Monthly Archives: June 2009

Pub Co Duplicity or Stupidity?

Picture this.

A beautiful pub in the country with restaurant and 6 letting rooms. A pub company that says it IS doing £179,000 per year on wet and they will charge £40,000 rent.

Add to this food (Est by Brewery £45,000 minimum), and accommodation (Est by brewery £60,000) Not unreasonable for the lot!

Then add £83,000 of improvements. Making the cellar legal, kitchen legal, lighting and electricals the same and generally “doing up the place” as promised by the brewery.

There we have it!  A refurbished pub / restaurant ready for the summer season 2008!

Nope earliest estimate is now 2010!

Oh yes! And also…… Average Takings have been, at best, £4,500 net over 18 months which mean I lose £1,000 a week give or take ….and most of it’s give!!!

Deduct from this the number of microwaves, fridges etc. that have “blown” due to electrics which are illegal and have had to be replaced. Light bulbs which cost me over £700 to move in and ongoing problems with boilers, freezers etc. which have cost approximately £3,000.

Then, when no refurbishement activity from the brewery takes place and it’s costing £100 per week in “blown” appliances. I decide to throw in the towel.

I get someone who is prepared to take the place on (Nutter but there we go!) and then find that the brewery decides to give them a “deal”

What happens? They do the deal without my knowledge and come back to me to say “We’ve done a deal” Oh and by the way……. because we have decided to give the new incumbents £10,000 off their rent…. YOU have to pay.

I am now left with a position where I can’t afford to leave and can’t afford to stay!

I know the more experienced out there will think I’m a halfwit. I probably am. But this is a BIG WARNING! Do not go into this without your eyes wide open! The Pubcos will tear you apart they do not give a toss about your well-being!

Any help would be greatly apreciated.

I would prefer to remain anonymous for obvious reasons

Pub Co’s and Competition Commission

The Industry has to change radically.

Some ideas to think about, submitted to the MA Forum 17th June 09.

Existing turnover has to be a key factor in any rental or freehold calculation, it is the pub’s or businesses market share at any time.

To ignore it leads to a totally false valuation.

Taking a new lease or tenancy.

1. The rent should be a percentage of existing turnover.

2.   4% on a lease with a tie, at the worst 25/75% discount, lessee/landlord, full FRI lease (Suitable for all brewery tied estates)

3. 5% on a tenancy with a full tie, small brewers (On a 200 Barrel pub a small brewer will make at least £50K on the tie) External maintenance and internal structural by Brewer, internal decoration by tenant.

4.  6% on a lease totally free of tie, full FRI

5.  3-5 year rent review with leases

6.  1-5 year rent reviews on tenancies

7.  All improvements by landlord to be assessed for one year on impact on turnover and reviewed back at the end of the year, the effect that it has made on the business and % calculation brought in for the remainder of the rental period any over or under to be reimbursed over the remaining rental period and revert to normal % at next rent review.

8.   Any structural improvements by the lessee are not to be the cause of a rent increase until the next review and the normal % will prevail

9.  If there are no turnover figures to assess a rent then a sensible estimate should be made for the first year with any adjustments being made at the end of the year in either direction without causing financial hardship, that % rent will continue until the next rent review.

10. The % figures may appear low by current standards but they are in line with rents when virtually all pubs were profitable and viable.

11. Pubs should be viable at 35-40% of maximum take and not breaking even at 80-90% maximum take.

12. By lowering rents, leases will be worth serious money and enhance property values in the long term.

13. By lowering rents lessees and tenants will have a serious long term career opportunity

14. All failures are reputed to cost Pub Co’s £30K in lost revenue, lost continuity and overheads.

15. By bringing the rental assessment in as a percentage of turnover, it is totally identifiable and the need for convoluted humbug to assess future rents is finished. It removes the RICS from the equation and valuers who have no intimate knowledge of running a pub and fail to understand market share.

16. Arbitration will be virtually a thing of the past, it should all come down to reasonable negotiation.

17. All lessees deal direct with the suppliers that are not their own brewer, any discount is paid retrospectively to the landlord one month in arrears.

