Rent Review
Dispute Resolution Costs
01/Oct/2011
Acting for a retailer in Cheylesmore, Coventry, I arranged referral of a rent review at 1-2 Quinton Parade to an independent expert and the revised rent was determined accordingly.
The Lease requires the tenant to pay all costs of the determination (the expert's fees) if the determination were within 10% of the landlord's proposal, so the expert took it upon himself to determine my Client should pay all costs. However, what the expert overlooked was a) the proposal was that which had been made at the date of the application to the RICS for the appointment of the expert and b) the expert's role in the procedure did not extend to responsibility for costs. At the date of my application to the RICS, the landlord had not proposed any rent so I reasoned the provision for costs did not apply. Also, I reasoned that apportioning responsibility for costs was a separate issue which was nothing whatsoever to do with the expert. It was an arrangement the parties had agreed would apply after the determination were released and not part of the actual determination process.
Needless to say, the landlord's surveyor did not agree but, because I stuck to my guns the expert found himself in an invidious position, so the landlord said he would obtain legal opinion. Whilst waiting for the lawyers, the landlord's surveyor sent me a memorandum for my Client to sign to confirm the new rent. I obtained my Client's signature but did not return the Memorandum to the landlord's surveyor for completion; instead I said that because the expert's determination on costs was included in the determination the entire determination was invalid pending resolution of the costs issue. I emphasised that whereas I was not going to recommend the revised rent should not be agreed, I did not think it should be payable until after the issue of costs was finally disposed of, so if the landlord's legal opinion did not agree with my opinion, I should arrange for my Client's solicitors to apply to the Court for a declaration. However, without prejudice, I offered to advise my Client to return the Memorandum for completion and pay the rent without further ado if the landlord would agree to pay half the expert's costs. The landlord realising the matter could take months to resolve, not to mention mounting legal costs, capitulated.
The Lease requires the tenant to pay all costs of the determination (the expert's fees) if the determination were within 10% of the landlord's proposal, so the expert took it upon himself to determine my Client should pay all costs. However, what the expert overlooked was a) the proposal was that which had been made at the date of the application to the RICS for the appointment of the expert and b) the expert's role in the procedure did not extend to responsibility for costs. At the date of my application to the RICS, the landlord had not proposed any rent so I reasoned the provision for costs did not apply. Also, I reasoned that apportioning responsibility for costs was a separate issue which was nothing whatsoever to do with the expert. It was an arrangement the parties had agreed would apply after the determination were released and not part of the actual determination process.
Needless to say, the landlord's surveyor did not agree but, because I stuck to my guns the expert found himself in an invidious position, so the landlord said he would obtain legal opinion. Whilst waiting for the lawyers, the landlord's surveyor sent me a memorandum for my Client to sign to confirm the new rent. I obtained my Client's signature but did not return the Memorandum to the landlord's surveyor for completion; instead I said that because the expert's determination on costs was included in the determination the entire determination was invalid pending resolution of the costs issue. I emphasised that whereas I was not going to recommend the revised rent should not be agreed, I did not think it should be payable until after the issue of costs was finally disposed of, so if the landlord's legal opinion did not agree with my opinion, I should arrange for my Client's solicitors to apply to the Court for a declaration. However, without prejudice, I offered to advise my Client to return the Memorandum for completion and pay the rent without further ado if the landlord would agree to pay half the expert's costs. The landlord realising the matter could take months to resolve, not to mention mounting legal costs, capitulated.
Subway rent review
25/Mar/2011
The premises, in Notting Hill Gate, London W11 were let in 2004 at £50,000 per annum exclusive for a term of 20 years, with 5 yearly rent reviews. The tenancy is outside the Landlord and Tenant Act 1954. In July 2010, the first tenant (a franchisee of Subway) assigned the tenancy to a new franchisee. Before the assignee took over, negotiations for the December 2009 rent review were on-going, both first tenant and the landlord professionally represented. The landlord, represented by Savills, had proposed £80,000 and after extensive negotiations including Calderbank offers the landlord wanted £72,000 pa whereas the first tenant’s surveyors were at £57,000 pa. The landlord, having initiated the dispute procedure, referred the review to an Independent Expert. Even though the assignee had only just taken over the lease, the review negotiations had reached the stage at which it was necessary to make a decision whether to agree £72,000 pa or allow the Independent Expert to proceed. The fees quoted by the first tenant’s surveyor for acting for the assignee on referral were in the region of £4000 plus VAT, excluding any fees payable to the Independent Expert if the determination of rent were at or greater than the landlord’s Calderbank offer.
