lease with development obligations—measurement
  • Premises that are too large or too small
  • The measurement process

In some cases, a developer and a tenant agree that the rent under the occupational lease will be a specified figure. However, in many other cases, the annual rent is calculated by multiplying the measured area of the premises (either the net or gross internal area) by an agreed rental value per square foot/metre.

Although the specification and plans will anticipate that the premises will be constructed or refurbished to a particular size, it is rare for the specified area to be achieved exactly. This means that a simple multiplication exercise introduces risks for both tenant and developer.

If the premises are significantly larger than anticipated, the tenant may be committed to a level of annual rent and service charge for which it had not bargained. In addition, the rent forms the floor for future upwards only rent reviews. If the premises are smaller than anticipated, the annual rent may be significantly less than the developer or its investment buyer (who may also be providing development finance) were expecting. The buyer may reassess the final price it is willing to pay, endangering the developer’s profit margin. Premises which are too small may not be fit for the tenant’s purposes, provoking the tenant to try to reject them completely.

Premises that are too large or too small

These competing considerations may be reflected