For some years it had been apparent that pub tenants were reluctant to challenge rent review assessments because of the very high cost (compared to any potential savings) of referring these matters to arbitration.
Arbitration is a complicated semi-legal process where the participants will be most successful if they know the rules of the game and how to play them to their advantage. This meant a tenant (or landlord) expecting to have any chance of success would need to employ an experienced surveyor. Typically, this might cost in the region of £5,000 to £8,000.
The arbitrator would command a similar fee and the other party would also incur similar costs. At arbitration the loser was expected to pay the costs. Thus, a losing party was expected to pick up the tab for a £15,000 to £24,000 process. It could be more in complicated cases, where a legal point must be decided or if an inexperienced party escalated the costs by ‘not knowing the rules’.
The good news was that the winning party may pay nothing, but the risk to a small business was equivalent to £3,000 to £5,000 annual rent over a typical five-year period. The result was that tenants caved in because they dare not risk the fight.
As part of the changes that resulted in the codes of practice from all the pubcos and rights for rents to go down (as well as up) at rent review, BIIBAS (the commercial arm of the British Institute of Innkeeping) has developed the Pubs Independent Rent Review Service (PIRRS). This is recognised by all the pubcos that belong to the British Beer & Pub Association, is administered by BIIBAS and implemented by a number of experienced licensed property valuers that have been appointed to various regional panels.
This is not arbitration. It is a binding determination of rental value by an experienced valuer. The fees are not based upon time spent but are fixed at the outset (generally in the range of £1,000 to £2,000) to the tenant. The tenant gets to choose which valuer he would like to deal with the case (subject to there being no conflict of interest).
The tenant need not employ a surveyor of his own. If he does, the work involved is less than for preparing a case for arbitration so the fee is likely to be a little lower.
The independent expert will issue directions as to how he intends to proceed. There is a limit on the amount of information that can be put to him (generally no more than 10 pages of A4 script). It will be a generally quicker process, probably about three months from start to finish. Both parties pay their own costs so the loser cannot be saddled with a big, possibly unexpected, bill at the end of the process.
Now that rents can go down as well as up at review there is more for tenants to go for. Many rents fixed five years ago are higher than they would be today. RPI has accelerated the problem. Pubcos as part of their codes of conduct are generally taking a much more realistic position on rents. They need good tenants in their pubs. But the mere existence of a relatively cheap method of dispute resolution can act as a stimulant to a negotiated settlement.
No pubcos want to lose cases to a third-party decision. They will come to what they believe to be their lowest acceptable rent before they take the risk. The existence of the scheme has transferred the risk from the tenant to the pubco.
Details of the scheme, including the list of valuers on the panel, is available on the PIRRS website.