Summary of Council decision:
Two issues were investigated, all of which were Upheld.
A website for property investment company CBRE, seen in October 2017, promoted a property development in Central London. The page titled ‘One Crown Place, EC2’ featured a link ‘View One Crown Place Rental Factsheet’, which clicked through to the brochure document ‘One Crown Place, EC2 Rental Investment Factsheet’. The brochure included a section headed ‘Key facts and services’ that featured a table with four columns: the type of property categorised by the number of bedrooms, ‘Estimated rental value £ per week’, ‘Estimated rental value £ per annum’ and ‘Estimated average gross yields’. The column for property types listed the following categories: one bedroom, two bedroom, three bedroom, and three bedroom duplex. The column ‘Estimated average gross yields’ stated the following percentages for the respective property types: “3.9% - 4.9%”, “4.5% - 4.6%”, “2.9% - 3.8%” and “3.1% - 3.5%”.
1. The complainant, who did not believe that the estimated average gross yields quoted in the ad were representative of the market within the local postcode area, challenged whether those claims were misleading and could be substantiated.
2. The complainant also challenged whether the ad breached the Code because the basis for calculating the estimated average gross yield had not been made clear.
1. CBRE Ltd stated that they were confident that the rental values quoted in the ad, and the corresponding gross yields, were representative of the market. They said they took care when setting the estimated rental values (ERVs) and researched the local rental market thoroughly. They stated that because One Crown Place was still in construction, there were obviously no comparable rental prices within the building. CBRE said they had been involved with a similar residential tower, The Heron, in the EC2 postcode area. They said The Heron was comparable to One Crown Place in terms of location, unit size, specification and amenities and for those reasons, they used The Heron as a benchmark when setting ERVs for One Crown Place.
CRBE provided information detailing the rental costs per week for 11 tenancies in units of various sizes (studio, 1-bedroom, 2-bedroom and 3-bedroom) they had arranged at The Heron, as well as brochures with floorplans for both One Crown Place and The Heron. They also provided three reports from LonRes, which was a subscription based online database of sales and lettings data, and which they said contained data on the lettings tenancies agreed and rents achieved in London. They also provided Rightmove ‘Best Price Guide’ reports that listed comparable properties and the asking rents, broken down by one-bedroom, two-bedroom and three-bedroom units. They said the Rightmove ‘Best Price Guide’, unlike the LonRes reports, did not list the achieved rents but nevertheless, they offered a useful guide to prevailing rental levels.
2. CBRE said they did not include workings on how the quoted rental yields were calculated in the ad, because they believed that the likely target audience of the ad – experienced rental investors – would be familiar with rental yields and how those were calculated. They stated that it was not common practice in the industry to show the calculation of yields in their ads.
The ASA noted that the ad related to a residential building in the City of London that was still under construction at the time the ad appeared and it was aimed at buyers who were also looking to let out the properties. We considered that in general, consumers were likely to understand that the property market would be subject to fluctuations. Notwithstanding that, we considered consumers were likely to understand that the figures quoted under the ‘Estimated rental value’ columns in the ad were the potential rental prices that could be achieved through letting out the properties after purchase. The percentages quoted in the ‘Estimated average gross yields’ likewise represented the possible annual return from letting out the properties. Because the ad did not include information to explain the basis of the quoted ERVs and average gross yield figures, and how those were calculated, we considered that consumers would expect that the estimations of those figures were based on the most recently achieved rental prices for comparable properties within the local EC2 postcode area. We also considered that, in general, consumers were likely to expect those types of estimations to take into account the value of the property, the number of bedrooms, unit sizes, age of the building. Some might also expect other factors to be taken into account, for example, access to transport, amenities, fixtures, special features such as duplex layout or penthouse. Whilst the ad stated that the quoted ERVs and average gross yields were “estimated”, we considered that CBRE would need to demonstrate that those quoted figures were achievable and representative of the market in the local postcode area.
We understood that rental gross yield was determined by the annual income generated by a property, divided by the value or price of the property. We assessed the body of evidence provided by CBRE. We noted that the LonRes reports set out the achieved rental prices for eight one-bedroom units, eight two-bedroom units and two three-bedroom units in The Heron, relating to tenancies arranged by different agents during the period from March 2016 to December 2017. The LonRes reports did not contain any information relating to three-bedroom duplex units. The brochure and floorplans for both developments showed that the unit sizes, fixtures and amenities provided, whilst not exactly the same, were broadly similar.
