The Rent Review Specialist
Conflict of Interest
01/09/1985
In a period of 'retailing revolution,' one wonders how advisers to pension funds can be so confident that the rate of growth essential to justify low initial yields on purchase price will materialise at the review date.
Many funds are already becoming increasingly disillusioned with their agents' failure to achieve the anticipated rental value. When the same agencies also act for multiple retailers, how do they reconcile their objective for the lowest rental when they may also be acting for the landlord of adjoining property with a brief to get the highest rental?
This conflict exists for all valuers, likely to receive instructions to advise landlords and tenants in the same area, but it surmountable when there is no vested inyerest in the progress of the investment.
Detailed knowledge of a multiple retailers' property affairs must be very useful when advising a fund on investment purchase (not to mention on the company's take-over potential) and the solution appears to aim for a balance, tilted in favour of the landlord, whereby 'comparable evidence,' to back a recommendation to settle, is presented in such a form as to convince the tenant that the conclusion is indeed the right figure, in line with 'the market.'
I cannot understand the business philosophy of major multiple retailers who appear unconcerned that their retained advisers actively market a positive involvement in the investment market. Surely it is better to use a selection of different valuers or, at worst, to deal with negotiations internally.
Many funds are already becoming increasingly disillusioned with their agents' failure to achieve the anticipated rental value. When the same agencies also act for multiple retailers, how do they reconcile their objective for the lowest rental when they may also be acting for the landlord of adjoining property with a brief to get the highest rental?
This conflict exists for all valuers, likely to receive instructions to advise landlords and tenants in the same area, but it surmountable when there is no vested inyerest in the progress of the investment.
Detailed knowledge of a multiple retailers' property affairs must be very useful when advising a fund on investment purchase (not to mention on the company's take-over potential) and the solution appears to aim for a balance, tilted in favour of the landlord, whereby 'comparable evidence,' to back a recommendation to settle, is presented in such a form as to convince the tenant that the conclusion is indeed the right figure, in line with 'the market.'
I cannot understand the business philosophy of major multiple retailers who appear unconcerned that their retained advisers actively market a positive involvement in the investment market. Surely it is better to use a selection of different valuers or, at worst, to deal with negotiations internally.
Supermarkets Visited
01/06/1985
Thinking I was immune from advertising, my first trip to what has now become my local grocers was to satisfy professional curiousity but standing in the car park at Tesco' s l00 tth superstore, I was comfortably aware of some magnetic presence which has brightened up Neasden.
For those of us who thrive on fresh fruit and vegetables, it is paradise to be offered such a wide choice and although the quality may not always be up to Class I, the assortment easily compensates.
I gauge shops by the quality of the staff and my definition of service. Are they dressed nicely, do they smile when serving or look at the customer at the till? So used to staff indifference at the International, opposite my office, it came as a refreshing change to hear 'thank you sir' when having my vegetables weighed and priced. For the best service, however, I don't believe you can beat Waitrose. When I asked a supervisor at Waitrose Brent Cross for some help, she stopped what she was doing and promptly showed me to the stock. At Tesco however, the same situation was delegated by the supervisor so presumably she had more important things to do than serve a customer!
Living in the area means we are spoilt for choice amongst the supermarket majors. Asda Hendon is due open next year although it'll probably be as unimpressive as Park Royal. Gateway has just opened in far-away Willesden and there's Safeway, but we went there once and the getting any common sense out of the staff was clearly going to create problems. Sainsbury' s puts me off because, apart from never being able to find anything, their male staff can often be seen with their ties hanging off their collars which I think is sloppy. These may sound like little things but it's the little things that deter customers otherwise we'd all shop at the same place!
Returning to Tesco, the fact that the staff can be seen to like saying 'thank you' is sufficient recommendation although I do have my doubts whether they are as enthusiastic during the peak and horrific Friday & Saturday shopping periods.