The assignee contacted me and I was instructed to deal with the review including the dispute resolution proceedings. (Unlike most surveyors, I do not charge any extra for ‘going to arbitration’ and my total fee (exclusive of VATt) was under half the amount that the previous tenant’s surveyor would’ve charged). Before the instruction was formally confirmed, the Landlord's Surveyor telephoned the assignee direct and intimated £60,000 per annum exclusive would be acceptable.
Some information was passed on to me but otherwise I started from scratch. I inspected the premises and made enquiries I considered necessary. The Independent Expert preliminary procedures were underway. I found several points in the interpretation of wording and phrasing of the lease that did not appear to have been explored, so I issued a Calderbank offer at £57,500 pa to protect my Client’s interest on costs. The Landlord would not accept the Calderbank offer, the Independent Expert was asked to proceed.
Acting as advocate, I presented the Independent Expert with submission of seventeen pages, 7350 words. Because the Landlord owns the entire parade in which 31 is located, together with numerous other shops in Notting Hill Gate, the Landlord’s Surveyor had all the evidence. One could have the impression the landlord was invincible. However, the Landlord's Surveyor was acting as expert witness; a role that, in my view, exposes a surveyor to a need for a considerably more accuracy and compliance with technical expectations. My counter-submission, twelve pages and 5400 words, followed by re-examination (five pages, 1800 words) of the expert witness surveyor’s reply.
The determination was £53,630 per annum exclusive; Zone a £127.50. The landlord paid all costs of the Independent Expert.
The assignee contacted me and I was instructed to deal with the review including the dispute resolution proceedings. (Unlike most surveyors, I do not charge any extra for ‘going to arbitration’ and my total fee (exclusive of VATt) was under half the amount that the previous tenant’s surveyor would’ve charged). Before the instruction was formally confirmed, the Landlord's Surveyor telephoned the assignee direct and intimated £60,000 per annum exclusive would be acceptable.
Some information was passed on to me but otherwise I started from scratch. I inspected the premises and made enquiries I considered necessary. The Independent Expert preliminary procedures were underway. I found several points in the interpretation of wording and phrasing of the lease that did not appear to have been explored, so I issued a Calderbank offer at £57,500 pa to protect my Client’s interest on costs. The Landlord would not accept the Calderbank offer, the Independent Expert was asked to proceed.
Acting as advocate, I presented the Independent Expert with submission of seventeen pages, 7350 words. Because the Landlord owns the entire parade in which 31 is located, together with numerous other shops in Notting Hill Gate, the Landlord’s Surveyor had all the evidence. One could have the impression the landlord was invincible. However, the Landlord's Surveyor was acting as expert witness; a role that, in my view, exposes a surveyor to a need for a considerably more accuracy and compliance with technical expectations. My counter-submission, twelve pages and 5400 words, followed by re-examination (five pages, 1800 words) of the expert witness surveyor’s reply.
The determination was £53,630 per annum exclusive; Zone a £127.50. The landlord paid all costs of the Independent Expert.
RICS dispute resolution fee
25/Feb/2011
RICS dispute resolution application fee
With effect from 4 January 2011, the application fee payable to the RICS is £369.00 (inclusive of VAT at 20%)
Previously:
2000 April - £275 inclusive of VAT
2002 August - £300 inclusive of VAT
2006 June - £320 inclusive of VAT
2008 April - £340.00 inclusive VAT
2009 April 15 - £333 inclusive of VAT (15%)
2009 June 15 - £353 inclusive of VAT
2010 to 3 January 2011 - £361.00 inclusive of VAT (17.5%)
2011 January 4 - £369 inclusive of VAT (20%)
With effect from 4 January 2011, the application fee payable to the RICS is £369.00 (inclusive of VAT at 20%)
Previously:
2000 April - £275 inclusive of VAT
2002 August - £300 inclusive of VAT
2006 June - £320 inclusive of VAT
2008 April - £340.00 inclusive VAT
2009 April 15 - £333 inclusive of VAT (15%)
2009 June 15 - £353 inclusive of VAT
2010 to 3 January 2011 - £361.00 inclusive of VAT (17.5%)
2011 January 4 - £369 inclusive of VAT (20%)
Expert Witness Lip service
25/Feb/2011
I have become so fed up with chartered surveyors paying ‘lip service’ to the RICS Practise Statement and guidance Notes for chartered surveyors acting as expert witness at rent review but ignoring the substantive provisions that I am going to make formal complaints to the President of the RICS.
