Monthly Archives: January 2010

Is there any truth in a Pub Co needing nine months credit?

Is there any truth in a Pub Co needing nine months credit, when it puts it’s tenants on cash with order when they struggle to pay their bills?

I was at a lunch last week and met the Editor of an influential business publication, the conversation moved to Pub Co’s and where were some of them were heading.

He said that one company had now allegedly insisted that at least one of it’s main service providers extend the companies credit to nine months.

This if true is a serious indictment of the main companies cash flow problems, regardless of what it is doing to the supplier.

Three months credit is outrageous, but has become the norm with all major companies, six months credit was supposedly demanded by certain companies six months ago and now it is alleged nine months, the supply company is either making a massive profit which I sincerely doubt or has a very understanding bank.

The supply company cannot take legal action because the bulk of it’s business is with the main company, if it took legal action it would bring a flood of similar claims and would bring the main company down, it’s a business nightmare.

The main company is making insufficient net profit to service it’s loans and pay it’s non essential suppliers, the writing has to be on the wall.

However on the other side I have visited a number of pubs where the BDM is trying to get rid of the lessee.

The first, the lessee has a favourable lease and a site worth more than it is as a pub with a very limited capability, the BDM is using every ploy to get rid of the tenants.

The second was a town centre arm pit with a low barrelage, they were promised a major refurb, with the rent set to match the refurb.

The refurb did not happen and they increased the business to just under 300 Brewers Barrels in eighteen months, they were told no survey was necessary, everything was fine by their BDM, they are now trying to get them out under dilapidations and a host of other ploys.

The couple have done their job, put the business on it’s trading feet and they are now expendable, they will lose their deposit and new people will be used as a cash cow until expendable.

If the information is right, this whole business has to be so close to Mr Ponzi’s method of trading as makes no difference.

The company would appear to be not paying it’s non essential bills, by extending it’s credit terms, raising cash by dumping good operators and bringing in new people with fresh money and like the losers in the “Weakest Link”, the old tenants leave with nothing.

The chance of getting a good operator is about one in twenty, why get rid of them, you want long term profitability, not short term cash and instability.


I’ve heard of cooking the books, but not cooking the cash.


Just as you thought business couldn’t get worse?  Imagine how one Publican felt when they saw their profits go up in smoke – quite literally – in the microwave!

Mr & Mrs McLoughlin, who run The Miners Arms in Bristol were very busy on the evening shift when a staff member emptied the till of notes.  Upon finding the owners busy he decided to put the notes in the microwave for safe keeping.  He took out the plate of food which was already in the microwave and placed the money inside and shut the door – job done, so he thought.  Unfortunately the owner of the plate of food returned to the microwave and turned it on only to find several minutes later, not his piping hot dinner, but several hundred pounds in burnt cash and some upset owners! 

 Luckily our insurers paid out the claim leaving Mr & Mrs McLoughlin very relieved and our underwriters silently chuckling. 

 This left what was a very worried licensee, the butt of many home cooking jokes by his staff and customers, cooking the books is one thing, cooking the cash is another.

Another snippet from Terry’s Tales of the Bizarre World of Insurance.

  We are big enough to cope and small enough to care.  Call us today and let us quote you happy. 


Is this the end of flawed Comparables for FMT’s?

Barrel-dregs 3

Is this the end of flawed Comparables for FMT’s?

This could represent the end of the misuse of Comparables that are not based on actual accounts, the Judges ruling at the end of this article is plain common sense.


“Great emphasis has been placed by Enterprise Inns, followed by Punch Taverns, on the use of comparable premises on a fair maintainable trade basis.  There seems an almost palpable fear amongst the Pubco’s that any specific reference should be made to the actual tenant’s trading accounts and almost the opposite then applies that there is sole reliance on an estimate of Fair Maintainable Trade (FMT).  Herein lies the problem.


If the Pubco suggests, for example, five other premises in the general area and then advances an estimate of Fair Maintainable Trade rather than actual accounts in respect of the properties, it is fair to say it is an individual’s subjective guess or estimate as to what Fair Maintainable Trade should actually be.  There is no correlation, necessarily, between FMT and Actual trade – indeed it is never cross-referenced by the Pubco’s.  Not to forget that FMT is often not a direct reflection of existing barrelage as that only records sales of draught and bottled beers and ciders and does not record food sales, accommodation or any other sources of income.  The picture is thus set for comparables that are all wholly reliant upon FMT.


