[The Auditors Institute Ltd]

Hello Rashmi

Thanks for the question.

It is assumed that the appraisal obtained around 2018 for the then market value of rent was reasonable and sufficient evidence of the market value of rent at the time the agreement commenced.

Rent is increased on a yearly based on 1 May, (anniversary date of rent commencement) based on CPI movements over the last 12 months. I’ll refer to this as an “escalation clause”.

The next issue is whether the escalation clause, applied for seven years, is also acceptable.

One way to approach this matter, is to consider whether an arm’s length tenant would have been willing to accept an agreement with the same terms.

Would be happy to hear the thoughts of other auditors on this matter.

Best regards

The Auditors Institute