In one case recently, the tenant’s expert witness surveyor, apparently on the RICS panel, failed to disclose that he and his firm are retained advisers for the tenant. The expert witness opinion was partisan and when challenged he said he was not answerable to me. Fair enough, but he is answerable to the RICS and being on RICS panel for dispute resolution appointed surveyors has a duty to set a good example.
In another matter at present, where I’m acting for the tenant, the landlord’s surveyor now acting as expert witness, quite apart from describing his report as a submission, thereby confirming ignorance of terminology, is basically arguing the matter as if an advocate.
In one case recently, the tenant’s expert witness surveyor, apparently on the RICS panel, failed to disclose that he and his firm are retained advisers for the tenant. The expert witness opinion was partisan and when challenged he said he was not answerable to me. Fair enough, but he is answerable to the RICS and being on RICS panel for dispute resolution appointed surveyors has a duty to set a good example.
In another matter at present, where I’m acting for the tenant, the landlord’s surveyor now acting as expert witness, quite apart from describing his report as a submission, thereby confirming ignorance of terminology, is basically arguing the matter as if an advocate.
Dispute resolution costs and fees
27/Oct/2009
Dispute resolution costs and fees
In my opinion, and I'm not alone, the fees required and charged by surveyors appointed by the RICS to act as arbitrators or independent experts are often out of touch with reality and, in many instances, obscene.
For example, I am dealing with two matters at present, for different clients, where the rents are likely to end up at around £14,500 pa. In each case, the independent expert wants to charge around £250-£300 an hour, with a minimum fee of £3500 + disbursements and VAT. Now if the agency side of the firms of which those experts are partners were instructed to let the property then chances are the commission would be 10% of the first year's rent (ignoring any rent-free) subject to a minimum commission of £2000 plus VAT.
In another case, the appointed independent expert's hourly rate is £200 an hour + disbursements and VAT. Okay, maybe that's par for the course (or at least it used to be), but the surveyor has run up a bill of almost £1000 + VAT, etc just on dealing with preliminary communications. Also, at a different office of same company, where another person has been appointed, the charge is (only) £175 an hour which, considering it's the same administrative structure, suggests to me some sort of target approach to revenue.
I don't know where such people think the money comes from to pay their fees but frankly if that's the way they carry on then it's hardly surprising so many surveyors are experiencing financial difficulties and having to lay off staff, etc.
It's always been the case that where the parties have no choice the adviser will charge as much as they possibly can. You get that with legal costs and surveyor's fees in connection with tenant applications for licences to assign, sub-let, do alterations, and with schedules of dilapidations. I think the same principle is being applied at review referrals. Once appointed, the surveyor has a general duty to proceed and although that can be stopped by agreement the parties have little or no control over how much the surveyor will charge.
Personally, and I've said this all along, I think there should be a fixed fee, possibly on a sliding scale according to the level of passing rent, (with adjustment if the passing rent is a ground rent, for example), for independent expert determinations and arbitrator awards at rent review. The old argument it's impossible to know what will be involved doesn't hold water. When I take on a rent review for a client, I don't have the luxury of being able to charge whatever I like: I quote a fee at the start and no matter how long the job takes or what's involved, I stick to what has been agreed and no more.
An open-ended 'blank cheque' approach exposes both landlord and tenant to the risk of having to pay a disproportionate amount to a third party, which let's face it, particularly with an independent expert, expects most of the job done for them.
The advantage of a fixed fee is that you know where you are the start. You can tell the client it would cost 'x' to go to referral and that would be it. At present, I can only estimate and having to say that the total costs could be in the region of £3000-£5000 + VAT, etc is a really frightening amount for most people, even if their share would only amount to half of that.
Under the existing system whereby surveyors can charge whatever they like, I think landlords and tenants are being taken for a ride.
PS - I am in the process of setting up a low cost dispute resolution service where, for example, I am likely to charge in the region of £1750 + VAT for expert determination and maybe the same for arbitration. The full fee would, of course, not be payable in the event the matter were settled beforehand.
In my opinion, and I'm not alone, the fees required and charged by surveyors appointed by the RICS to act as arbitrators or independent experts are often out of touch with reality and, in many instances, obscene.
