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.