The next step used by the Pubco’s and to a certain extent some of the Brewery Companies, is that an estimate is then made of your property in FMT terms, based upon the FMT’s of the other comparables.  In other words a guess upon a series of guesses.  This basis of an assumption upon an assumption has been specifically ruled against in evidential terms in the most influential case of Cornwall Coast Country Club v. Cardgrange Limited which was heard in the Chancery Division of the High Court on the 4th February 1987 before Mr. Justice Scott.  This hugely influential case considered in some detail as to whether or not Tenant’s accounts should be admissible in an arbitration scenario if those accounts were not in the Public Domain.  Lord Justice Scott found that any accounts that were not in the Public Domain would not be automatically admissible in evidence and ruled accordingly.


However, hidden in his lengthy Judgement, which I have had the opportunity of reviewing in great detail, it is his view that you cannot and should not introduce an hypothesis upon an hypothesis, i.e. an assumption upon an assumption.  This is exactly what is now happening with comparables that are wholly based upon FMT being used to then forecast an FMT on the subject premises, i.e. your pub for the purposes of rent review.  Quite simply it has been ruled against and is a practice that should never be allowed to continue.


It is a relatively simple exercise, and indeed to be encouraged, if all of the comparable properties utilised at least start from a valuation base of openly known factual information.  Indeed there are a large number of leases that actually require that accounts should be released to the Freeholder.  Thus there is often the accounts availability that will have a direct reflection on the affordability of the rent agreed


If the accounts are not available then the use of unsupported FMT estimations to form your FMT is, in my view, both misleading and unreliable.

Basing an assumption on an assumption or a guess on a guess has been specifically ruled against.  It is that straightforward!”

David Morgan FRICS

How close have some Pub Co’s been to a Ponzi Scheme???

How close have some Pub Co’s been to a Ponzi Scheme???

I have just returned from a trip to the USA, part business and part pleasure.

The Wall Street Journal was supplied free everywhere that I stayed, for those that have never read it, I consider it to be one of the best papers in the USA, it covers all aspects of life and business around the world.

It amazed me as to how many people were being arrested and charged for what appear to be major Ponzi schemes, the American Courts don’t mess about, when sentenced they are there for life, as with the infamous Bernie Madoff.

The interesting thing about the majority of cases was that the serious offenders were apparently pillars of the community and had been in business for many years, they all represented manipulation of money generated by property, share dealing etc.

In a recession these cases come to light, in a buoyant expanding market you never hear of them.

In the late sixties, in  this country, we had Dover Plan which guaranteed a substantial return to all with terrific growth, various wealthy friends of mine invested until the hint of a recession and they all lost their money.

We had the Lloyds scandal where brokers were selling names on the insurance market, previously being a name at Lloyds was an income for life for doing absolutely nothing and unlimited liability, by doing exactly the same as the US sub prime scandal, selling off high risk sectors of insurance to brokers with ill informed names they removed their own risk and the names lost billions with no reprieve.

The term “Ponzi scheme” is a widely known description of any scam that pays early investors returns from the investments of later investors, most investors are streetwise enough now to not get involved in anything as blatant as that without some existing business credibility these days.

We have had pyramid selling pushed at us for years in various different forms, where the profit from the end consumer is of secondary importance, the key is finding more and more people to sell to another distributor in a long line, which will of course run out of people and everyone involved is trying to sell to an ever reducing market.

Whether the people that get these schemes going are incredibly naïve business men or totally corrupt, I am not sure, looking at their track records, they all seem to start with a bona fide business that becomes successful, they are all very sincere and issues guarantees that are very credible in buoyant times.

Their growth can be phenomenal as they pull more and more investors in, the very early investors do well, later one’s do well for possibly a year or so and the ones still in there at the end are left with nothing.

If that sounds familiar it is purely coincidental.

Recessions are cyclical and vary dramatically in their effect on certain sectors of an economy, consequently they may not be recognised as a Ponzi scheme, but purely as a business failure due to the recession.

The present recession happened so quickly that even the most astute businessmen were left standing, I had dinner with one of Bear Stearns retired senior beings and he was aghast at the speed of their demise and that was not a Ponzi scheme.

The interesting point is when does a legitimate business become a Ponzi or near Ponzi scheme, we have a licensed industry where failure levels are at an unacceptable level.