For example, I am dealing with two matters at present, for different clients, where the rents are likely to end up at around £14,500 pa. In each case, the independent expert wants to charge around £250-£300 an hour, with a minimum fee of £3500 + disbursements and VAT. Now if the agency side of the firms of which those experts are partners were instructed to let the property then chances are the commission would be 10% of the first year's rent (ignoring any rent-free) subject to a minimum commission of £2000 plus VAT.
In another case, the appointed independent expert's hourly rate is £200 an hour + disbursements and VAT. Okay, maybe that's par for the course (or at least it used to be), but the surveyor has run up a bill of almost £1000 + VAT, etc just on dealing with preliminary communications. Also, at a different office of same company, where another person has been appointed, the charge is (only) £175 an hour which, considering it's the same administrative structure, suggests to me some sort of target approach to revenue.
I don't know where such people think the money comes from to pay their fees but frankly if that's the way they carry on then it's hardly surprising so many surveyors are experiencing financial difficulties and having to lay off staff, etc.
It's always been the case that where the parties have no choice the adviser will charge as much as they possibly can. You get that with legal costs and surveyor's fees in connection with tenant applications for licences to assign, sub-let, do alterations, and with schedules of dilapidations. I think the same principle is being applied at review referrals. Once appointed, the surveyor has a general duty to proceed and although that can be stopped by agreement the parties have little or no control over how much the surveyor will charge.
Personally, and I've said this all along, I think there should be a fixed fee, possibly on a sliding scale according to the level of passing rent, (with adjustment if the passing rent is a ground rent, for example), for independent expert determinations and arbitrator awards at rent review. The old argument it's impossible to know what will be involved doesn't hold water. When I take on a rent review for a client, I don't have the luxury of being able to charge whatever I like: I quote a fee at the start and no matter how long the job takes or what's involved, I stick to what has been agreed and no more.
An open-ended 'blank cheque' approach exposes both landlord and tenant to the risk of having to pay a disproportionate amount to a third party, which let's face it, particularly with an independent expert, expects most of the job done for them.
The advantage of a fixed fee is that you know where you are the start. You can tell the client it would cost 'x' to go to referral and that would be it. At present, I can only estimate and having to say that the total costs could be in the region of £3000-£5000 + VAT, etc is a really frightening amount for most people, even if their share would only amount to half of that.
Under the existing system whereby surveyors can charge whatever they like, I think landlords and tenants are being taken for a ride.
PS - I am in the process of setting up a low cost dispute resolution service where, for example, I am likely to charge in the region of £1750 + VAT for expert determination and maybe the same for arbitration. The full fee would, of course, not be payable in the event the matter were settled beforehand.
Take-away food shops - planning restrictions
26/Oct/2009
Take-away food shops planning restrictions
LB Waltham Forest has introduced a policy, likely to be copied by other planning authorities, of not allowing take-away food shops to open within 400 metres of schools, parks and youth centres. Also, the North East London planning authority has begun consulting on a suite of development control policies which would restrict the number of fast-food outlets within primary, secondary and retail parade zones.
Until the 400-metre rule becomes nationally adopted planning policy, the point would only arise within LB Waltham Forest. In the meantime, to prepare for the possibility!
At rent review in the lease of premises whereby the permitted user is take-away foods - Use Class A5 is hot food takeaway, and possibly A3 - an assumption of the hypothetical tenant being able to get planning permission for such use is normal. If the premises are within 400 metres of a school, park and youth-centre, then in the open market the assumption would fail in practice. That could have the effect of either increasing the market rent, on the basis that if the premises did not already have take-away use then it would not be allowed, in which case there is a scarcity value, or reducing the market rent on the basis that in the market such planning use would not be allowed.
At lease expiry, if the tenant requires a lower rent or it will not renew, the landlord will have to weigh up the consequences of conceding a lower rent against the risk not being able to re-let the premises for take-away use if the planning permission for such use were to elapse.
There are thousands of take-away food shops. As literal interpretation of the lease has given way to presumption in favour of reality, checking the distance to the nearest school, park and youth-centre will be necessary when evaluating the rent.
LB Waltham Forest has introduced a policy, likely to be copied by other planning authorities, of not allowing take-away food shops to open within 400 metres of schools, parks and youth centres. Also, the North East London planning authority has begun consulting on a suite of development control policies which would restrict the number of fast-food outlets within primary, secondary and retail parade zones.
Until the 400-metre rule becomes nationally adopted planning policy, the point would only arise within LB Waltham Forest. In the meantime, to prepare for the possibility!
