Rent Reviews

Do not ignore your pending Rent Review, get a free “Strength of Case Review” now, even if the review is not due for two years. 

We are all aware that a very large number of pub owning companies have taken on board the so called Pub Co Model to a greater or lesser degree, as a trading policy, some are trying to take a step back or distance themselves from the long term effects of such short sightedness.

You cannot have a two tier valuation process, one based on viability, which is the secure method and one based on unsustainable rents and an over inflated asset value.

The RICS were very aware of this flaw and by changing their Valuation Guidelines hoped to remove this serious breach.

We are also all aware that certain companies estates are now worth a fraction of their book valuation, the shares have plummeted to near Junk Bond status, their Bond Holders are baying at their heels for money, with little hope after such corporate stupidity.

All lease matters and rent reviews are subject to RICS Guidelines, a number of companies are distancing themselves from using RICS Members, because failing to implement the Guidelines puts the Surveyors careers at risk.

However, certain companies by using their Business Managers to implement any increases puts them in theory outside RICS Guidelines, many have absolutely no in depth knowledge or knowledge at all of their content.

They in turn are under serious pressure to obtain a settlement outside these Guidelines, very much to the lessees or tenants cost.

The alternative is to take the matter to Arbitration or PIRRS at considerable cost, but should ensure a fair settlement by a Chartered Surveyor adjudicating.

Since fair viable rent settlements are being achieved at Arbitration, rents in my opinion and many others should be within 6-8% of turnover depending on the lease maintenance responsibilities and degree of tie.

Certainly recent settlements have come out within that range or close to, mainly at Arbitration, unfortunately PIRRS results are in the main confidential and each party stands their own costs, win or lose.

There have been questions on the probity of certain adjudicators, whose businesses have been very dependent on Pub Co patronage, this could be construed as a conflict of interests and should be declared, any adjudicator should be totally independent and above reproach in these contentious times.

To many tenants and lessees the thought of a head to head battle with the landlord on a rent review and subsequent increase can be terrifying, the landlord has a mass of figures, most of which the tenant has little knowledge or way of verifying, in many cases they are wild speculation by an unscrupulous landlord, proving to the contrary with little or no knowledge is well beyond many people’s ability.

It is easier to accept a slightly lesser demand and go quietly, frequently at serious cost to your business profitability.

The new RICS Guidelines have changed this for the better.

Assuming that settlements come within the 8% of T/O previous rent review settlements, this adds another dimension, the leases, which were sold to many as having capital value and proved to be worthless with an unsustainable or non viable rent, having only a Fixtures and Fittings value if you are lucky, with sensible profitable rents, leases will immediately have a capital value and the dream of owning a successful pub will return.

But it is vital on all rent reviews to get a surveyors opinion in the immediate future to safeguard your interests, this is not a commercial but practical advice.

It may cost you far more in the long term, if your property is over rented, which an enormous amount are, where the Pub Co Model has been used, this is net profit being thrown away, plus the added bonus of your lease having a value, with a rent leaving no serious possibility of making a viable profit, your lease is worth very little.

Find surveyors who have not worked for Pub Co’s, but have worked solely or in the main for tenants or lessees, as one high profile surveyor who worked for Pub Co’s boasted to me at a lunch that he charged well in excess of £300 an hour, “Can you afford to pay me that,” you don’t bite the hand that feeds you and some Landlords know this and ensure that the companies that act for them note this fact.

Sadly this can divide surveyors in to two camps those that act for Landlords and those that act for Tenants.

Surveyors are not cheap, like solicitors they do an essential job, they do not charge £300+ an hour when working for lessees, at least the ones we recommend, they will give you a free, “Strength of case review”, to confirm as to whether you have a realistic case.

It does nobody any favours to spend time and money on a case where there is no chance of success.

Barfly

The views expressed are not necessarily the editors and www.buyingapub.com accepts no responsibility for them, we do try to avoid offensive or litigious statements being made. They are written by concerned professionals in the industry who feel that these issues should be raised to ensure that all licensees are made fully aware of many hidden pitfalls.