I was given a copy of one company’s enforced closures before the recession, showing approximately 5,800 closures in two and a half years, which equates to possibly 11,000 people being made bankrupt or near penniless, which as a statistic to my mind is totally unacceptable, I passed the details on to the Select Committee Inquiry.

I am not accusing any company of running a Ponzi scheme, what I want people to do is look at what has been going on and why the industry is in such a mess.

We have companies raising rents to an unsustainable level, which in turn enhances the freehold value without any consideration of viability, the fact that the viability is not there virtually ensures failure except by a very few, very smart operators, who invariably get out at the first opportunity to buy a freehouse.

Rents have been forced up to raise estate values to fund further borrowing, almost every pub owning company has been affected by this to a greater or lesser degree, in reality the Fair Maintainable Trade (FMT) demanded and used if calculated back using the existing business levels will probably show the need for a capacity of at least double the existing wet supply in a number of companies.

This very basic calculation of practicality is ignored by surveyors or BDM’s since they only consider their restricted view of each individual pub and not the whole estate or by cherry picking comparables, which is now in question as a reliable source of rental information.

Growth by a number of companies would not appear to by viable growth, but by manipulation of credit which was the reason that I first bought freehouses, my initial development was funded by credit and was then replaced by viability, which consolidated the business.

Consequently a number of companies are and have been substantially dependent on a constant source of replacement tenants and the need to push inexperienced or limited experience people into their pubs, provided that they have the funding.

How close is this to the modern version of a Ponzi scheme, only the people running the companies can answer that or public opinion, viability in every respect is the key and if this is ignored it does raise serious questions which need answers.

If a company acts as landlord and lets a property for business use at the current market rent, this is acceptable.

If a company acts as a landlord and controls the supply of saleable goods and ignores viability for valuation purposes and insists on rent levels far beyond the realistic norm to fund over valuation for expansion, they know that the levels are way beyond viability in the majority of cases, because of the failure rate.

Whilst the market was buoyant there was an almost indecent scramble to get rid of any struggling tenant to be replaced by one’s with fresh funds.

A few years ago the rate of change for one company was on average nine months, leases were saleable, they are no longer so saleable and the average is eighteen months, which is still unacceptable.

My personal view is that when viability is ignored and expansion is developed on over valuing it runs very close to a modern Ponzi scheme and even more so when the training provided to the tenants is very basic and does not equip them for the long term requirements of the job.

You cannot be a Competent Operator after a one day to two week course, the old brewers insisted on at least a year in a training pub and on going instruction before they took a promotion pub.

Their failure rate was minimal, the tie was acceptable because rents were viable, the majority of rents are in serious question and hopefully this will be corrected in the near future.

Rates are based on rental levels and if rents come down, rateable values should do so as well.


Pub Canopies Increase your useable space


Over the last five years hotel owners and licensees around the UK have discovered the secrets of increasing their profit by installing Zenith Canopy Structures at their establishments.

Since the advent of the smoking ban, licensees have had to re-appraise their business and re-market the features that encourage customers to choose them over a competitor.

 Ian Manners of Zenith said “The benefits to licensees of our canopy structures is that they can be used all the year round regardless of weather.” He went on to say “In strong winds, large umbrellas can move by up to 25cm. This is not condusive to make a customer feel safe and comfortable when eating and drinking outside. When approached by the licensed trade we have used our experience and spent a good deal of time with them discussing how we can make the best use of available space to increase their profits and add real value to their business. We encourage them to provide as comfortable a setting outside as they provide their customers inside the pub. For example, for some reason in this country licensees seem to think that customers like to eat and drink in raging sunshine. Our research tells us that people actually like to eat and drink in the shade under a fixed, robust cover that they feel safe beneath. By adding electric radiant heating and lighting, licensees can create a warm, welcoming environment in all weathers without losing that al fresco feel. Again licensees should consider the quality of material. We use fire retardant material in all our canopy structures. Most giant umbrellas, for example, do not use fire retardant material.” This must be a major consideration when purchasing.

Greg Serjeant of The Great Little Pub Company said “Three years ago we installed one of Zenith’s 28m2 Airone Tipos at The Lord Raglan, Wokingham. It has proved to be so successful that when we purchased The Ring O’Bells, near Maidenhead, we knew that a canopy was a must for our pub garden.”

