Friday 1 May 2020

Killer Arguments for Raising the Rent, Not

Down in the West Country, a railway company is trying to bring in more income by raising the rent:

Their reasons include these gems:

"This rent is considerably below what the PLC (the railway company) feel is its value, and as a reference (1) the rent for Williton/Sherrings Yard is £17000 pa; (2) WSRA at Bishops Lydeard (BL) pay a rent of £4,500.00 pa for their office space; (3) the WSSRT pay a rent for the BL Museum of £100.00 pa paid in 4 instalments and (4) for the Blue Anchor Museum it is £741.60 pa paid in 4 instalments, however this has been waived until Oct 21 to assist the refurbishment. (5) Quantock House at BL was set at £22,000 pa, but then withdrawn by the landlord. (6) 5542Ltd pay £10 per foot of siding space pa."

As we know, what sets the rentable value of land is two things. By far the greater one is location. The other is what stands on the land. The site in question is in a small village with access only over a working railway off a tight bend in a major road. The tenants originally rented a bare site, with no buildings, rails or services on it and have paid for all the infrastructure themselves. To compare this site with a yard in an industrial estate (1) in a large village/small town with good level access is a classic diagonal comparison.

As is it to compare the rentable value of an empty site with that of a building, (items 2-5). Even in example (6), 5542 Ltd. didn't install the rails themselves. Moreover, as we also know, what the landlord feels is the value of the rent is neither here nor there, the value of the rent is what someone else would be prepared to pay for it.

The railway company also think that the needs of the landlord have a bearing on the rentable value. A large part of the statement from it is along the lines of "the company needs money, therefore the rent must go up".

"The PLC met the Trust and made clear it needed to increase its income wherever possible. It was suggested that the Trust should review its finances, that a rent increase was needed and that as this would take some time to manage, the PLC would accept a staged increase over time, but that an increase was needed."

The final piece of wishful thinking is the suggestion that the rent was originally set at below market levels out of benevolence, however there is no attempt at justifying this statement apart from the slightly ludicrous :

"At that time the PLC agreed the original lease it was trading profitably and could afford to be more generous than now; the level set is also an indication of the historic weak financial management which has been part the PLC’s current financial situation."

Just because it could, doesn't mean that it did and just because the Plc is in financial trouble now because of "weak financial management" (even if that really is the cause) doesn't mean that was the case back in 1991.

3/10 - must try harder

15 comments:

Mark Wadsworth said...

Bloody hell, that is a complicated press release. It's not clear who's a straw man for the plc being used to put in a fake counter-offer to stampede the tenant into offering to pay more rent.

From what little I can glean, the rental value of the site is precisely zero.

Mark Wadsworth said...

... the trust's press release is a lot clearer. They - a train preservation club - have got emotional capital invested in that site, but in financial terms, they could walk away at any minute. I think the trust has a better bargaining position. Go for it, chaps!

Bayard said...

Mark you can see the access to the site here: https://www.google.co.uk/maps/@51.1615156,-3.3680771,3a,75y,320.45h,82.32t/data=!3m6!1e1!3m4!1sb2bh3WwXK9SlbnmL1b4dsQ!2e0!7i13312!8i6656?hl=en-GB the site is behind the two sets of white gates. In between the gates is a working railway line. There is no other access except on foot. The road in front is the A39, which, as you can see, is normally a busy road.

Bayard said...

"It's not clear who's a straw man for the plc being used to put in a fake counter-offer to stampede the tenant into offering to pay more rent."

I have been following this case and it seems to be that the object of the exercise is to evict the trust. All the reasons given in the press release are simply trying to justiify that decision so that, when they are taken to court under the 1954 Landlord and Tenant Act, they don't lose immediately. That's why it doesn't really make sense and comes across as a lengthy whinge.

"From what little I can glean, the rental value of the site is precisely zero."

That has always been my thought, too.

Physiocrat said...

This is a bit like BTL landlords who decide how much rent they should charge by working out the amount as a percentage of their purchase price.

ThomasBHall said...

Bayard- why do you think they want to evict the trust?

Sobers said...

"From what little I can glean, the rental value of the site is precisely zero"

You're forgetting that the landlord has a use for it too, and is a potential tenant (or occupier) itself. It can use it for some part of its own railway operations. Ergo it has a value based on that use, and if the landlord is not to have that value it would have to be compensated via the level of rent paid by another party. We are not talking about a landlord who can have no use for the land other than a rent paying tenant, it can put it to profitable use itself (and by the sounds of it has a use already in mind).

I'm a farmer, imagine I am approached by my neighbour who wants to rent a field of mine that borders his. There's no access other than by my property and his, so by your reckoning I should agree to rent it to him for virtually nothing, because he's the only viable tenant. But of course I wouldn't, as I could utilise it myself as part of my existing operation, and in order for me not to do that would need a rent that compensated me for the loss of profit I would make farming it myself.

