At commercial property rent review, the dispute resolution procedure is either to an arbitrator or independent expert. Sometimes the lease provides for the parties to agree between themselves a suitable person to act but if not or in default then less common the appointment would be made via the Chartered Institute of Arbitrators or the Law Society or a local chamber of commerce. Mostly, the appointment is made via the Royal Institution of Chartered Surveyors (RICS).
Founded in 1868 in London as the Institution of Surveyors, in 1946, King George VI granted the title “Royal” and in 1947 the organisation became the Royal Institution of Chartered Surveyors. My father was a BSc Est Man FRICS and I was brought up with the old-fashioned ethos: client-service more important than the fee.
A founding objective was the establishment of a profession, a paid occupation that involves prolonged training and a formal qualification, to provide the land and property market with a standard that (presumably) did not exist organised before 1868. “The Royal Charter requires the RICS to promote the usefulness of the profession for the advantage of the UK public and in other parts of the world.” Under a self-regulation model, RICS members are not regulated by government but internally monitored and inspected.
Covertly, not openly promoted, the RICS exists to provide a source of revenue for its members. Having merged with other organisations such as the Chartered Auctioneers’ and Estate Agents’ Institute, and the Incorporated Society of Valuers and Auctioneers, and consistently promoting to attract participants in the property market, the RICS has established a virtual monopoly.
The commercial property market is unregulated. Despite a missionary zeal amongst some chartered surveyors, it is not necessary to have any formal qualification to be a surveyor. The only training and qualification needed is to comply with the “law of the land” and if ever in breach then how to wriggle out of an adverse situation and avoid dire consequences.
There is much to be said for qualification in the form of letters after one’s name, because the learning of knowledge and examination of memory can instil one with a degree of confidence that might otherwise be lacking. But, unlike the text book and academic theory, there is in the market itself generally no substitute for practical experience.
In the commercial property market where parties are not necessarily as well-educated or versed in know-how that surveyor-advisers are expected to possess for duty of care, any influence that surveyors have over decisions, involving or affecting other people’s money, can lead to prejudicing the ongoing relationship between landlord and tenant. At rent review, referral of a dispute to a third party mostly likely a chartered surveyor means the resolving can become a more costly affair than the parties might have intended.
Surveyors are not above the law but generally, chartered surveyors when arbitrator or independent expert can behave as if they are including charging by the hour. When a surveyor in the middle is unlikely to be deposed, where is the need for fees to be competitive? Even though independent expert determination of rent is nothing more than valuation, independent experts tend to adopt a similar procedure to that of arbitration which not only muddles the distinction but also per case law no longer obliges any effort gathering evidence where the independent expert is content to rely upon the parties’ evidence. Amongst independent expert, the old-fashioned way of charging a percentage of the rent determined, or the average of the parties’ opinions, has given way to what is known in legal circles as the billable hour.
The origins of charging by the hour stem from the USA and attorneys (lawyers). During much of the 1800s, legal fees were capped “per service” by state law By the late 19th century, attorneys used a variety of billing methods: set fees for defined tasks, annual retainers, and “contingency fees” deemed acceptable in 1908. By the 1940s, state bar associations led a return to standardised fees, but with published minimum rates. Through the 1960s, the American Bar Association Model Ethical Code condemned as unethical any attorney who “undervalued” his services and thereby encouraged price competition. In 1975, the US Supreme Court ruled in Goldfarb v Virginia State Bar that bar association minimum-fee schedules violated federal antitrust law. The decision helped usher in the era of the billable hour. During the 1970s/1980s, law firm consultants urged their attorney clients to keep more accurate records and bill aggressively. Salaried associates helped maximise firms’ profits. Nowadays, despite alternative arrangements having been introduced, the billable hour persists: it gives clients “some basis for auditing how they are being billed, and it rewards richly those attorneys who find ways to keep the meter running”.
Per Goldfarb, defence that the law is a “learned profession” cut no ice. Lawyers provide services in exchange for money, and thus engage in commerce. Chartered surveyors are no different. Commerce is not an extension of social services. An umbrella organisation, the RICS serves its members, and aided by lawyers leases committing the dispute resolution procedure to the RICS provides a profitable source of revenue for its panel surveyors to which landlords and tenants have little choice but contribute.
Whereabouts of the referral surveyor, the going rate ranges from approximately £175 to £350 an hour, plus VAT and disbursements. The hourly rate is the same regardless of what is done during the period of time. A taxi-meter approach to professionalism ought to give the RICS a bad name were it not for the RICS distancing itself from the charging rates of its members, free to set their own rates. Ignore the old-fashioned maxim that the money has to come from somewhere. The modern dictum pursues self-interest regardless of the consequences for the parties. Rarely are the hourly rates a reflection of the complexity of a case; it is simply a matter of maximising profit by charging whatever the market will bear.
The Rent Review Specialist