Blog Post: The Rent Review Process: Time to Rethink?

October 3, 2016

Trevor Watson, Executive Director, Valuations, Davis Coffer Lyons gives his views following The Henry Stewart Leisure and Licensed Property Conference held at Le Meridien, Piccadilly, on 28 September 2016.

Senior decision makers from around the leisure property sector gathered yesterday to discuss the workings of the rent review process as part of The Henry Stewart Leisure and Licensed Property Conference. The debate was held against a backdrop of many operators feeling that the system is failing the licensed leisure sector.

Many voices around the room mirrored my sentiments in giving a robust defence of the current process, in a debate moderated by Kate Nichols, Chief Executive of ALMR with Anthony Alder of AG&G. It was generally agreed that the current system itself is not fundamentally flawed, although with changing market conditions, in particular a low inflation and low interest rate environment, some aspects of the current process warrant further consideration. Many in the room were of the view that upward only rent review provisions needed to be further addressed.

The debate also highlighted how RPI indexation and turnover rents could help operators and landlords mitigate against possibly adverse open market rent reviews.

It is imperative that the industry continues to make opportunities to debate this subject in a public forum. Much has been said over recent years about the shortcomings of the rent review system.  In my observation, these generally emerge in recession and become less of an issue in rising markets. Rapidly rising rents, as well as premiums, are indeed putting severe pressure on some operators at rent review in strong London and provincial markets – of that there is no doubt. But the rent review process, albeit not perfect, is, in my view reasonably effective. If an operator is unhappy that a recent letting of a neighbouring property will create high comparable evidence (or indeed payment of a large premium), the best way to meet this challenge is to deploy the best possible expert advice. There may well be good reasons why the comparable is worth a lot more than your property. Equally as important is to ensure that you have an arbitrator or third ­party expert who has the necessary expertise and market involvement in order to discern between rogue evidence and market tone to ensure that comparable transactions are given the appropriate weight. Making sure the rent is fair is going to be all the more crucial particularly in light of the revaluation of business rates.