At rent review in the lease of premises whereby the permitted user is take-away foods - Use Class A5 is hot food takeaway, and possibly A3 - an assumption of the hypothetical tenant being able to get planning permission for such use is normal. If the premises are within 400 metres of a school, park and youth-centre, then in the open market the assumption would fail in practice. That could have the effect of either increasing the market rent, on the basis that if the premises did not already have take-away use then it would not be allowed, in which case there is a scarcity value, or reducing the market rent on the basis that in the market such planning use would not be allowed.
At lease expiry, if the tenant requires a lower rent or it will not renew, the landlord will have to weigh up the consequences of conceding a lower rent against the risk not being able to re-let the premises for take-away use if the planning permission for such use were to elapse.
There are thousands of take-away food shops. As literal interpretation of the lease has given way to presumption in favour of reality, checking the distance to the nearest school, park and youth-centre will be necessary when evaluating the rent.
Rent Review - upward or downward
26/Oct/2009
Upwards or downward - rent review
Many tenants, and I should imagine landlords also, probably think that where a rent review is 'upward' or 'downward' so that the rent payable after the review could be less than before, the rent is likely to go down, in the prevailing economic climate.
That may not be so. For a landlord, for whom I have acted for years, I recently negotiated a 10% increase in rent for a September 2008 review even though the lease contains a downward provision.
The important thing to remember is that rents are not based on what the actual tenant could afford or the actual landlord might want, but upon comparison. Where the evidence is of rents whose reviews are upward-only, a nil increase (which, as I have said before, is no evidence of a lower rent) does not mean rents have fallen. Also, it is not only another rent (pro-rata) to which a review is compared, but also the terms of the lease. When you make a comparison between an upward only review clause and an upward/downwards clause, it is reasonable to assume a tenant would be attracted by the prospect of a lease containing upward/downward clause and paying a greater rent for the premises than if the review were upward only.
So, if all the evidence is nil increase, which as I've said does not mean the rent has gone down, then in the absence of proof that rents have indeed fallen, the advantage of having an upward/downward review has a value. Which in this case I agreed at 10% more.
Many tenants, and I should imagine landlords also, probably think that where a rent review is 'upward' or 'downward' so that the rent payable after the review could be less than before, the rent is likely to go down, in the prevailing economic climate.
That may not be so. For a landlord, for whom I have acted for years, I recently negotiated a 10% increase in rent for a September 2008 review even though the lease contains a downward provision.
The important thing to remember is that rents are not based on what the actual tenant could afford or the actual landlord might want, but upon comparison. Where the evidence is of rents whose reviews are upward-only, a nil increase (which, as I have said before, is no evidence of a lower rent) does not mean rents have fallen. Also, it is not only another rent (pro-rata) to which a review is compared, but also the terms of the lease. When you make a comparison between an upward only review clause and an upward/downwards clause, it is reasonable to assume a tenant would be attracted by the prospect of a lease containing upward/downward clause and paying a greater rent for the premises than if the review were upward only.
So, if all the evidence is nil increase, which as I've said does not mean the rent has gone down, then in the absence of proof that rents have indeed fallen, the advantage of having an upward/downward review has a value. Which in this case I agreed at 10% more.
Monthly Rents
01/Sep/2009
Monthly Rents
Although retailers in trouble are managing to persuade landlords to accept rents paid monthly, a growing number of retailers that are not in any difficulty are expecting the same treatment.
Some landlords can afford to be accommodating, but many cannot. Landlords that themselves are borrowing money are likely to be paying their interest quarterly, so accepting rents monthly from the tenant will mean the landlord subsidising the tenant.
In any event, such an arrangement, where it is a departure from the terms and conditions of the lease, should only be temporary, and subject to notice to end the arrangement if the landlord should so desire. Landlords should also put the agreement in writing, in a side-letter with the lease, setting out clearly the terms and conditions of the arrangement.
To avoid problems should the landlord want to sell the investment, the arrangement should be personal to the tenant and landlord and non-transferable.
In my opinion, the investment value of a property where the tenant is being allowed to pay monthly could well be lower than where payments are quarterly.
Although retailers in trouble are managing to persuade landlords to accept rents paid monthly, a growing number of retailers that are not in any difficulty are expecting the same treatment.
Some landlords can afford to be accommodating, but many cannot. Landlords that themselves are borrowing money are likely to be paying their interest quarterly, so accepting rents monthly from the tenant will mean the landlord subsidising the tenant.
