The body said rental valuation “is not a matter of failure in the landlord and tenant relationship” but rather “a difference of opinion”, adding that it has reservations about the “unintended consequences” of requiring transactions involving lettings to be based on a valuation as opposed to market supply and demand. It said this “may significantly reduce the number of open market, freely negotiated transactions”.
The Government’s proposals outline that all tied tenants will have the right to request an open market rent review if they have not had one for five years and the right to take disputes to an independent adjudicator.
In its written submission to the Small Business, Enterprise & Employment Bill Committee, which is meeting for the fifth time today, RICS said: “In the UK, the majority of disputes that get referred to a third party – which is very few in both actual number and percentage of reviews undertaken annually – usually have Chartered Surveyors acting on both sides. This clearly demonstrates how even highly qualified, experienced valuers can have differences of opinion.
“It is not a matter of failure in the landlord and tenant relationship. It is a difference of opinion on one or more of the individual aspects of the rental valuation.”
It added: “Eventually, the number of open market transactions may fall to zero in the tied lease market, thus the market will become artificial. There will be no true market evidence. This may deter market participants (landlords) from investing in the sector. It will put pressure on existing landlords, including pubcos and brewers, to exit the market or find different methods of operation.”
Parallel rent assessments
RICS said greater clarity is required around the definition of parallel rent assessment, as the current explanation would produce an assessment which is “a hybrid and not backed up by any market evidence”. It suggested that the definition should be drafted so as to ensure that a free of tie tenant “does not enjoy the benefit of any landlord support”.
The code outlines that pub companies with 500 or more tied pubs would be required to offer parallel tied and free-of-tie rent assessments to potential or existing tenants if they request them when they are considering taking on a pub tenancy or at the time of their regular tied rent review.
RICS said: “Any assessment would also have to take account of the variety of benefits available to different tenants, which are difficult to quantify and would have different values dependent on the type and experience of the tenant. It would thus be wholly theoretical.”
It added: “In order to compare a tied lease with a free of tie lease the valuer would need to have sight of the full accounts and stock sheets from the free of tie tenant of comparable properties; this information is not available. As a result a realistic rental assessment on this alternative basis is not achievable. RICS therefore questions what the Parallel Free of Tie Rent Assessment will achieve. How is it proposed that it will help to resolve the rental dispute?”
Earlier this month, British Beer & Pub Association policy director Andy Tighe said the inclusion of parallel rent assessments in the code “could be unlawful”.