Pub Companies - Business and Enterprise Committee Contents

Supplementary memorandum submitted by BBPA

  We have consulted five member companies representing approximately 20,000 leased/tenanted pubs and as far as possible can provide the following response to Mr Binley's three questions:


   (a) what percentage of rent reviews go to arbitration?

  From the feedback we have received around 18 rent reviews went to full arbitration during the period 2004-08—approximately 0.3% of rent reviews undertaken during that period.

   (b) what is the average cost of arbitration?

  The total average cost of arbitration is approximately £24-30k.

  An arbitrator may charge £8-10k to make an award—these costs are split 50/50 between the two parties.

Each party may often then choose to appoint an expert to make a detailed submission to the arbitrator and comment on evidence submitted by the other party. An expert's costs may also be around £8-£10k.

  Each party will try to mitigate costs by making confidential offers to the other side ahead of the submission (this is known as calder bank offer). After the arbitrator has made the award he reviews the confidential offers and decides who has won the case. The arbitrator will often decide that the loser pays costs.

   (c) what percentage of arbitrations are found in favour of pubco's?

  Approximately 70% of cases are found in favour of pubco's.

  We have also been advised that disputes over rent reviews may also be resolved by the use of a "binding independent expert award" which is much less expensive.

  A Binding Independent Expert award is an alternative to arbitration and is written into many leases. It is fairly standard in all commercial leases. The lease would provide for the provision and the parties would agree to say that the decision would be binding. Even if it is not written into the relevant lease it can be agreed between the parties.

  RICS-qualified personnel can act as both independent expert or arbitrator—the difference is the set of rules they are working to (RICS website has details).

  The key differences between arbitration and independent determination are:

  1.  An arbitrator is bound by the Arbitration Act. The expert can act as the parties agree they want him or her to, so long as the expert agrees.

  2.  An arbitrator is bound by the Act to use only the evidence presented by the parties. The expert can bring his or her own knowledge into play. This makes it possible for an unrepresented lessee, or one who has no evidence to put forward, to get an independent review of their rent without incurring the cost of employing a surveyor to make their case as would occur at arbitration.

  3.  An expert is not bound by the rules of evidence that bind an arbitrator under the Arbitration Act. The expert can be more flexible about allowing evidence such as the lessee's own trading accounts, which are usually excluded in arbitrations.

  4.  An arbitrator will usually give reasons for the amount of the rent award. An expert will usually just give a figure.

  5.  If either party thinks there has been a mistake in the award, the expert can be held personally liable for any negligence, but the amount of the award cannot be appealed to the High Court. It is absolutely binding on both the parties. Arbitrations can be appealed to Court.

  6.  The expert will charge an hourly rate for his or her time, and will bill it 50/50 to the parties. The award will not be released until payment is made in full.

  7.  The expert has no power to order either party to pay the costs of the other if there is a perception that either party "won". In arbitration there is always the risk that the losing party can end up paying everything, which can be as much as a total of £25,000-£30,000 of fees.

  8.  The likely fee cost of an expert award would be about £5,000-£10,000.

  As reported to the Committee, the BII has been working on the development of a low-cost independent expert service which would be made available to their members.

15 January 2009

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