In any event, such an arrangement, where it is a departure from the terms and conditions of the lease, should only be temporary, and subject to notice to end the arrangement if the landlord should so desire. Landlords should also put the agreement in writing, in a side-letter with the lease, setting out clearly the terms and conditions of the arrangement.
To avoid problems should the landlord want to sell the investment, the arrangement should be personal to the tenant and landlord and non-transferable.
In my opinion, the investment value of a property where the tenant is being allowed to pay monthly could well be lower than where payments are quarterly.
Bury St Edmunds - saving £87,000 pa
16/Jul/2009
Acting for a successful retailer in East Anglia, the premises are on an under-lease from Homebase Ltd. Like many large companies, Homebase has a residual estate: numerous properties that it used to occupy, but which have long since been conveyed to others. (According to April 2009 accounts, in the public domain, the parent company of Homebase, Home Retail Group plc, made £117.3M provision for onerous lease charges. The past catches up!) In this case, Homebase wanted to assign its lease with an indemnity for the remainder of the term for a difference in repairing covenants, so my Client would be no worse off.
Terms were agreed in principle. At the onset, I said I should not recommend my Client instruct solicitors until the freeholder’s consent had been obtained. The head-lease contains a surrender-back clause, also I did not want my Client to incur costs unnecessarily. Homebase applied for a licence to assign, a draft was submitted by the freeholder’s solicitors, and I was told by the surveyor acting for Homebase consent had been given. However, what was not disclosed until much later on was that the freeholder had not actually given consent, because it was still awaiting reply to its enquiries about my Client’s accounts. [Whether the freeholder’s solicitors, in having issued a draft licence, was enough to deem consent was never resolved: that would’ve meant applying to court for a declaration, which Homebase would do provided contracts to assign were first exchanged, (on condition if the application failed then the transaction would abort)]
As the conveyancing progressed, I started thinking further ahead. Even if the freeholder were shown to be unreasonably withholding consent, I felt my Client would be off to a bad start if the landlord were ordered to consent against its will. No matter the impersonality of business tenancy law, the human aspect in the ongoing relationship between landlord and tenant is important. Then there was the question of personal surety. The underlessee has no surety, which would mean, on expiry of the head-lease when Homebase’s interest ends, and the under-lease is renewed direct with the freeholder, there would be no need for surety in future. (The under-lease is inside the 1954 Act so has renewal rights.) In the head-lease, the freeholder can require personal surety for a limited company assignee. My Client offered an associate company, but not a personal surety. Had the matter gone to court, it is possible the court would have ordered a personal surety with any licence to be granted, which would mean my Client would have been worse off.
The difference in repairing covenant could also cause problems. The under-lease contains a schedule of condition, whereas the head-lease is full repairing. The cost of the difference is estimated at £100,000, at least. I got Homebase to agree to extend the indemnity beyond expiry of the term into any holding-over period, but that benefit would only have practical effect if the freeholder were to serve a schedule of dilapidations whilst Homebase were around. There would be nothing to stop the freeholder waiting until Homebase were out of the picture before serving it on my Client. Similarly, if my Client did not want to renew, then its terminal obligation would be limited. Also, by taking on the head-lease, the under-lease could have been extinguished, losing the benefit in having the schedule of condition continue on renewal of the lease direct with the freeholder.
I concluded the risks outweighed the benefits, so I recommended withdrawing from the transaction.
I have agreed the 2003 and 2009 rent reviews at nil increase, a saving of about £87,000 pa.
Terms were agreed in principle. At the onset, I said I should not recommend my Client instruct solicitors until the freeholder’s consent had been obtained. The head-lease contains a surrender-back clause, also I did not want my Client to incur costs unnecessarily. Homebase applied for a licence to assign, a draft was submitted by the freeholder’s solicitors, and I was told by the surveyor acting for Homebase consent had been given. However, what was not disclosed until much later on was that the freeholder had not actually given consent, because it was still awaiting reply to its enquiries about my Client’s accounts. [Whether the freeholder’s solicitors, in having issued a draft licence, was enough to deem consent was never resolved: that would’ve meant applying to court for a declaration, which Homebase would do provided contracts to assign were first exchanged, (on condition if the application failed then the transaction would abort)]
As the conveyancing progressed, I started thinking further ahead. Even if the freeholder were shown to be unreasonably withholding consent, I felt my Client would be off to a bad start if the landlord were ordered to consent against its will. No matter the impersonality of business tenancy law, the human aspect in the ongoing relationship between landlord and tenant is important. Then there was the question of personal surety. The underlessee has no surety, which would mean, on expiry of the head-lease when Homebase’s interest ends, and the under-lease is renewed direct with the freeholder, there would be no need for surety in future. (The under-lease is inside the 1954 Act so has renewal rights.) In the head-lease, the freeholder can require personal surety for a limited company assignee. My Client offered an associate company, but not a personal surety. Had the matter gone to court, it is possible the court would have ordered a personal surety with any licence to be granted, which would mean my Client would have been worse off.
