Shining a light on rent reviews

By James Wilmore

- Last updated on GMT

Related tags Rent review Lease Renting

The property agent Most tenants feel hard done by at rent review time. That was the frank admission from Fleurets' chairman Barry Gillham, during the...

The property agent

Most tenants feel hard done by at rent review time. That was the frank admission from Fleurets' chairman Barry Gillham, during the opening address at the BII's rent review seminar at the Motorcycle Museum in Birmingham on June 6.

Among various matters he said needed to be considered during reviews was the extent of the beer-tie. "This is all-important," he said. "And so is the price charged for products. Some give discounts and some don't, which makes it difficult to compare. You can have two pubs that look identical, but because their lease, tie and prices are different, they can have very different rents."

The most important clause in the lease is the rent review clause, Gillham later explained.

"This often assumes a hypothetical situation," he said. "It assumes it's on the market at the rent review date. We are assuming the building as let at the beginning of the lease, but in good repair and decoration. We are then fixing the rent for the next five years on factors that will influence the business."

He identified the dilemma of whether to produce your accounts as the '$64,000 question'. But he said: "You should be aware that the courts assume we are dealing with a hypothetical tenant and they would not be in possession of accounts."

Gillham, who has 30 years experience dealing with rent reviews, also highlighted the issue of comparables. This is looking at the amount similar properties have been let for and making assumptions as to the amount the property you are dealing with would let for after making adjustments for differences such as size, location, date and lease terms.

He concluded by spelling out some pitfalls to avoid, to make sure tenants don't "drop themselves in it".

  • Don't stick the papers behind the clock. "Quite often it's something you don't want to know about and you hope it will go away"
  • On lease renewals, employ a solicitor
  • If you are offered a lease renewal before it is needed, take up negotiations
  • If you put anything in writing put 'without prejudice' at the top
  • Be friendly and non-adversarial in your negotiations
  • Muster your facts and be prepared to put some considerable time into these negotiations.

The pubcos' point of view

Marston's managing director Stephen Oliver began by reflecting on how the trade had responded to the 2004 Trade and Industry Select inquiry into pubco power. He described the inquiry as "a wake-up call for higher standards".

However, he spoke positively of the BII's new scheme which scrutinises pubcos' codes of practice, ensuring tenants and lessees have a clear understanding of the agreement they are accepting. "We have a real partnership between pubcos and the BII, but this is by no means a cosy partnership," he said.

Marston's, Punch Taverns, Fuller's and Enterprise are the first four pubcos to have their codes of practices approved by awarding body BIIAB's benchmark for having an open, clear code of practice.

Referring to the relationship between pubco and licensee, he added: "Sometimes there can be antagonism. We don't want that and want to try to move towards a genuine partnership.

"These codes are saying 'this is the way we run our business and the way we run our relationship with you'. You have the right to complain and the right to go to the BII and say we are not doing what we promised. It's a really demanding target and we have to live up to these standards."

But he added: "We expect our retailers to play fair and we will be uncompromising with retailers buying out [of the tie]."

Neil Griffiths, Punch Taverns' property and strategy director, addressed some of the misconceptions he felt surrounded the company's rent review process. Among these were: 'We do allow for working capital'; 'we allow for depreciation as a tax-deductible item'; 'we do not seek to over-rent successful retailers'; 'we will rent under-utilised space'; 'we will not subsidise under-performing retailers'.

His other advice included not to ignore a BDM's advice and to adopt a professional approach to a rent review and "take out the emotion".

The licensee: preparation is key

Multi award-winning licensee Richard Macey singled out preparation as the key to approaching rent reviews. He explained to delegates: "The first time I wasn't prepared and I had my arse kicked. The second time I was more prepared. The less we prepare the higher the rent usually is.

"Rents are usually upwards and the sooner you understand that the better."

Licensee at the Fountain Inn in Clent, Worcestershire, Richard highlighted the numerous awards he had won as a licensee and the ammunition they had provided in negotiating his rent.

He also urged licensees to seek professional advice when it came to rent review time. "Rent reviews are very stressful," he said. "Why not insure against that and get some good professional advice?"

Later he identified the benefit of licensees speaking to each other. "Communication is a powerful tool," he said. "Talk to each about prices and leases and discounts, but make sure you do it honestly because you have to prepare like for like.

"The pubcos and property companies love it when we don't discuss it with each other, because then you don't know things."

Among his closing remarks was a rallying cry to licensees: "We are a lot better than we think we are. We underestimate ourselves too much in this industry, we are professionals and we should be proud of that."

Related topics Property law

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