According to the LonRes reports, the actual rent achieved for one-bedroom properties in The Heron between June 2016 and December 2017 ranged from £700 to £750 per week, whereas the ERVs quoted in the ad for one-bedroom properties were “£745 - £925” per week. The reports indicated that the actual rent achieved for two-bedroom properties in The Heron between June 2016 and August 2017 ranged from £1,100 to £2,150 per week, whereas the ERVs quoted in the ad for two bedroom properties were “£1,115 - £1,335” per week. The reports also indicated that the actual rent achieved for three-bedroom properties in The Heron between March to December 2016 ranged from £2,095 to £2,308 per week, whereas the ERVs quoted in the ad for three-bedroom properties were “£1,750 to £2,500” per week. The reports did not contain any data for three-bedroom duplex in The Heron. Apart from the maximum ERV per week for two-bedroom properties and the minimum ERV per week for three-bedroom properties quoted in the ad, we noted that the remaining minimum and maximum ERVs quoted for one-, two- or three-bedroom properties were higher than the range of actual rent achieved for the corresponding property types in The Heron.
In relation to the Rightmove Best Price Guides submitted, we noted that the properties included in those reports consisted mostly of properties in The Heron. The one-bedroom report contained information for five properties in The Heron and three other properties in the EC2 postcode, but were either penthouses or duplexes. The two-bedroom report contained information for four properties in The Heron and a one-bedroom penthouse loft in the E1 postcode area. The three-bedroom report contained information for four duplexes in The Heron and three other properties in either the EC2 or E1 postcode areas that were penthouses.
We noted that CBRE did not comment on the criteria on which the properties that were not located in The Heron had been selected for the Rightmove reports, and why they were comparable to the properties in One Crown Place. The pricing information contained in those Rightmove reports were asking prices, rather than actual rent prices achieved, and information about, for example unit sizes, was not included for all properties. Some of the Rightmove reports included information relating to penthouse or duplex properties that were likely to be higher in rental value, notwithstanding that those included the same number of bedrooms; some properties included were outside the EC2 postcode area.
In addition, CBRE did not provide any information about the value of the properties used as comparison for the estimated figures, or any explanation on how they determined or calculated the quoted ERVs and average gross yields based on the data in the evidence. Because of that and the evidence indicating actual rental prices achieved only related properties within one residential tower, and also because there was no information about why the properties in the Rightmove reports that were not situated in The Heron were comparable, we considered that the body of evidence submitted by CBRE did not adequately demonstrate that the quoted ERVs and therefore average gross yield figures were representative of the rental prices and gross yields of comparable properties within the local postcode area. We concluded that the ad was likely to mislead.
On that point, the ad breached CAP Code (Edition 12) rules 3.1 3.1 Marketing communications must not materially mislead or be likely to do so. (Misleading advertising), 3.7 3.7 Before distributing or submitting a marketing communication for publication, marketers must hold documentary evidence to prove claims that consumers are likely to regard as objective and that are capable of objective substantiation. The ASA may regard claims as misleading in the absence of adequate substantiation. (Substantiation) and 3.11 3.11 Marketing communications must not mislead consumers by exaggerating the capability or performance of a product. (Exaggeration).
The CAP Code required that the basis used to calculate any rate of interest, forecast or projection must be apparent immediately.
We noted that the ad did not contain any information about the basis of how the ERVs and the estimated average gross yield, which we considered to be projections, were calculated. Because of that, we concluded that the ad breached the Code.
On that point, the ad breached CAP Code (Edition 12) rule 14.3 14.3 The basis used to calculate any rate of interest, forecast or projection must be apparent immediately. (Financial products).
The ad must not appear in its current form again. We told CBRE to ensure that similar ads in the future did not quote estimated rental values and average gross yields from letting properties, unless they held adequate evidence to substantiate the claims. We also told CBRE to ensure that the basis used to calculate the estimated rental values and average gross yields were made clear in the ads.