The difference in repairing covenant could also cause problems. The under-lease contains a schedule of condition, whereas the head-lease is full repairing. The cost of the difference is estimated at £100,000, at least. I got Homebase to agree to extend the indemnity beyond expiry of the term into any holding-over period, but that benefit would only have practical effect if the freeholder were to serve a schedule of dilapidations whilst Homebase were around. There would be nothing to stop the freeholder waiting until Homebase were out of the picture before serving it on my Client. Similarly, if my Client did not want to renew, then its terminal obligation would be limited. Also, by taking on the head-lease, the under-lease could have been extinguished, losing the benefit in having the schedule of condition continue on renewal of the lease direct with the freeholder.
I concluded the risks outweighed the benefits, so I recommended withdrawing from the transaction.
I have agreed the 2003 and 2009 rent reviews at nil increase, a saving of about £87,000 pa.
Rent review in the present climate
21/May/2009
3CPD, a registered charity www.3cpd.co.uk invited me to give a talk about "Rent Review in the Prevailing Climate”. Open to non-members, approximately 30 people attended the event, which took place on 21 May 2009 at a venue in Oxford.
Surbiton - downward review 10% increase
29/Sep/2008
Acting for a Landlord, I negotiated 10% increase at September 2008 rent review in a lease which has an upward or downwards rent review clause.
Reducing Property Costs
01/Jun/1999
Socially, “win-win” as a means of avoiding or diffusing argument is useful as a catalyst but, at rent review, I regard it as inappropriate, because the intention is pre-determined as the open market rent: ie, what other retailers would pay for the premises. Whilst landlords would like all tenants to conform to the property system’s logical expectations, a tenant not actually in competition for the premises gains nothing from paying the going rate.
Even so, many tenants lose out because “win-win” has become institutionalised amongst surveyors so that, instead of concentrating on reduction, the emphasis is on agreeing market rent. Whilst the guidelines are geared towards that objective, the interests of landlord and tenant are opposed so, assuming an upward-only review, rather than reducing the proposal, I focus on passing rent. Clients also benefit indirectly in that their premises become more marketable, because when I release information for comparable evidence, landlord and surveyor opponents elsewhere invariably discount the devaluation. For example, I concluded a March 1999 review in Cornmarket, Oxford at under £180 Zone-A when Gap, almost next door, paid over £204 headline Zone-A in July 1998 and Birthdays nearby agreed 15% more on review in September 1998. Similarly, in North End, Croydon, I negotiated a March 1998 renewal at £125 Zone-A when, almost next door, an independent expert determined Zone-A £140 at the same date.
I am often instructed as a trouble-shooter and, in such cases, am fascinated by what the parties have taken for granted. If my experience reflects the market as a whole, then scope for further reducing property costs could be enormous. For example, many surveyors have difficulty in carrying out their instructions because of conflict between truth and bluff. To compensate, they can throw their weight around but, to retain peace of mind, sabotage the result. For example, I was embroiled with a surveyor whose stance was ‘take-it-or-leave-it’. He insisted that I should agree his floor areas because they were agreed on earlier occasions with chartered surveyors. On my calculations, verified afterwards by another surveyor not previously involved, the landlord’s surveyor’s area was wrong and the rent ,£4000 a year too low. In another matter, a landlord has been asserting the right to review after 3 years delay and, legally, was right. However, I resisted so, after a year or so getting nowhere with me, the landlord instructed a surveyor who told me that, whilst he agreed with my contention that the right had been lost, it would be a gesture to pay more - because that would be “fair”.
Apart from finding angles, I am good at reading between the lines and listening to what is not said. Concerned about the effect on the investment, landlords can be human although, in prime positions, resemblance is unusual, so one must be careful not to be emotional or mention their desire to recoup losses from pension mis-selling. Some landlords need cash flow, others scared of voids, and many surveyors have fee targets so agreement takes priority over doing their best for clients. Also, I have no duty to protect retailers for whom I am not acting, so it may be possible to achieve a good deal for my Client that would support an increase on rent for a neighbouring retailer and, if in competition with my Client, then even better!