The proof is also clear at the Longcross Hotel, Trelights, Port Isaac, Cornwall. In April 2006, the proprietor James Bishop installed a 6m x 6m structure on his decking to the rear of the hotel overlooking the sea. In 2007 he added a further 70m2 of covered space and in 2008 he installed glazed walls and opening doors. James said “Business has boomed since and we now have an outdoor function room that caters for up to 150 people when not being used as a day to day eating area”.

Zenith’s canopies are available in a variety of modular sizes and colours.

For further information contact:-

 Ian Manners, Mike Reeves or Craig Gilbert

Zenith Promotions, Stokes Farm, Binfield Road, Wokingham, Berks. RG40 5PR

T: 0118 978 9072  F: 0118 979 3034  Email:

Pub Surveys Tips

Advertise on our site, click on the image to get started.

You may be persuaded that a survey of a leased or tenanted pub is not necessary, like any property transaction either freehold, leasehold or a tenancy, a survey in respect of your property committments is essential.

Firstly you may get a knowledgeable friend to view the property to identify any obvious faults before you commit serious money to a professional survey.

It always seems such a total waste of money to pay for a full survey when there were some obvious serious structural defects which any experienced builder would identify or suspect areas where specific questions need answering whem a full survey was carried out.

Two opinions are better than one, the need for a professional survey is vital before purchase, if something is missed then the surveyor must have professional indemnity, your friendly builder will not.

A full structural survey is essential if you are responsible for the whole building and the dilapidations must be agreed with the landlord or his agent, before you sign the lease, do not sign the lease without a total agreement confirmed in writing to your satisfaction and that there are no outstanding dilapidations.

The industry is littered with dilapidation claims where the landlords agent was alleged to have said everything is fine, you have nothing to worry about.

In respect of tenancies where internal or external decoration is involved, ensure that it is agreed in writing when the next major decoration is due.

In respect of freeholds it is equally essential to have a full survey, since you could be taking on anything from dry rot to animal infestation. Dry rot is always a favourite in beer cellars, where this is always water, very little light and restricted air flow.

Asbestos surveys, electrical wiring and appliance surveys or up to date certificates, heating, boilers and plumbing service records. Gas certificates, energy performance, all external play equipment, risk assessments and sewers and sewerage disposal.

Conclusion to a Ghostly Pub Tale or maybe not.

Monday, January 4th 2010

Christmas had been a nightmare for Eb (Ebenezer) and Si (Silas) the events of Christmas Eve had somehow appeared word for word all over the Internet. How could something that represented a few moments tiredness in two cars late on Christmas Eve on the wilds of Exmoor appear on the Internet.

Both their families had been besieged by texts, phone calls and emails asking if the story was true, they both admitted that they must have fallen asleep and weirdly had the same dream.

Eb had sent his local BDM to check the pub that they thought they had stopped in, there were two pubs on the road that they had taken, the first was the Staghunter’s Inn in the middle of the village and no car park beside the river, the other was the Rockford Inn at the bottom of a steep dip with a car park beside the river. It certainly didn’t belong to either of their companies and had been a freehouse for years, the present licensee was a lady and the pub was full of residents and locals celebrating until the early hours of Christmas Day, with all the lights on, inside and out.

They had seen two very smart cars pull up, both drivers were sound asleep until the gritting lorry came past and then they drove away.

They did say that the Rockford Inn had a kindly lady ghost who appeared from time to time, she was quite slim with slightly curly, longish, blonde hair, vaguely similar to Bridget from the Beer and Pub Association.

She occasionally appeared at festive times after an excess of local cider, though some ex landlords said that cider was not essential.

Eb had phoned Si after a hastily convened Board Meeting on Monday 4th January, Si had strangely done the same, much to their respective directors amazement.

Trying to explain to some fairly hard nosed board members that they might have just got it all horribly wrong, was not easy, they were all very aware that public and establishment feelings were running against them, with a corporate policy that left no room for change without a major re construction of their ideas.

Eb took the bull by the horns, “Our financial commitments are a nightmare in a recessive market, we have falling revenues that will in all probability get worse, in a rising market our model was a success ignoring the licensee failure rate, we have regrettably considered them for too long as an expendable commodity.”

He continued, “This is no longer acceptable, we need the best operators and we need to train every operator to be the best, the estate is too large, property speculation is not the answer. We need to change from property speculation to a solid trading operation, we need to reduce the estate to under 2,000 pubs to comply with the present legislation.”

There was a stunned silence and an uneasy shuffling on chairs.