18. Lessees could achieve 28 days credit which will help their cash flow.

19. By dealing direct with suppliers this removes the present situation of extended credit by Pub Co’s with minimal credit to their lessees, in addition the failure of a major Pub Co will create a domino effect with disastrous consequences.

20. The present RICS Valuation System ignores existing turnover and assumes that the available business is infinite, it is finite and any increase in trade is at the cost of another business, no projected improvement of business should exceed 15% and even less in the present climate.

21. No Pub owning company should have more than 2000 pubs and should not be financially connected to any other company in any shape or form, the same with the directors, they cannot be on more than one Pub Company if the total number of Pubs in the various companies exceeds 2000. I would have preferred 1500 pubs. The present market has been totally dominated and dictated to by the major Pub Co’s because of financial and commercial pressure.

22. A number of licensees are against having their turnovers disclosed, but if they want fair rents this has to be an essential. The turnover is the key factor not the net profit, if the rental % is higher we get into audited accounts, profitability and return to the present mess in a different form. Audited accounts are always in arrears, turnover is not.

23. By using % for rental valuation and existing turnover, the licensee gains benefit from his efforts, if there is a low turnover at the start he enjoys the benefits of his diligence until the first rent review, the landlord enjoys the increased rent at the first review.

24. By using turnover as the basis for rental calculation e.g. £200K turnover would equate to a freehold valuation of £250-300K by the old yardstick of 1.25-1.5 times turnover. Free of tie, if a landlord is sensible he is in a position to negotiate far better discounts than a sole operator, he can then offer his lessee say £180 per barrel discount and pick up between £30-£50 additional discount retrospectively from the brewer on a £200K T/O = £12K rent on a rough barrelage of 150 a further £4.5K plus giving a return of £16.5K plus which equates very favourably with commercial rates. These calculations change dramatically with any form of tie or tenancy assuming that a Pub Co’s discount at present is £220 plus, the brewers can afford to sell the beer to Pub Co’s and make a profit, if they sell it direct to their tenants, the profit has to be in the region of £250 per Brewers barrel.

25. All Pub owning companies will squeal at these percentages, but the options are a clear straight forward method of rental calculation, leases and tenancies will have greatly enhanced valuations, we therefore have better quality demand for them in terms of licensees and we will have a long term career opportunities for most would be licensees, not a select few.

26. The freehold values will be linked to viability and not speculative figures, banks and mortgage companies will start loaning money on freeholds and leaseholds and the industry will get back on it’s feet.

27. If the industry values are based on profitability growth rather than Spiv Banking or a near Ponzii scheme, the financial sharks will get out of the business.

I have tried to cover most of the issues from my perspective, the majority of Pub Co thinking has become short term over the last ten years, lessees are expendable and they now realise that the cost of an evicted or failed lessee is too much.

The present financial crisis is in danger of becoming terminal for a number over valued and over borrowed Pub Co’s from the small to the very large.

The keys to the situation are the licensees, if the trading conditions can be set up to be viable and profitable, long term training and business awareness made available for all, we have a better quality licensee who will invest in his business and property and make it a long term career, this benefits both landlord and tenant.

Any comments would be appreciated.

Barfly

Brulines Cont..

Enterprise fined a lessee for buying out and deducted the fine and their alleged other costs from their D.D.

This was deemed in breach of the banking code and the money was replaced by the Bank in question.

An interesting point, if Brulines information is used for fining or eviction by a Pub Co and assumed to be correct by the Pub Co to justify legal action for eviction.

Surely it would be correct to use the Brulines data to check the figures used to calculate the FMT and rents, if found to be totally incorrect, the Pub Co should be fined, the lessee reimbursed and the Surveyor or  BDM responsible sacked.

The argument that Brulines data only relates to beer sales and therefore would not produce a reasonably accurate turnover frigure is a spurious one since any good stocktaker would easily work out a far more accurate forecast than the present system used by Surveyors.

RICS, TRVG (Trade Related Valuation Group)

My mole in the RICS tells me that the TRVG did not like the comments made by the |Select Committee’s |Findings.