Reading between the lines is easier now that the standard of literacy amongst surveyors has fallen. I regard anyone who spells its as it’s, in the context of its, as a sitting duck for a referral by written submission. But, because I dislike spending Client’s money, I prefer to serve by using technical skills and psychology constructively. In short, if you would like to pay less than the going rate, then I look forward to helping you in some way. Thank you.
Even so, many tenants lose out because “win-win” has become institutionalised amongst surveyors so that, instead of concentrating on reduction, the emphasis is on agreeing market rent. Whilst the guidelines are geared towards that objective, the interests of landlord and tenant are opposed so, assuming an upward-only review, rather than reducing the proposal, I focus on passing rent. Clients also benefit indirectly in that their premises become more marketable, because when I release information for comparable evidence, landlord and surveyor opponents elsewhere invariably discount the devaluation. For example, I concluded a March 1999 review in Cornmarket, Oxford at under £180 Zone-A when Gap, almost next door, paid over £204 headline Zone-A in July 1998 and Birthdays nearby agreed 15% more on review in September 1998. Similarly, in North End, Croydon, I negotiated a March 1998 renewal at £125 Zone-A when, almost next door, an independent expert determined Zone-A £140 at the same date.
I am often instructed as a trouble-shooter and, in such cases, am fascinated by what the parties have taken for granted. If my experience reflects the market as a whole, then scope for further reducing property costs could be enormous. For example, many surveyors have difficulty in carrying out their instructions because of conflict between truth and bluff. To compensate, they can throw their weight around but, to retain peace of mind, sabotage the result. For example, I was embroiled with a surveyor whose stance was ‘take-it-or-leave-it’. He insisted that I should agree his floor areas because they were agreed on earlier occasions with chartered surveyors. On my calculations, verified afterwards by another surveyor not previously involved, the landlord’s surveyor’s area was wrong and the rent ,£4000 a year too low. In another matter, a landlord has been asserting the right to review after 3 years delay and, legally, was right. However, I resisted so, after a year or so getting nowhere with me, the landlord instructed a surveyor who told me that, whilst he agreed with my contention that the right had been lost, it would be a gesture to pay more - because that would be “fair”.
Apart from finding angles, I am good at reading between the lines and listening to what is not said. Concerned about the effect on the investment, landlords can be human although, in prime positions, resemblance is unusual, so one must be careful not to be emotional or mention their desire to recoup losses from pension mis-selling. Some landlords need cash flow, others scared of voids, and many surveyors have fee targets so agreement takes priority over doing their best for clients. Also, I have no duty to protect retailers for whom I am not acting, so it may be possible to achieve a good deal for my Client that would support an increase on rent for a neighbouring retailer and, if in competition with my Client, then even better!
Reading between the lines is easier now that the standard of literacy amongst surveyors has fallen. I regard anyone who spells its as it’s, in the context of its, as a sitting duck for a referral by written submission. But, because I dislike spending Client’s money, I prefer to serve by using technical skills and psychology constructively. In short, if you would like to pay less than the going rate, then I look forward to helping you in some way. Thank you.
London SE18 - 71-77 Powis Street -
13/Oct/1998
My Client, the superior Landlord, owns the freehold of the front section of the property, a ground lease for a term of 999 years of the back section and 99-year lease of the middle section. The middle section is built on a raft over the railway tracks and the rent for that section is a percentage of the entire property. My Client leases the whole property to Powis Street Estates which in turns sub-lets to New Look.
The 99-year lease has rent reviews every 21 years and the lease between my Client and Powis Street Estates also contains rent reviews at 21 year intervals.
For the 1995 rent review, when the store was let to Littlewoods, the review was referred to arbitration, the arbitrator was a senior partner of Jones Lang LaSalle. Littlewoods was represented by a partner of Healey & Baker (now Cushman & Wakefield). In our respective submissions, we considered the rents of stores throughout Greater London. The Award was at almost the same rent as I had originally proposed.
For the 99-year lease review, where my landlord-Client is the tenant, other issues were involved reflecting differences in the leases. To minimise the proposed increase in rent, I research the development history of the building including obtaining copy documents from the solicitors that had acted for the original landlord in 1974. During the negotiations, legal proceedings were initiated against the superior landlord’s surveyor for breach of warranty of authority.