The Rent Review Specialist
Dispute Resolution Costs
01/03/2014 - 2014 - Dispute Resolution
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 suffering intense competition.
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 what the parties have little or no control over is 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.
I should like to set up a low cost referral service where, for example, one would charge in the region of £1000 + VAT for expert determination assuming the matter straightforward and maybe the same for arbitration. I could set up such a service and rely on the provision in many leases where the parties can appoint a surveyor without having to go through the RICS. What you think? Would you like me to?
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 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 figure for most people, even if their share would only amount to half of that.
The RICS has set up a low-cost referral service but the parties have to agree to give up certain rights before the procedure can be used. Otherwise, since one function of the RICS is to provide a source of revenue for its members, the RICS won't get involved but I think they'd have to sit up and take notice and do something about it if more and more landlords and tenants were to register their disapproval and clamour for a lower cost system. As it is, I think landlords and tenants are being taken for a ride.
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 suffering intense competition.
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 what the parties have little or no control over is 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.
I should like to set up a low cost referral service where, for example, one would charge in the region of £1000 + VAT for expert determination assuming the matter straightforward and maybe the same for arbitration. I could set up such a service and rely on the provision in many leases where the parties can appoint a surveyor without having to go through the RICS. What you think? Would you like me to?
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 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 figure for most people, even if their share would only amount to half of that.
The RICS has set up a low-cost referral service but the parties have to agree to give up certain rights before the procedure can be used. Otherwise, since one function of the RICS is to provide a source of revenue for its members, the RICS won't get involved but I think they'd have to sit up and take notice and do something about it if more and more landlords and tenants were to register their disapproval and clamour for a lower cost system. As it is, I think landlords and tenants are being taken for a ride.