How can commercial SMEs be encouraged to use surveyors?

There are more than 600 high streets in London and 5,300 across the UK, largely made up of retail property run by small and medium-sized enterprises (SMEs) that offer jobs, places to shop and eat, and opportunities for communities to come together.

RICS members serve the high street in several ways: they help build and manage retail properties for landlords ranging from individual owners to investors, local authorities and large property companies.

The tenant side is more diverse, though most are SMEs. Having given advice to landlords in multiple categories, I have found they are typically represented by a surveyor in leasing transactions; now I work on behalf of tenants, the opposite is usually the case.

The survey found that most respondents had never employed an RICS member in a property transaction. The main reason was that they believed it was unnecessary, while some of them said they had only instructed a solicitor on the matter.

Half of the respondents were very confident in negotiating their own terms, but most had never heard of the RICS Code for leasing business premises. Moreover, half the respondents suggested that they would not seek professional representation even if it were affordable or offered pro bono.

The survey received seven responses, restricting the extent to which definitive conclusions can be drawn. Where survey data was lacking, though, I used insights from my professional experience to highlight common trends and recurring issues observed in practice.

With that in mind, the results echo what I have commonly heard from clients throughout my career – even when I have been working on landlord representation, when I have followed the code and advised my client's tenants to seek representation. As such, we believe these results reflect the wider reality, and the responses we would expect from a larger cohort of SMEs.

While solicitors review leases and agree to terms, the benefit of also having a surveyor is that they can deal with the commercial aspects of the transaction, including reviewing the market, agreeing rents and negotiating on behalf of the client.

Surveyors understand the types of lease term and incentive that can be achieved, such as rent-free periods, landlord contributions to fit-outs and stepped rent agreements, i.e. incremental increases in rent.

While solicitors carry out the bulk of lease documentation work, it is often more efficient to have a surveyor provide comments and guide the process through to completion.

Therefore, it is erroneous to think that one professional should be instructed rather than both. Surveyors are crucial to having a market-sensitive lease, while solicitors ensure watertight legal documentation.

Although smaller tenants may feel surveyors are getting paid similar fees for less work than solicitors, this is often not the case, and both professionals are essential for the best results.

Landlords or their agents sometimes initiate negotiations at much higher rents than can realistically be achieved. While this strategy is used to strengthen their position, it can increase the cost of the advice provided by the tenant's surveyor if their performance fee is based on savings relative to that initial position. 

Although these performance-related fees may be high, they are typically recouped from the first year's rent while the tenant then makes ongoing savings for the duration of their lease, resulting in a net benefit to their business.

Solicitors tend to work from the instructions given to them by clients and do not comment on the commercial terms of deals. This creates a risk for the tenant, however, if they do not fully understand what they have agreed.

For example, in one extreme case, a convoluted retail price index (RPI) rent review clause was agreed by a landlord and tenant and inserted into the lease.

When calculated at the first rent review, it would have doubled the passing rent and continued doubling at subsequent rent review until it reached an astronomical figure. Fortunately, the landlord in this situation was open to a deed of variation to rectify the lease and clarify what was an honest mistake. 

While mistakes such as these can happen, surveyors can help by simplifying complex lease jargon and explaining the realistic impact of terms over the lease duration. They can also test RPI-related uplift calculations to verify whether the wording reflects their client's intentions. 

They can negotiate caps to limit rent increases at review to a maximum – say, 2% – as well as collars that set minimum percentage increases. Furthermore, by carrying out physical inspections, surveyors can relate repair and service charge lease clauses to the building's and the estate's condition. 

Solicitors do not typically attend the site, making this another key differentiator between the services of the respective professions. The case study (see the boxout below) offers an example of where such an inspection saved the tenant a significant rent increase.

While surveyors are limited in terms of how thoroughly they can scrutinise legal reasoning, case law and the implications of certain clauses – such as the confusing presence or absence of commas in leases – our training in landlord and tenant relationships enables us to understand and better instruct solicitors on behalf of clients.

There are few services targeted at smaller businesses due to the high value of surveyors' time, and it is not unusual to see a surveying bill of £2,000 or more for a rent of not much more than £20,000 a year.

However, consider this scenario: if a surveyor achieves a £1,000 annual rent saving over a five-year lease, the total savings amount to £5,000. Even with a £2,000 professional fee, the tenant's business still benefits significantly.

