Members
will recall that the lease with the Royal
Borough for Trust land called for a rent
review after the first 21 years and every
seven years thereafter. These rent review
clauses are also contained in the head lease
held by the Royal Borough from the Department
of Transport. The original ground rent to the
Trust was £16,200 per annum until the first
rent review in May 1993. In reality the Royal
Borough has waived that rent each year up the
the present time.
From the
earliest days of the rent review it was
agreed that the Trust and the Royal Borough
should join hands in facing the Department of
Transport as the common enemy landlord. This
became particularly necessary when the
Department revealed that it wanted something
around £230 - 250,000 per annum as a new
rent. Such a figure, or a good proportion
therefore, would have punched a very large
hole in the finances of the Trust and would
have destroyed it in its current form, more
especially because of the following sequence
of upward only reviews every seven years.
Both the
Trust and the Royal Borough have followed
numerous strategies, since 1993, to obtain a
far better settlement and such action was
always undertaken with the
agreement/knowledge of the other. In
following such a partnership it was always
understood that the day would come when hands
would have to be unclasped so as to deal with
the rental issue as between the Royal Borough
and the Trust. Because of that eventual
reality the Trust appointed Gooch and
Wagstaff, a leading firm of private sector
property advisers, to act of behalf of and in
the best interest of the Trust throughout the
period and until a satisfactory settlement is
achieved. That appointment has proved to be
crucial to the Trust because the senior
bureacrats in the Town Hall and their
opposite numbers in the Department were
simply taking the original rent of £16,200
and applying all manner of inflationary and
property value increases over the previous 21
years and, not surprisingly, coming out with
figures in the order of £250,000. The Trust
was being sucked into the wake of such
calculations because they carried a certain
amount of hard logic in them.
At our
end Gooch and Wagstaff considered and then
ignored all these calculations and
concentrated on the wording of covenants in
the lease itself and presented a case which
was wholly destructive to the position
adopted by Council officers and Departmental
officials. Although there have been many
influences brought to bear on this matter,
most notably the Leader of the Council
getting the appropriate Minister to visit
Trust land to talk to him on our behalf,
senior civil servants in the Department of
the Environment gently leaning on their
opposite numbers in Transport and even the
Prince of Wales letting it be known that he
would be unhappy if the Trust were severely
damaged, there is no doubt that Gooch and
Wagstaff created the hardest and most telling
impact on the situation. Save for a couple of
matters the vast majority of professional
advice from Gooch and Wagstaff was shared
with the Royal Borough and it was quite
amusing to see their officers using the basis
of that advice when facing the Department and
dogmatically denying its efficacy when facing
the Trust!
In the
autumn of 1996 senior council officers struck
a deal with the Department to buy out their
own 1993 rent review plus all subsequent
reviews coupled to the transfer of Bay 37 to
them, for a premium of £500,000 and that
deal was recommended to and accepted by
members of the Council. This was done behind
the back of the Trust and came out of the
blue. Whilst it had the clear advantage of
removing the Department of Transport from the
picture (who are almost impossible to deal
with) it set in stone an over hefty sum for
the Council to face the Trust with - Gooch
and Wagstaff subsequently advised that the
premium was too much but by then the deal had
been struck.
The
head-lease to the Royal Borough requires a
rent of £22,000 but because they retained
bays 34 to 42 (excluding bay 37) for their
use, the rent to the Trust was set at
£16,200 and although that rent has always
been generously waived by the Royal Borough,
Gooch and Wagstaff are firmly of the opinion
that had the Trust been advised by any
reasonably capable private sector surveyor in
the early 1970s that proportion of the
overall rent would not have been acceptable.
Unfortunately the Trust had no such advisor
during its formation and early years. The
opinion is based on the fact that there are
significant differences between the lease
held by the Trust from the Royal Borough and
the lease held by the Royal Borough from the
Department of Transport. In a nutshell the
Royal Borough imposed certain clauses in the
Trust lease which exert levels of control
which would be entirely unacceptable to a
commercial tenant. Because rent reviews can
only be dealt with on a wholly commercial
basis those control clauses now boomerang
back into the face of the Royal Borough -
albeit some 25 years later! The fundamental
advice from Gooch and Wagstaff is that the
Trust lease has a nil value in commercial
terms because of the control clauses. However
the advice also states that whatever else
happens the Trust is stuck with the rent of
£16,200 because the lease was signed by the
Trust and the rent review clauses specify
reviews on an upward only basis which means
the trust would never be able to argue at
arbitration for a nil rent even though the
lease is commercially valueless.
An
outcome to the situation might be to refuse
any further negotiations with the Royal
Borough and go into arbitration on the 1993
review with the likelihood but not the
guarantee, that we would win a nil increase
of rent. The Trust could then pay £16,200
per annum until the next review in 2000, win
again at arbitration and so on every seven
years for the next 100 years or so. However,
quite apart from the substantial fees payable
for each and every arbitration the Director
does not recommend following such a course of
action mainly because he would not see it as
a sensible use of resources to have a punch
up with the Town Hall bureaucrats every seven
years coupled to the fact that arbitration
can be a treacherous affair which might one
day trip up the Trust and create and adverse
outcome.
Another
outcome might be to take the existing rent of
£16,200 and capitalise this into a premium
of, say, £160,000 to buy out the 1993 and
all subsequent rent reviews. Clearly that is
realistic and attractive because it removes
the necessity to pay fees in the future and
all the time and trouble involved in rent
reviews. However settling at that level would
leave the Trust with the control clauses
still in its lease.