Mark Wadsworth said...

S, the field analogy is nonsense. You can access it from your side; the neighbour can access it from his side. You grant a tenant right of way along the edge of your fields to get to the field in question.

This appears to be a defunct railway line. The plc uses it as a private railway museum/tourist attraction, and a group of enthusiasts use a small bit of land to one side for restoring historic locomotives. Hardly a big bucks operation done for profit.

Mark Wadsworth said...

... The Landlord and Tenant Act says one of the acceptable grounds (Ground G
here
for terminating a lease is if the landlord wants to use it for his own operations.

So the plc should have little problem chucking them out if the plc wants to go into the 'locomotive restoring' business and that is the only yard they own which is suitable.

Bayard said...

"Bayard- why do you think they want to evict the trust?"

Because this is quite obviously a shakedown - "pay more rent or incur the expenses of moving". The tenant has refused to pay more rent, so the landlord is following through with his threat. I suspect that it is also "pour encourager les autres tenants".

S, Mark, this is the "apple tree in the garden" argument, however, just because the land has value to the landlord doesn't mean it has value for anyone else. S's example falls to the ground because he presupposes a potential tenant who is willing to pay something for the field, even if that is not very much, whereas in this case there is no potential tenant, apart from the existing one. It is not in dispute that the site has value both to the landlord and the tenant, however, the landlord is trying to establish the value of the site to another tenant, in order to justify raising the rent. The value of the site to another tenant is either zero or a negative figure.

"So the plc should have little problem chucking them out if the plc wants to go into the 'locomotive restoring' business and that is the only yard they own which is suitable."

They don't and it isn't. What they are planning is a swap: to move the rather messy permanent way department from another station to this station, thereby making this station an eyesore instead of the other, so no net change. Whether they are going to have any problems depends on the interpretation of the law. It is quite obvious that the landlord has no money to do anything with the site, nor will they have in a year's time, when the current tenant leaves. In fact, the landlord needed additional funds to stay in business, even before the quarantine, hence their attempts to raise the rent. However the fact that the landlord can't do anything with the site may be immaterial, they may simply meed to have plans for it, albeit in the distant future.

Sobers said...

"
This appears to be a defunct railway line. The plc uses it as a private railway museum/tourist attraction, and a group of enthusiasts use a small bit of land to one side for restoring historic locomotives. Hardly a big bucks operation done for profit."

If you'd read the WSR piece you'd have seen that they want to use the site for their own track maintenance equipment, and it being central to their 22 miles of track would undoubtedly increase the efficient operation of that equipment. It would also be useful as storage, maybe freeing up more valuable space elsewhere. Ergo it has some considerable value to the landlord for his own use. Certainly a lot more than the current rent levels, which at £1200/yr is peanuts.

Looking at the satellite pictures of the site it has road access via a level crossing, and a large commercial type building. How you can say that no other tenant would possibly want such a premises escapes me.

Bayard said...

S, the level crossing is not signalled, which means vehicular access is effectively restricted to when the railway isn't running, and the "large commercial type building" and everything else in the yard is the property of the current tenant. If they are evicted, they will either take it all with them or sell it for what they can get for it.

Yes, the site may be worth more than £1,250 a year to the landlord to occupy it themselves, but that is not the case the landlord is making. The case they are making is that the rentable value, i.e. the value to another tenant, is greater than the current rent and that is demonstrably bollocks, which is the point of my post. Presumably the whole point of Ground G for eviction of the Landlord and Tenant Act is that it is often the case that a site is worth more to the landlord than its rentable value.

Sobers said...

You're forgetting that the S&D trust also have the use of the Washford Station building itself included in the lease, which currently houses their museum. That is on the public highway so could be used for all manner of other uses, and indeed would be attractive to all manner of other tenants. The idea that such a building and attached land (even if the current shed was removed) has a rental value of £1200/yr is laughable. The cost of the buildings insurance could well be that much on its own.

Bayard said...

That is an interesting point, however, the Trust operate the station building as a station for the railway, as well as using it to house their museum. So can the laandlord say "we want you to operate this station building as a station, but we will charge you the rent we would get if we rented it to someone else to use as offices"? I think that would get the traditional dusty answer from any potential tenant.

AFAIK all costs, repair, insurance etc are borne by the Trust. In addition, when the Trust first leased the building, it was derelict and needed a lot of work to it, which the Trust carried out at their own expense. I appreciate that you do not know the history of this site, but there is no excuse for the landlord to be carrying on as if they didn't either.

Lola said...

It's a bit similar to pubcos. Have this tenancy Mr Tenatnt and we will rack up our rent on the back of all the money, time and effort you put into increasing your revenue.