“We need to sell about 4,000 pubs, I have had discussions with our bankers and others, we offer the freeholds on all but the very best pubs to the tenants, we arrange the finance at sensible terms with a trading tie for the length of the loan with our existing suppliers, at £10 per Brewers Barrel better than they can get as a sole trader, roughly £200 per Brewers Barrel at to-days rates, they deal directly with the individual brewer and get 28 days credit, we get the remainder of our normal discount paid retrospectively one month later.”

“Likewise we will do the same with all our remaining tenants over the next year, this will immediately improve their cash flow, it will reduce our corporate overheads and simplifies the initial operation, it will be unpopular with a number of staff who will have to be made redundant. All existing BDM’s will have intensive training on advising tenants how to realistically improve their businesses including tenants that have bought their pubs using our mortgage facilities. We need to make all pubs viable, if they are not, then an alternative use has to be found. We do not consign pubs or people to the scrap heap of penury. Their profitability is our profitability, for too long we have only considered our profitability which we now realise is unsustainable in the foreseeable future.”

It sounded like someone who had discovered religion, except it wasn’t religion.

“We take a leaf out MacDonalds training book, we train everyone for at least a year in training pubs, as they used to do in this industry, if they do not meet the standard required they can leave at a weeks notice, those that do, then graduate to a quality pub that suits their ability with full information back up, BDM’s are no longer debt collectors, but serious advisers, if the BDM’s cannot do that, they are out.”

The Finance Director scribbled on his pad in front of him and raised a nervous question about short term and long term debt.

Eb continued, “The first year is going to be very tough, the Surveyors and Government recommendations will destroy the whole company, if my information is correct, rents will also be substantially reduced. We have a dinosaur of a company which will not and cannot work in a recession, it will work in an expanding market, but not in a diminishing market, the recession and effects of the recession will be with us for possibly five years. We cannot have a fire sale of pubs it will kill the market, we can sell them to the tenants and even ex tenants with the right deals as they did in the sixties. If we can set up the finance and ensure a trading deal, we raise cash and have an ongoing income, which will go a long way towards resolving short term cash flow problems, this in turn will remove a substantial amount of the major debt mountain.”

“Finally” he said, “ When we have reduced the estate to less than 2,000 pubs and I suggest 1,800 as a suitable target we buy into a number of brewers, so that we become a brewer. We also buy into every company that supplies any sort of commodity that sells in our pubs and fine tune them to supply the very best products for the industry, this will if handled properly re establish us as a major national company, receiving profit from all aspects of the industry and ensuring that our retail outlets have the best prices and trading conditions. If we can achieve this, we might consider exporting the model to other countries. On pub disposals, big is not always beautiful, we want to retain the pubs that are getting the maximum profit out of their sites, whether large or small. There are a lot of problems to overcome, but I am sure that we can overcome them, the alternatives do not bear thinking about, this is, of course highly confidential until we have a complete picture.”

The Board all agreed that if it could be achieved it was a target worth aiming for, the present course left a lot of questions which none of the Board had a clear idea what might result, the shares had dropped substantially and the City Guru’s were pushing sell to all their clients. For the first time for a year a positive feeling started emerging and a sense of direction, there had been considerable threats of a shareholders revolt, a major trade union had found a legal loophole that tenants could go on strike legally for up to twelve weeks which posed a very imminent threat to their already fragile cash flow caused by the recession and other issues.

A smaller diverse company sounded a far better prospect than one that was trapped between bankers, shareholders and very disgruntled tenants, who they now realised were the source of their lifeblood, money.

Eb call to Si, did not discuss the Board Meeting, but strangely the content of both Board meetings was exactly the same, since neither wished to discuss confidential matters.

There was a call from Bridget at the Beer and Pub Association saying that someone or something had written in spidery Copper Plate in her diary everything that had been put out on the Internet, she had no idea how it got there and all the staff were incapable of using such writing without a mistake, the whole thing was totally spooky.

Eb had that feeling that someone had just walked over his grave again, he decided that whatever it cost he would make the company into one where everyone was part of large team and proud to be involved, he definitely did not want anymore Christmas Nightmares like Christmas Eve.

Note:- The description of the Ghost that supposedly haunts the Rockford Inn is correct.

