High Court gives hope for rent cuts

Licensees hit by the economic downturn could find it easier to secure rent reductions at rent reviews after a High Court judgment.

Judge Iain Hughes QC said Enterprise tenants Charles and Leslie Brooker should pay a lower proportion of their pub's divisible balance, the shared profit, towards rent.

The industry standard, as set in guidelines from the Royal Institute of Chartered Surveyors (RICS), is 50%. But Hughes accepted 35% would be more suitable, taking into account the current difficult trading conditions.

Enterprise wanted to increase rent at the White Horse at Hambrook, near Bristol, from £16,000 to £30,500.

The licensees, represented by Fair Pint founder Brian Jacobs, wanted £14,500 and the final settlement was £18,000. "This is 35% of the divisible balance of £51,000," the written judgment says.

"I do not consider that the landlord would accept a bid from a tenant for less than this. However I am satisfied that a bid in the region of 35% for this lease would be regarded as a sensible compromise in the present highly unusual circumstances."

The judge said his assessment is based on what the pub "might reasonably be expected to be let in the open market" on 7 August, when the case was examined.

This meant factoring in the "unprecedented economic crisis" with rising unemployment and falling demand for pubs; restrictions on "ready, inexpensive capital"; the "market-depressing" effect that news of pub closures is having; and the smoking ban.

A study of 18 nearby pubs, referred to in the hearing, showed 12 were "said to have been, or in" economic distress.

The judgment says "the basic methodology for assessment is not disputed" and the method of calculations used by Jacobs is "not representative of the approach generally adopted in the market".

Cookseys DMP managing director David Morgan, a founder member of Fair Pint, said: "Fair Pint has been involved in this case for some time and the ruling provides binding and important guidance to experts and arbitrators at this time when assessing pub rents in general.

"There is no reason at the moment for rent reviews to see rents being set at any higher level than 35% of the divisible balance.

"This will give some hope to all those tenants facing rent reviews now where pub owners are still trying to get increases. This is common-sense law and we need more of that in the pub sector rather than pubco surveyors making it up as they see fit."

Trade consultant Phil Dixon said the judgment "can only be in the favour" of licensees.

"My views on 50% [as a figure for divisible balance] are well known. In the main, it's too greedy and in some cases should be as low as 25% for difficult pubs."

He added: "I accept that in certain cases, for example for a pub with excellent letting accommodation overlooking a Cornish sea resort, you would probably pay more than 50%."