Commercial Rent Reviews:
The General Data Protection Regulation (“GDPR”) came into force on 25 May 2018. Law-abiding businesses and organisations are busily checking whether computerised and manual records data/information and mailing lists are compliant, asking people to confirm opt-in.
Michael Lever, Rent Review specialist, explains how this relates to rent reviews and how this is an opportunity for businesses to prune mailing lists; it is also an opportunity for anyone on a mailing list to decide whether to continue to subscribe.
Privacy is a big issue. For those of us not on Facebook, Twitter, Linked-in, etc, that such social media can and probably knows about us, merely because their users having agreed without a care for the consequences to allow the social media platform access to the users’ contacts is not ideal, just something to have to come to terms with.
I have been registered under the Data Protection Act 1998 since November 2000. I respect privacy. In the business world, professional rules and codes of conduct normally require members (including employees and staff) to keep their clients’ affairs confidential. Although doubtless that is observed by lawyers and accountants, for some reason the same cannot be said of surveyors generally.
In the commercial property market, (as in every sector of the property market), all transactions and agreements between landlord and tenant are confidential. Strictly, as I understand, information is disclosable to unconnected persons only with permission of all the ‘parties’ concerned.
I emphasise ‘parties’ because it is the parties whose permission is required, not their advisers. It is not permitted for one party to disclose information without first obtaining permission from the other party/parties. It is not permitted for an adviser to unilaterally decide without authority okay to disclose a confidentiality.
The reason that the same attitude towards confidentiality cannot be said of surveyors generally is not that many haven’t got time for all that nonsense, any more than a certain type of person has any respect for GDPR by thinking themselves above the law, but for the consequences for valuation were confidentiality strictures to be enforced.
I daresay that, quite possibly, the commercial property market in its present form would collapse were it not for the free sharing and unbridled circulation of confidential data/information. We surveyors do not make the market: we simply interpret it for the benefit our clients.
Although valuation is not an exact science, the emphasis on the science, rather than the art (as in confident of something but unable to prove it), means that where the tangible evidence is not within the surveyor’s personal knowledge and experience, it must come from somewhere someone else.
What keeps the market in good shape is that between surveyors is an unwritten implied duty to keep shared data/information confidential. That duty applies not only to data/information where the surveyors themselves are or have been involved, but also data/information via usual behind-the-scenes channels, for example, surveyors imparting and sharing data/information, reciprocal interests.
Where the valuation for capital and rental valuation is based upon evidence, commonly known as “comparable evidence” – whether or not it would pass the tests of comparability – the availability of the evidence depends upon someone somewhere authorised to disclose or more commonly and most likely breaching a confidence.
It is not compulsory (except by court order) for landlords and/or tenants and/or their respective surveyors to be helpful to one another. Indeed, many landlords and tenants prefer to mind their own business and not become involved. Tenants especially can be reluctant to disclose information about the tenancy in case the data should end up being used against them.
So, although the terminology ‘open market’ means anyone and everyone, in practice it can mean just a few. At rent review (to an extent at lease renewal also), within the meaning of ‘hypothetical willing’ is that the existence of a market is assumed, also it is not necessary to identify who would want the premises only that someone somewhere would. But surveyors and valuers, particularly for capital and mortgage valuations, tend to prefer something more concrete than that.
Investors likewise: as a marketing ploy to attract offers from the inexperienced, the trend in recent years for particulars of (overpriced) propositions is to include a list of recent transactions prices and rents as a means of reassurance.
The generality of data, details of premises to let, leases for assignment and sub-let, press releases, industry media and company reports, rating areas, and so on, are useful as rough guides, but at rent review and lease renewal far more detail is needed.
Where rent review is to open market rent and the valuation based upon evidence, unless the landlord and/or the tenant between them own all the properties that are forever going to be used as the only evidence, inevitably some if not all of the evidence will have to be sourced from others.
The imparting and sharing of information between surveyors respectful of the implied duty of confidentiality enables the data/information to be interpreted for use or not during negotiation; and as evidence to a third party such as an arbitrator, independent expert, or in court.
A difficulty arises when surveyors in receipt of confidential information are obliged or expected to disclose that information to clients, in explanation of how a recommendation has been arrived at and in written reports for rent review and lease renewal.