Edited from Bridget’s latest Diary January 2010

Sadly “Nothing has Changed”, but it made a good story, even if it didn’t make any difference

The Final Drink

The Final drink
Late one evening two men came into the bar, looking fairly sombre, bought a couple of pints and sat down and proceeded to drink them. A few minutes later a local came in and asked “Who’s died?” none of us had any idea and asked why he had asked, he said that there was a hearse on the car park, we all dashed out to have a look and I realised that it was the two drinking their pints. After several more pints they explained that they had come from Birmingham and were on their way to Cornwall to collect a friend who had just died. They then joined the locals in an enormous drinking session under the guise of commemorating their lately departed friend, finally leaving for the local bed and breakfast, but leaving the hearse on the car park.

The next day we all had a quiet laugh about the hearse etc and got on with the rest of the day until about eight o’clock in the evening when the hearse returned complete with body of their departed friend. They came into the pub and proceeded to get absolutely legless with the locals saying that their friend would really appreciate it and this was the only way that they could do it. I had panic visions of the departed being propped up in his coffin in the corner of the bar with a pint of beer, fortunately they left him in the hearse on the car park all night, but I must admit I did look out of the window at various times to ensure that he was alright. Whether they had any other stops scheduled for their friend I will never know. (JCP)

Pub Cellar Waterproofing


Cellar waterproofing

Is your cellar a paddling pool, do you need flippers to change the barrels? Despair not, help is at hand and it doesn’t cost too much to keep you dry!

Most cellars are built below ground level and often have problems with water ingress. This can be caused intermittently by regional flooding or the presence of rising ground water levels. Whatever the cause of your particular problem, there is a real need for an effective, efficient and long lasting waterproofing system to provide reliable protection. Such systems are readily available but the selection of the most appropriate to suit specific circumstances should be identified by a specialist in this field.  

There are two main ways to waterproof below ground cellars, either by

A)                The application of a cement or lime based specialist waterproofing product (quite often referred to as tanking) to the inner face of the wall. This works well in conditions of low hydrostatic pressure but is not recommended for areas prone to regular flooding and high water table levels.  


B)                In high water pressure situations by the installation of a cavity membrane and drainage system water ingress is managed and controlled by a combination of an internal barrier installed in association with a capable drainage system. 

In both cases, by the creation of an effective waterproof box, damp unhealthy conditions are avoided within the cellar. Whatever the circumstances, structural waterproofing can incorporate improved insulation as part of the installation. Humidity is controlled and the risk of corrosion to installed equipment and even the electrical installation is avoided. Whatever the system used there are a variety of floor and wall finishes that can be installed from granolithic floors to hygienic wall boards. Therefore, installing an appropriate structural waterproofing system provides that the cellar environment is more efficiently managed and financial savings achieved by reduced maintenance and repair.

With the introduction of a waterproofing system below ground, care must be taken in the fixings to the wall or floor of new equipment. There are methods for fixing into a waterproof system that will not jeopardize its future integrity and a specialist structural waterproofing contractor will be able to advise so that the work will not have been in vain!

In cases where the hydrostatic (water) pressure is light, or the cellar is partially above ground, cavity membrane systems can be installed in a vented mode, where an air gap is left at the top and bottom of the wall to allow the air to move and any water ingress to evaporate. In this method, a drainage channel is incorporated at the bottom of the wall to carry off any excess water collected. However, in a food environment, a sealed mode must always be adopted!

 Drainage provision within waterproofed cellars will often rely on the installation of a sealed pump and sump arrangement. Double pumps with non return valves are generally fitted with either automatic or manual switches. In this way the risk of drainage backflow is avoided in cases where external flooding is experienced. 

 As you can see from this brief overview, the installation of a suitable structural waterproofing system in a cellar needs to take many factors into consideration. It should be appreciated that when it comes to below ground level water levels, conditions can change from property to property. In order to achieve cost savings and provide the required level of protection the advice is to employ the services of an experienced specialist to ensure that the most appropriate system for your property is installed.

 Here’s to a dry cellar in the future or at least one that is free of surface water!

Submitted by

Pub Insurance Tips and points to be considered

Submitted by Kenny Robinson of Batemans Insurance. 01926 405040  email

“The peace of mind that comes from having the right insurance cover is something that is worth a lot to most people. If it is easy to arrange and competitively priced, the feeling is even better!”

