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Barry Gillham answers the criticism levelled at chartered surveyors over rent reviews in the wake of the Trade & Industry investigation.As a...

Barry Gillham answers the criticism levelled at chartered surveyors over rent reviews in the wake of the Trade & Industry investigation.

As a result of the Trade & Industry Select Committee investigation into the licensed trade, chartered surveyors, particularly those involved as arbitrators or independent experts in rent review disputes, have come under criticism. There are two main thrusts to the criticism. Firstly that some of those appointed are biased towards landlords and secondly a more general disapproval of the way the system works.

As someone at the forefront of such criticism I would like to take the opportunity to explain my point of view on both matters.

Bias

Virtually every lease gives the parties the right to agree upon their own expert or arbitrator. If they manage to agree on the appointment of a suitable candidate it is obviously best for all concerned. If they cannot agree then it is usual for an appointment to be made by the president of the Royal Institute of Chartered Surveyors (RICS).

There are about 1,000 people on the panel from whom the president will choose. All have passed examinations and interviews after appropriate training before they are admitted to the list and they are required to take ongoing training to keep up to date with arbitration and valuation law and practice. In addition they must generally be full-time practicing valuers in their own right.

Arbitrators will be more senior and experienced practitioners, but they need not be expert in the type of property involved in the dispute. Independent experts must be just what it says on the box and should be able to value the property in question without receiving evidence from the advocates of those involved in the dispute.

Appointments will be made according to geographical location and experience according to the type of property involved. The president asks the proposed appointee if he, she or anyone within their firm has had any connection in the past five years in the property or any nearby property of any of the parties in the dispute.

A proposed appointee must investigate and answer these questions. If the person has a connection, they must consider whether it is sufficient to amount to a conflict and say so. If there is a clear conflict they will not accept a proposed appointment. If it is borderline the president will make a decision whether or not to appoint, possibly following disclosure of possible conflicts to the parties or their representatives.

The president will take severe action against anyone not fully complying at all times with a strict need not only to be impartial but to be seen as such.

The alternative, at the other extreme, would be a requirement that an appointed third party has no connection whatsoever with the property, a nearby property or the parties.

By definition such a person would be highly unlikely to possess the necessary knowledge or experience to be a suitable independent expert. They could possibly be an arbitrator but in all probability would be less good at weighing the evidence presented to them.

It must be remembered that the big occupiers deal with property all the time. They generally deal with those who are best at their jobs. If a prospective third party never acts for the big property owner and/or tenant companies he is by definition, likely to be unsuitable for some reason. I personally act for tenants in 75 per cent of the rent review negotiations I undertake but this does not stop me being a fair and impartial third party in many rent review cases.

I always declare this and so long as there is not a close personal relationship or a volume of fees that could cause embarrassment if a major client was upset I generally do not believe there is a conflict of interest in acting as an arbitrator or independent expert.

Most big companies are represented by estates managers who understand that, like barristers, surveyors sometimes act for the prosecution and sometimes for the defence.

How the system works

To come to the criticism of the system itself. Some would prefer to see a return to a "panel" as in the old Brewers Society days but I cannot see today's pubcos submitting to the decision of another pub company on their levels of rents.

Neither do I see such systems as being unbiased and I cannot see a "god" who could act as impartial chairman.

Furthermore, for individual tenants there is no longer a National Union of Licensed Victuallers to represent their side of the industry.

It is possible that an independent expert could take on the role of chairman in such a panel but this is likely to be time consuming and more expensive. The idea of an unpaid panel, these days, is inconceivable.

However, I do agree that an arbitration is generally too cumbersome and too expensive to be value for money in the average pubco dispute.

The cheapest arbitration will cost £12,000. The average cost is closer to £24,000 and there is the opportunity for those with the deepest pockets to escalate costs to the extent that the smaller party has to throw in a potential winning hand. The rule is that the "loser pays it all" at arbitration and a rental dispute is rarely of such magnitude as to risk losing £24,000 at arbitration.

Another big argument revolves around the "hypothetical tenant and his theoretical accounts". The basic principle is that the rent should be fixed having regard to the turnover and profit that is likely to be predicted by the most likely potential tenants that would be in the market for a particular property in a notional letting on the date of the rent review.

The expert's role is to put himself into the shoes of a competent bidder offering rent for a new lease, on the terms of the present lease, seeking to operate a maintainable level of business that is neither exceptionally good nor exceptionally poor.

Poor performers generally argue that third parties do not take enough notice of the actual accounts, particularly if turnover is falling and/or costs are rising.

However, I strongly believe the status quo to be correct. Good tenants, doing above average business, sometimes sustained by capital investment, would be most unhappy to have their rent assessed on their actual accounts. I believe that under no circumstances should a poor tenant pay less rent than a good one for an identical pub.

It is a fact that when a dispute has to be settled by an independent third party there will always be at least one "loser". If the answer comes down in the middle then both parties will probably feel they have lost. It would generally be better to negotiate longer and harder and perhaps concede a little more if it can result in consensus.

In the long run, the "small man" may be better off getting good advice from his own professional valuer before he embarks on a third party resolution to the dispute. You may not like the advice you get but if it is competent and experienced you would generally be best off to accept it.

When people take their chance with a third party either with no advice or with inappropriate or cheap advice (the lawyer or accountant in the bar) they are likely to lose.

When they do so it is no use blaming the referee!

Finally, as well as being a practicing arbitrator and independent expert and an advocate for landlords and tenants in third party disputes I am also a hockey umpire, mainly for ladies' and veterans' teams - I am used to criticism (and, yes, I do wear glasses).

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