RICS promises new code of practice on pub rents

By James Wilmore

- Last updated on GMT

Related tags: Rics, Landlord, Leasehold estate

Guidance on how pub rents are set will be reviewed after the Royal Institution of Chartered Surveyors (RICS) admitted "greater transparency" was...

Guidance on how pub rents are set will be reviewed after the Royal Institution of Chartered Surveyors (RICS) admitted "greater transparency" was needed in the process.

In a wide-ranging report​ released today, RICS said it would also draw up a new code of practice for landlords and tenants for rent reviews and lease renewals and create a new database of trading information.

It revealed that there was "confusion" in the way its guidance on how pub rents are set is interpreted.

RICS clarified that a "correct interpretation" of its own guidance should mean "the tied tenant being no worse off than the non-tied tenant".

Its review will also look at the idea of the "reasonably efficient operator" - "making a clear distinction between what a tenant can afford and value".

It will also offer guidance on how risk and the "individual circumstances of each property can be reflected at rent review or on lease renewal".

RICS said it does not and has never endorsed "any particular split of divisible balance".

And it says the recent High Court Brooker case, where a Bristol licensees successfully challenged Enterprise over his new rent level, "has provided timely guidance on this point".

The RICS' forum was set up by the group to look at the pub rent system following criticisms in the MP-led Business and Enterprise committee report in May.

The new code of practice will include:

  • "A protocol for a rent analysis statement is drawn up at the commencement of a lease stating the basis of the rent calculation explicitly using the profits method of valuation"
  • "A linkage between the initial rent analysis described above should form the basis of the landlord's rent demand at review. The analysis should form the template for a profits calculation at subsequent rent reviews".
  • "A description of the minimum information to be presented by a landlord to a tenant to accompany the rent review notice".
  • "Recommended best practice for both landlords and tenants in seeking the advice of a chartered surveyor to establish a tone of comparable rents".

RICS said a national register of rents was not achievable but is prepared to back the setting up of a new database of "key financial variables used to estimate FMT and the divisible balance".

It also acknowledged there was a "perception of bias" towards the pubcos - and has vowed to make new appointments to its valuation group to ensure tenants feels they have a "greater voice given the current state of the industry".

But the group concluded that the calculation of Fair Maintainable Trade was "still the most reliable" method for setting rents.

It added: "RICS and the Forum are convinced that the landlord and tenant relationship in the industry can be made less adversarial and more transparent by the measures proposed."

Related topics: Property law

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