Is your property advice about to lose you your client?

image: RICS arbitration application form
A solicitor friend recently asked us to double-check some advice given to a landlord. What happened next could have saved the landlord c£15,000 and the solicitor his client.

The good intentions of a professional advisor

The solicitor's client is the landlord of a mixed use property in an up-and-coming, trendy central London district. You know the sort of area: once run-down, full of warehouses. But now, with close connections to the city, and a plethora of arty types and fast-growing technology companies, rents are starting to go through the roof, trendy bars and cool apartments are springing up all over.

The landlord was dealing with a long outstanding rent review. Our solicitor friend had referred him to a surveyor specialising in commercial valuations.

Sure enough, the landlord got his valuation. The surveyor valued the property at 80% more than the current rent. A very happy landlord, and kudos for the solicitor who made the referral.

The landlord wasted no time commencing negotiations with his tenant. But immediately hopes of a deal evaporated.

Undaunted, the landlord applied to the RICS for the appointment of an arbitrator to determine the revised rent.

"How can I lose?" he thought. " Local agents are fighting for vacant properties. I know I'll find another tenant in no time if the current tenant won't pay the higher rent."

With arbitration 3 weeks away the landlord's advisors picked up the phone to us to check the advice.

Getting into deep water

This was a wise move.

As soon as we got the details, we suspected that the arbitrator would not award any increase, let alone an 80% uplift. This news wasn't going to go down well with the landlord, as his expectations were understandably high.

Why did it all go so horribly wrong?

Trouble is, the valuation advice was wrong. The original surveyor had provided a market appraisal as at the date of his report, but hadn't valued as at the review date, or in accordance with the rent review clause.

Sure, if the property was vacant now, he could probably have achieved the 80% uplift, and a substantial premium on top. But, with the property already occupied, current market rents would be irrelevant to the determination of an outstanding rent review.

The landlord was set to lose the arbitration, and be forced to document at nil increase. And, rubbing salt into the wound, he'd have to pay the costs of the arbitrator plus the costs of the tenant, possibly amounting to more than half of the annual rent!

Climbing out of a deep hole

To save them from an expensive humiliation, we quickly produced a detailed Rent Review Report, supported by analysis of relevant comparable evidence and consideration of the issues that might affect the valuation at rent review.

And we used this new report to restart negotiations with the tenant.

In the event, as often happens, we were able to challenge several of the tenant's arguments, and find ways to negotiate for an uplift in rent and an equal split of the costs with the tenant.

We saved the landlord thousands, and saved the reputation of his advisers.

Dealing with clients with mistakenly high expectations

If you're going to give advice on a lease renewal or rent review, or if you're going to refer a landlord or tenant to a surveyor, make sure their advice is thorough and unequivocal, with enough evidence to support their views, and with due reference to the relevant clauses in the lease. The client may not like what they hear, but they'll appreciate it in the end.

And the next time your client has a challenge, you know they'll come to you for your advice or referral.

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