The clear reduction in our weekly food bill in exchange for a wide assortment, easy parking and a relaxing shopping environment must be the recipe for future grocery retailing; I must remember to modify my remarks about people who shop at Tesco. It's blatantly obvious however that the store is only accessible to motorists but it's spending power that Tesco is after and not local convenience. Let's hope the staff travelling to work via Neasden Station don't, as is very likely, get mugged in the long friendless walk to the store. Even if you can resist temptation, it must be worth a detour off the North Circular Road to buy 4 star petrol at 192.3p a gallon
For those of us who thrive on fresh fruit and vegetables, it is paradise to be offered such a wide choice and although the quality may not always be up to Class I, the assortment easily compensates.
I gauge shops by the quality of the staff and my definition of service. Are they dressed nicely, do they smile when serving or look at the customer at the till? So used to staff indifference at the International, opposite my office, it came as a refreshing change to hear 'thank you sir' when having my vegetables weighed and priced. For the best service, however, I don't believe you can beat Waitrose. When I asked a supervisor at Waitrose Brent Cross for some help, she stopped what she was doing and promptly showed me to the stock. At Tesco however, the same situation was delegated by the supervisor so presumably she had more important things to do than serve a customer!
Living in the area means we are spoilt for choice amongst the supermarket majors. Asda Hendon is due open next year although it'll probably be as unimpressive as Park Royal. Gateway has just opened in far-away Willesden and there's Safeway, but we went there once and the getting any common sense out of the staff was clearly going to create problems. Sainsbury' s puts me off because, apart from never being able to find anything, their male staff can often be seen with their ties hanging off their collars which I think is sloppy. These may sound like little things but it's the little things that deter customers otherwise we'd all shop at the same place!
Returning to Tesco, the fact that the staff can be seen to like saying 'thank you' is sufficient recommendation although I do have my doubts whether they are as enthusiastic during the peak and horrific Friday & Saturday shopping periods.
The clear reduction in our weekly food bill in exchange for a wide assortment, easy parking and a relaxing shopping environment must be the recipe for future grocery retailing; I must remember to modify my remarks about people who shop at Tesco. It's blatantly obvious however that the store is only accessible to motorists but it's spending power that Tesco is after and not local convenience. Let's hope the staff travelling to work via Neasden Station don't, as is very likely, get mugged in the long friendless walk to the store. Even if you can resist temptation, it must be worth a detour off the North Circular Road to buy 4 star petrol at 192.3p a gallon
Yield and Pricing
01/06/1985
The current trend for private investors in the retail market to be more concerned with short term gain than long term income is worrying.
Participants seem to have overlooked the fact that the essence in capital gain to date owes more to previous levels of inflation than to design. And even if high inflation does return, the retailing revolution will stultify any likelihood of a repeat boom.
Many new investors believe that rental value reflects expected investment yield, based upon the price they have paid. In fact, investment value is calculated by reference to the level of rent and not vice versa. However, high prices paid for some investments can only reflect a very optimistic view of rental value. With the exception of property formerly owned by notedly cautious landlords, the idea that the previous owner must have agreed too low a rent, especially if set during the period 1981-1983, is too simplistic. By having always to aim for the top rental on review, to cover purchasing expectations, any failure to achieve the objective rubs off on the relationship with the valuer whose advice is dismissed as 'negative.'
The tenant becomes saddled with a difficult landlord and often with a rental commitment far above the economics of his business. In the open market, cyclical change is inevitable, but in the quest for short term gain, while the loss of one particular tenant may not matter, it is the collective effect of the pressure for high rents which radically affects long term stability, since there cannot be capital gain without security of income.
In the past, their owners' low inflation investment values have had a useful way of adjusting to mistakes, but with changes in the pattern of retailing, and high interest rates, the margin for error now is very small.
The investor who overpays, through ignorance or greed, only to find that the resultant yield, following review, is well below comfortable resale price will have to fund the shortfall somehow. While it is churlish to insist upon strict consideration of investment criteria, since the pressure to use substantial borrowing facilities dominates the market, the problem is unlikely to grow.
Participants seem to have overlooked the fact that the essence in capital gain to date owes more to previous levels of inflation than to design. And even if high inflation does return, the retailing revolution will stultify any likelihood of a repeat boom.
