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:
INFORMATION ON RENT REVIEW ARBITRATION: 2004-08
(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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