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The Comparable and the Deal or the Chicken and the Egg

Updated: Jan 31, 2022

The world of Licensed Property rent review and viability assessment has at its core the Profits Test method of valuation. This is the backbone of the basis of rent assessment. The RICS Guidance handbook, (the so called Red Book) which is being regularly updated (latest version out this month January 2022) continues to reinforce that ‘basic’ principle. Reliance is also placed, where appropriate, on comparable evidence. To undertake a reliable and honest cast of the profits test to a given property there has to be a full understanding of both the property and all of its nuances plus, just as important, the inbuilt knowledge of the mechanics of the calculation. Then and only then can any meaningful interpretation be given to the hierarchy of supporting evidence, if indeed it exists and is genuinely of assistance. Before looking at the detail below, there is one major piece of case law to which reference should be made. The Living Waters Christian Association Limited V Appellant-- England and Wales Court of Appeal (Civil Division) 27th April 1999. In a nutshell, this deals with the strength and hierarchy of evidence by way of comparables. Worth a detailed study if you have the time and inclination. There is a well known saying that “those who do-do, and those that cannot-teach”. The same thing holds for our specialist valuation discipline…"Those who do understand the detail of the mechanism of the profits test-value. Those that cannot-totally rely on comparables”. So let's focus on the core issues with comparable evidence and in no particular order of preference.

  • Proximity is essential, the closer the better.

  • Numbers of units. One or two are helpful, and the more the merrier. BUT they have to be relevant to set a tone of the market. We had a situation where the landlord’s valuer fielded no less than twenty-four so-called comparables at an arbitration. To which the arbitrator declared that twenty-two were “of no evidential weight”. Nice way of saying, totally useless.

  • Style of trading operation. Try to find something that closely matches the subject property. Very difficult to compare a tied trading operation with one that is free of tie. Not much use comparing a Wetherspoons with a Miller and Carter. Totally different concepts. Even a Harvester compared with a Toby Carvery is fraught with problems.

  • Trading matrix. Again, compare like with like. No use matching a wet-led trade with a food-led trade. Or cheap and cheerful food offering against an upper market restaurant trade still within a pub. The core hours of maximum trade could be wildly different as will operational overheads. Think dependency on expensive temperamental chefs set against just the bar staff (often very skilled) and staff costs related.

  • Customer base. One we dealt with in the last few days had a customer matrix of residents (elderly) 30%, students (40%) and tourists (seasonal) 30%. A close nearby center of population had residents (young/middle-aged) 60%, students 20% and tourists (non seasonal) 20%. The two pubs were generally similar in trade volumes, but useless as direct comparables.

  • Date proximity. The older the comparable the less assistance it gives the valuer. Particularly important in the current Covid influenced when the market is swinging wildly against the ongoing Government initiatives to “keep us all safe”. It is not much use fielding a rent transaction that in the current market is say, over six months out of date.

  • Reliability of market evidence. Broadly four different categories of rent transactional evidence. (a) Known rent agreements within tied estates, but subject to confidentiality concerning both trade financials and volume of barrel age. Near useless as we have no idea on what criteria the rent was assessed. (b) Agents letting details. Often surprisingly helpful IF the full trade details are openly confirmed in the letting details. However, the rent settlement will often as not be of historic nature. (c) The valuers own direct experience so long as there is no ‘bending’ of the facts concerned. (d) Pubco/Brewery new letting details. Always an aspirational take on trade with no confirmation of exactly what happened with the previous tenant. Dangerous for the valuer if the full background in not known. By way of an example, we dealt with the Woolpack, Sopley, Hampshire at the last rent review five years ago. This time round an agreement could not be reached at lease end. The tenant gives notice and Stonegate offer the property for market competition. Details outline trading aspiration, but forgot to mention that the place regularly floods internally (see map below). That was one of the key issues when we won the last contested rent review. Whilst we hope the new tenants will have done due diligence prior to taking on this historic thatched pub, the valuer would not. He relies on the printed evidence alone.

  • On-site research. Time and again Pubcos offer up a raft of so-called comparables being other rent transactions. Almost all are linked with a strict confidentiality agreement prohibiting contact with the pubs in question. If detailed research cannot be undertaken how can the “evidence “ be tested and of any assistance? The irony is that if matters do proceed to Third Party the detail will come to the surface in any event. There is often a backlash against the Pubco if the valuer does dig deeper. The tenants are often livid that their confidential rent settlement is being shared with anyone else and particularly the ‘financials’ being used to try to increase another fellow tenant’s rent.

  • How was the rent deal finalized between parties? This is the hardest of the lot to either prove or evidence unless the valuer was directly involved. The list is endless and directly impacts “the deal”. Some of them include….Being cash-starved into submission. No money left for the tenant to take a just case to a third party….The tenant not taking specialist independent professional advice…promises of side arrangement such as being offered a cheap second or even third tenancy….Help with repairs and decorations sometimes up to many thousands of pounds….having a stepped rental undeclared (yes it really does happen !)…exploitation of the death of one or both of the tenants and doing a deal with the executors….Dealing with Trustees in Bankruptcy, a minefield in itself !...and most common of the lot, a substantial and never declared increase in product discounting if supply tied. All of these examples. And we are just scratching the surface, are taken from real case histories.

  • Evidence of other gross profit margins in related rent transactions. Surprising how often this little nugget is overlooked linked to other rent settlements which cross-references with specific levels of discount.

So where does this leave us in the consideration of other rent transactions? There is a place for external evidence to give a general view as to the probable market reaction of the hypothetical tenant. This is what rent review is all about because of the assumption in every lease of vacant Possession and the setting aside of the Tenant in occupation and associated goodwill. The composition of the calculation must come first and only then look to see if there is anything directly helpful to back up those assumptions. Finally, please do not place any credibility on a valuer who falls back on a related value per sq ft. Not recommended at all by the RICS for a fully fitted trading operation and really clutching at straws. Deeply frowned upon other than with dedicated restaurants and fast food outlets in retail units.

If you would like to know more about how we can assist further and anything else linked to your next move, please feel free to contact us on either 020 8103 3904 or by email on


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