Many new investors believe that rental value reflects expected investment yield, based upon the price they have paid. In fact, investment value is calculated by reference to the level of rent and not vice versa. However, high prices paid for some investments can only reflect a very optimistic view of rental value. With the exception of property formerly owned by notedly cautious landlords, the idea that the previous owner must have agreed too low a rent, especially if set during the period 1981-1983, is too simplistic. By having always to aim for the top rental on review, to cover purchasing expectations, any failure to achieve the objective rubs off on the relationship with the valuer whose advice is dismissed as 'negative.'
The tenant becomes saddled with a difficult landlord and often with a rental commitment far above the economics of his business. In the open market, cyclical change is inevitable, but in the quest for short term gain, while the loss of one particular tenant may not matter, it is the collective effect of the pressure for high rents which radically affects long term stability, since there cannot be capital gain without security of income.
In the past, their owners' low inflation investment values have had a useful way of adjusting to mistakes, but with changes in the pattern of retailing, and high interest rates, the margin for error now is very small.
The investor who overpays, through ignorance or greed, only to find that the resultant yield, following review, is well below comfortable resale price will have to fund the shortfall somehow. While it is churlish to insist upon strict consideration of investment criteria, since the pressure to use substantial borrowing facilities dominates the market, the problem is unlikely to grow.
Point of Law
01/06/1985
In Shirlcar Properties Ltd v Heinitz & Another [1982], the Court stated stated that use of the expression ' subject to contract' did not constitute effective notice to set a rent review procedure in motion when formal notice had to be given. Use of the expression 'without prejudice' is widely misunderstood and so it comes as no real surprise to find that many surveyors are unable to grasp the effect of such wording when concluding rent review negotiations.
An offer made 'without prejudice' is binding if acceptance of the offer is made. By adding the words ' subject to contract,' however, the presumption that the parties intend to create legal relations may be expressly negatived. From Rose & Frank v ] R Crompton Ltd [1923], "the words of the preliminary agreement in other respects may be apt and sufficient to constitute an open contract, but if the parties in so agreeing make it plain that they do not intend to be bound except by some subsequent document, they remain unbound though no further negotiation be contemplated. Either side is free to abandon the agreement and to refuse to assent to any legal obligation .... "
When concluding negotiations, it is common for valuers to head the correspondence 'without prejudice' (and/or) 'subject to contract.' In such cases, the concluded rental will be subject to the valuer's recommendation of acceptance. This reservation in itself is sufficient evidence that no formal agreement has been reached, even if the recommendation refers to the need for 'Board approval' reckoned to be a formality. Until an offer is made without reservation, it is not agreed and some valuers and parties feel that withdrawal from the 'conclusion' is tantamount to unethical or unprofessional behaviour against the spirit of negotiation. Such opinion is, of course, the prerogative of the aggrieved party but it does not affect the legal position and, whereas such practice may conflict with expectations, valuers must recognise that the law applies as much to the interpretation of rent review covenants as it does to negotiations.
An offer made 'without prejudice' is binding if acceptance of the offer is made. By adding the words ' subject to contract,' however, the presumption that the parties intend to create legal relations may be expressly negatived. From Rose & Frank v ] R Crompton Ltd [1923], "the words of the preliminary agreement in other respects may be apt and sufficient to constitute an open contract, but if the parties in so agreeing make it plain that they do not intend to be bound except by some subsequent document, they remain unbound though no further negotiation be contemplated. Either side is free to abandon the agreement and to refuse to assent to any legal obligation .... "
When concluding negotiations, it is common for valuers to head the correspondence 'without prejudice' (and/or) 'subject to contract.' In such cases, the concluded rental will be subject to the valuer's recommendation of acceptance. This reservation in itself is sufficient evidence that no formal agreement has been reached, even if the recommendation refers to the need for 'Board approval' reckoned to be a formality. Until an offer is made without reservation, it is not agreed and some valuers and parties feel that withdrawal from the 'conclusion' is tantamount to unethical or unprofessional behaviour against the spirit of negotiation. Such opinion is, of course, the prerogative of the aggrieved party but it does not affect the legal position and, whereas such practice may conflict with expectations, valuers must recognise that the law applies as much to the interpretation of rent review covenants as it does to negotiations.