Up in arms!
17 July 2025(2025 Jul) – Inevitably, the powerful landlord lobby – institutional investors, pension funds, insurance companies, REITS, quoted and major property companies, their advisers, and likely thousands of anonymous private investors – are concerned about the proposal to ban upward only rent reviews and especially the lack of consultation. But, some 30 years ago, when the Government then consulted, it was persuaded not to by the landlord lobby and the RICS. So why would the incumbent Government want to risk politicians being talked out of it again?
In my experience, having acted for insurance companies and on numerous occasions against institutional landlords, such landlords, in common with many private investors, do not generally care a jot about tenants. The focus is on maximising the rent and the capital gain, regardless of the wider consequences. On ensuring that the purchase price and book value of the investment is at least maintained and wherever possible enhanced. Take property funds, for example, often overpay and every so often when investor money wants out, they freeze the fund on the ground of orderly disposal. And buyers at auction, not realising at the time they are being duped into overpaying, take out their mistake on the tenant.
As for the source of the money, easily fooled. Were it not for the carrot of tax-relief, who in their right mind would regularly hand over money to a stranger on the pretext that from the age of 50 they could withdraw up 25% of their money and with what’s left buy an annuity that drip-feeds their money back to them in ever decreasing amounts for the rest of their life. The promise (no guarantee) is an expectant growth rate of about 6-7% per annum. What happens to the profit money? Spent on admin, inflated salaries for directors and managers, perks, a lifestyle summed up in the question; “yes, but where are the customers’ yachts?”
And what does the stranger do with the money? Buys stocks and shares, bonds and gilts, property, works of art (remember British Rail Pension Fund’s foray). And pockets the difference between trading and 6-7% pa.
In the USA, Benjamin Graham explained how. Charlie Munger and Warren Buffett proved him right. In the UK, I have acted for and against a few of the several long-established, secretive or low-profile private property companies that are seriously wealthy. But the institutional landlords, why not as successful as Berkshire Hathaway Inc? Here’s one reason:
During the 1930s, countless builders went broke, and the mortgagees, for example, Prudential, Legal & General, Norwich Union, took over parades of shops and residential flats. For years, they managed well until their asset managers decided that what they were doing was beneath them. So they sold all the parades to private investors who, over the years, have done very well, and thanks to inflation much better than the previous institutional landlords. [In 1984, Hillier Parker May & Rowden research discovered that secondary shop rents had increased at a rate of 9.2% per annum since 1979.] Imagine the return for pensioners had the institutions kept the properties.
Major institutions and quoted property companies spending other people’s money like there’s no tomorrow on prime property, that looks good in photographs but rarely performs as expected, contribute generously to the success of big firms of surveyors, solicitors, and accountants.
It’s one thing for institutions to have enough surplus cash at disposal to be able to afford to lend it to developers and investors, quite another to buy a low yielding property, to forward-fund a development to keep, and tie up lottery-winner capital in an illiquid asset. But who cares about that when the underlying concern is satisfying lust for compliments. In keeping with always someone else’s fault, the bottom line, when anything goes wrong, is to blame the state of the market.
It’s not surprising the landlord lobby is up-in-arms. The gravy train is about to come off the rails. The aspirational developer or investor with not enough money to name, but able to borrow on at least the same rent throughout the lease in exchange for paying interest and arrangement fees, is suddenly faced with the prospect that the profit margin, the loan to value covenant, is about to become much more risky.
Criticising the Government for interfering is a bit rich when many institutions and armchair investors have been interfering in a market in which they’ve no business to, other than latching on. Attempt is bound to be made for Bill 2025 to be watered down but, for now, it is the best news tenants have had for years. It goes to the heart of hierarchical supremacy by challenging the assumption that what the powerful landlord lobby wants, the powerful landlord lobby has to have.
Fortunately for many tenants, many private landlords care and the relationship is rewarded by longevity of lease. But for the greedy, the aggressive, and the indifferent, this Bill is a wake-up call.
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