It is said that a characteristic amongst historians is nosiness. I venture to suggest the same can be said of local traders and small shopkeepers. In my experience, which fortunately is not extensive – I say ‘fortunately’ because in my limited experience one has to have the patience of a saint to listen to all manner of irrelevancies when advising local traders on rent review and business tenancies – wanting to know what everyone else is paying and expecting to be told as a matter of course stretches the bounds of confidentiality.
The difference between being curious and being nosy involves a genuine interest, rather than trying to pry information out, perhaps for gossip or to judge. Nosiness usually involves trying to be privy to something that isn’t really any of the enquirer’s business. To whom the information belongs is a moot point.
Where the information is obtained to serve a particular client, whether the evidence (presupposing the information useful as evidence) would be forthcoming were its source not wanting to help the particular surveyor and/or indirectly the particular client is I should think unlikely. But where the evidence is obtained by the surveyor for the sake of it, or from other matters nothing to do with the client in question, I see no reason why that client should be able to claim ‘ownership’, let alone expect to be provided with full details.
The keeping of old files after completion of an instruction is a matter of law and thereafter data storage space. What surveyors do with the evidence that arises during negotiation is a matter for the surveyors concerned. For my part, I centralise the information on my database: it might never come in handy but if it were to then at least I wouldn’t have to wade through an old file.
At rent review for determination of the rent by an Independent Expert, the parties or their surveyors will normally preface their respective reports with something along the lines of my “neither the whole or any part of this Report or any reference to it may be included in any document or communication in any way other than for the purpose for which it is intended, without my written approval of the form and context in which it may appear.” Whether that is actually respected depends upon the trustworthiness of the persons involved in the matter.
At rent review arbitration, confidentiality is the law. Per Dolling-Baker v Merrett :
“as between parties to an arbitration, although the proceedings are consensual and may thus be regarded as wholly voluntary, their very nature is such that there must, in my judgment, be some implied obligation on the parties not to disclose or use for any other purpose any documents prepared for and used in the arbitration, or transcripts of notes of the evidence in the arbitration or the award, save with the consent of the other party, or pursuant to an order of leave of the Court .. ..
“… the fact that a document is used in an arbitration does not confer on it any confidentiality or privilege which can be availed of in subsequent proceedings … But that the obligation exists in some form appears to me to be abundantly apparent. It is not a question of immunity or public interest. It is a question of an implied obligation arising out of the nature of arbitration itself.”
At a lease renewal in court, (substantive hearing) it is common for a surveyor expert witness to cite evidence obtained from others. The rules regarding hearsay evidence have been relaxed. Pro-forma evidence provided by surveyors is notoriously unreliable.
Whether the evidence is investigated and verified for authenticity depends upon the expert’s conscientiousness. If the evidence presented to the court does not also state the reason to the source of the evidence the reason for wanting the evidence or what it would be used for then in the context of confidentiality it could be reasoned a data breach.
Also, assuming the client has the right to see its lawyer’s file, also its surveyor’s file, I should think it necessary for the lawyer and/or surveyor to each inform the client of the need to respect the confidentiality of any evidence. And theoretically if not also in practice for the lawyer and/or surveyor to have gotten permission from the source of the evidence to allow others to see the evidence.
Generally, in court, anyone present and listening becomes privy to confidential data/information. I have yet to read a law report that mentions that the evidence in court has confidentiality clearance.
Between landlord and tenant, whether either or both parties are represented or not, it is not necessary for the rent review clause to be satisfied during negotiation. Landlord and tenant, between themselves or represented, can agree whatever they like.
It is only when the agreement is cited as evidence in connection with another matter that how the agreement was arrived at is scrutinised. No criticism can be levelled at landlords and tenants, represented or not, for the rent they agree. The difficulty for surveyors is in drawing comparison: any bias in assuming the parties would have satisfied the review clause stems from a need to control the direction of the market by steering the evidence in favour of the client.
Where the information has not been released from confidentiality by permission of the parties concerned, it will be interesting to experience whether a breach of GDPR can be used to defeat the admissibility of that evidence.
by Michael Lever
The Rent Review Specialist