The have supposedly decided to do absolutely nothing of any consequence to their valuation system, this is totally unconfirmed, but has been sent to me from a number of sources. It will be a sad day if they do not address the problems generated, they may think the system is adequate but it’s misuse and abuse proves that the system does not work equally and fairly for both sides.

One learned surveyor was alleged to claim that it was “Greedy Pub Co’s” who were responsible for the misuse of the system which endorses the Select Committee Findings.

However the amount of leaks that came out of the TRVG meeting would appear to confirm that at least one if not two members are concerned about ignoring the Committees Findings and certainly the members of the RICS that I deal with think it would be very unwise for the RICS to alienate itself from the Select Committee or possibly the Competition Commission. The Competition Commission and a number of MP’s have been informed of this alleged information in order to try and steer the RICS back to an unbiased, fair and transparent valuation system.

Good Pub owning Companies

If you run a pub for a good, fair, thinking Pub Company please let us know.

We are very short of them at the moment and have no desire to recommend a company that new or experienced people will have a minimal chance of success. We would also like to be able to direct the better operators to reliable companies.

If you are looking for a pub it is worth contacting these companies if they have any vacancies.

 

Arkells Brewery, Swindon, Wilts:- Traditional family brewers with good managed and tenanted pubs. They are discerning pub owners and have good staff and licensees, West of London on the M4 corridor. 

Bath Ales, Somerset:- They have, at the moment nice well run managed houses with good overall management.

Their pubs are in the Bath and Bristol areas.

 

 

Hook Norton Brewery, Brewery Lane, Hook Norton, Oxfordshire, OX15 5NY, Tel 01608 737210

Palmers Brewery, Bridport, Dorset:-Traditional family brewers with nice pubs and good management.

Pleisure Pubs, Brighton, Sussex, small good Pub owning company www.pleisure.com

Wadworth and Company Limited, Northgate Brewery, Devizes, Wiltshire SN10 1JW  Tel. 01380 723361  Fax. 01380 724342, nice pubs, tenanted and managed in  the South and  West of England.

 

RICS integrity?

 

RICS integrity?

The alleged latest information on the latest decision by the TRVG (Trade Related Valuation Group) to not make any changes to their existing valuation policy, because they cannot see anything wrong with it, regardless of the Select Committees Findings raises interesting questions.

Are they concerned about legal action being taken against them by national companies if they change their policy?

Are they not concerned about the over renting and over valuing of most leased and tenanted pubs?

Are they not concerned about the failure rate within the industry of lessees and tenants and the hardship caused?

Are they not concerned about their professional integrity in not taking action to remedy an identified problem?

Are they being manipulated by a few members whose core income benefits from maintaining the status quo?

My advice which will not rate highly with the RICS, even though I was originally a member, is stand back and looks at the facts, you could be digging a big hole to bury yourselves, which I know a lot of my colleagues who are still members are not happy about.

Brulines Saga Continued (Barrel Dregs)

Bad Beer For Export

Brulines Saga Continued (Barrel Dregs)

The CEO of Brulines is upset at the Select Committee Findings.

What did he expect a gold medal for being involved in hundreds of lessees being threatened, intimidated and evicted in many cases because of his system.

His own employees admit that it is a monitoring service and has not been a high tech calibrated system subject to scrutiny and approval by the Weights and Measures.

Any good engineer would immediately realise that it’s ability for precise accuracy would be in serious doubt.

The CEO is between a “Rock and a Hard Place”, if he admits that it’s use has so far been extended beyond it’s present capabilities, it leaves his clients wide open for possible litigation from people who have been evicted and fined by their landlords. In addition a massive loss of business and clients.

He has two options get the present system approved by the Weights and Measures as a regulatory system which is totally accurate or produce a new system that complies with these requirements.

If the old system does not meet the Weights and Measures requirements as a regulatory system, the Select Committees comments will be correct, if he claims or has claimed that the system meets their requirements and does not, his clients will sue him and he will lose a lot of business. If he maintains that it is a monitoring service and not a regulatory service his clients would be sued.

This could be interesting.