Yet while the savings made over the remainder of the lease or in the form of lower back rent can eclipse the cost of services, the professional fee is often paid upfront so the immediate financial burden overshadows potential long-term benefits.

This creates a significant obstacle to professional representation for SMEs. To address these challenges, the surveying profession needs to develop more accessible service models for small businesses.

However, developing such appropriate models involves more than just pricing. The profession must clearly define service expectations and establish protocols for handling smaller-scale lease advisory work more efficiently.

Some ways they could do this include establishing long-term partnerships with local organisations such as business improvement districts and chambers of commerce, to improve outreach to owners of smaller businesses.

As a landlord's representative, I've often included the statement 'RICS recommends that you instruct both a solicitor and a surveyor' at the bottom of my emails when initiating negotiations and reinforced this recommendation in subsequent phone calls or face-to-face meetings.

I have also recommended surveyors to unrepresented tenants, both in line with the code and because it is easier to work with another surveyor in negotiations. However, as our survey found that most tenants are unaware of the code, RICS should explore ways to make it a go-to document for those negotiating leases.

One suggestion is making it mandatory for RICS members to share the document with unrepresented tenants, in a manner similar to the warning that must be given in the contracting-out process for lease renewals that alerts tenants to the loss of their rights.

This would help protect tenants who choose to represent themselves, improve trust in the profession, and potentially open up the SME market further to surveyors in cases where tenants seek professional representation.

A frequently contentious aspect of deals between an unrepresented tenant and a represented landlord is the reliability of evidence and how well it demonstrates market rent.

One example of this resulting in a dispute was a rent review that progressed to arbitration after both landlord and tenant were unable to agree on the rent review terms.

The landlord claimed that properties in the estate were in high demand, pushing rents up, and therefore requested a significant uplift in rent. They relied on their own evidence generated from other transactions with tenants on the estate.

The tenant in turn argued that the increase was unfair, pointing out that all the tenants whose data was used for the comparable evidence lacked professional representation. Moreover, they argued that – without expert negotiators – tenants often accepted inflated rents due to the high cost of disputing them.

The arbitrator acknowledged both sides but noted that it is not uncommon for smaller tenants to handle rent negotiations themselves, and because they are typically invested both emotionally and financially, they tend to fight harder.

Nevertheless the arbitrator found in favour of the landlord, relying on the evidence generated from transactions with unrepresented tenants.

In the write up, the arbitrator stated the fact that one or even both the parties may not be professionally represented does not mean such a transaction was not a valid representation of the market. As a result, there was a rent increase.

The arbitrator's ruling emphasised the challenges of rent negotiations, especially for unrepresented tenants. My view of this decision is that the difference in knowledge between the two sides makes it difficult for the unrepresented party to act in a properly informed way.

Moreover, an unrepresented tenant is unlikely to match a trained surveyor's level of preparation and may thus be unable to negotiate effectively against them.

Furthermore, the emotional and financial attachment that the arbitrator considered a strength in negotiation can be a potential weakness.

In my experience, when smaller commercial tenants invest in a location and fit out their shops, they become heavily attached to that property, so moving to another location could result in a loss of customers and a significant drop in income.

This can create situations where tenants negotiate under implicit compulsion, because staying and agreeing to higher rents is more palatable than relocating. Surveyors on the other hand can provide a more objective view of the property, its position in the market and its benefits and faults, resulting in a better ability to negotiate a market rent.

Members who represent landlords can follow the Code for leasing business premises to ensure fair conduct in lease transactions, and encourage tenants to seek advice from chartered surveyors as well.

Addressing these challenges requires a multifaceted approach.

• The profession must develop affordable and accessible advisory services specifically tailored to small businesses.
• RICS should collaborate with other professional bodies to strengthen the implementation of the code. This may include requiring multiple surveyor recommendations to unrepresented tenants throughout the transaction, e.g. at the property inspection stage, the start and end of negotiations, and establishing clearer enforcement mechanisms, e.g. where the recommendation to instruct a surveyor is noted and reserved for audit purposes and RICS reserves the right to audit lease transactions similar to valuations.
• The profession should establish networks of trusted tenant surveyors and promote best practice in lease negotiations.

By addressing cost barriers, improving service accessibility and strengthening professional guidelines, we can create a market that better serves all participants while protecting their interests.

Although fostering a positive relationship between landlords and tenants is a move in the right direction, the ultimate goal is having professional representation for all parties. Having experts on board is undoubtedly the most effective way to level the playing field.