Insurance Guidelines
When buying a pub or a pub lease, or even taking on a tenancy, there are many issues for the licensee/ proprietor to deal with. All are important, but some are more imperative because they are a legal requirement. Certain aspects of insurance fall into this category. The legal requirements aside, you may need to provide proof of your insurance to the vendor’s solicitor before the deal is able to complete. Placing the right cover for your circumstances does not need to be time consuming or onerous if you are armed with the right information and consider your insurance from a ‘what is best for my business in the event of a loss/ disruption’ point of view, rather than just another inconvenient expense. The right cover does not have to cost a lot of money! The editorial below is aimed at providing you with enough information to discuss your needs with a broker or insurance company, and to ensure that protect your business as best suits your needs. Every business will have some needs in common, but not all will be exactly the same. What follows is meant only as a guide to assist you in considering your needs.

(General Background Info)
The need for cover
Individuals, companies and organisations who have insurable risks – property, legal liabilities and pecuniary interests all need insurance as a result of two things, either:
 1) statutory requirements, for example employers’ liability insurance; and
 2) business requirements.

Picking a Broker rather than a Direct Insurer should give you added piece
of mind as the Offices are generally smaller, ensuring that you are dealt
with as an individual rather than just a number.

Sole traders/partnerships
The smallest businesses are sole traders (for example, an individual who runs their own business and may employ staff) and partnerships of two or more individuals.
These businesses require insurance that is specially developed for their business and the particular problems they experience. Many licensees fall into this sector.

Commercial insurers have responded by developing ‘package’ policies to meet the insurance need os such businesses. A commercial ‘package’ policy is a single contract incorporating a combination of insurance covers, with limited scope for change, usually at a rate of premium less than if the covers were purchased separately. However, some packages are more adaptable than others in ensuring that the cover is right for you and a Taylor Made package is always best to ensure that you are not over or under insuring.

Small and medium enterprises
These are the next step up in terms of size of business. The type of cover most suited to meeting the majority of the requirements of this type of risk is usually referred to as a combined policy. A commercial ‘combined’ policy is a single contract policy incorporating a combination of optional covers, usually at a rate of premium that represents a discount for placing the covers under a single contract. For larger businesses individual policies are often more appropriate.
Benefits of commercial packages – to customers
The advantages to customers of commercial packages are:
 1) simple to understand – all covers are in one policy with one set of
 administration and claims arrangements
2) often they have been tailored to their specific trade
3) cover is often wider and may include other extra non-insurance services
4) the premium is usually lower as a result of cover standardisation and
economies of scale.

Common policy cover
The common covers provided in any commercial package are:

(If need to edit and remove section above, start again here)
Buildings/ Contents
Fire and additional perils (aircraft, lightning, explosion, storm tempest and flood, burst pipes and impact), or all risks
Sums Insured – These should represent the full replacement costs – Buildings Insurance should include a sum for demolition, architects fees and full re-build costs. 
Material damage cover should be arranged to cover fire and the full range of perils including accidental damage if available and affordable.
NB It is imperative that you know the terms of your lease and insure everything that is your responsibility. Special attention should be paid to those items that are fixed or part of the building and that are your responsibility e.g. bar counters, internal staircases, roof coverings etc. Whilst the main fabric of the building may be covered by the ‘landlord’ for fire and storm damage, you may be liable for an excess of £1,000 or even £2,500 in some cases. You should consider this when placing your own trade and liability cover and assess your options with your insurer on this front.
Damage caused by leakage of beer or other drinks from pumped containers is covered under some policies automatically.
Terrorism cover will be excluded but is usually available as a buy back.
Subsidence cover should be included.
If the premises have sprinkler systems it will be necessary to specifically include accidental leakage of the sprinkler system.
Under the contents section a separate sum insured will be required for stocks of wines, spirits and tobacco and possibly for audio / lighting equipment if there is dancing on the premises.
Some policies automatically include the proprietors and employees living on the premises own household goods and personal belongings. Others require such property to be specifically added. Inner limits are likely to apply in respect of valuables.
Debris removal costs need to be carefully considered in order to ensure that the overall sums insured are adequate to comply with increasing environmental legislation controlling the disposal of waste.

Theft cover will be subject to violent and forcible entry to or exit from the premises in many cases and will exclude theft involving the collusion of staff. Theft of property in the open is likely to be excluded.
Some policies may be adaptable to extending theft cover to include persons unlawfully on the premises, but this may have additional cost implications.

Money insurance generally has separate limits for losses in and out of business hours and at the home of the policyholder and other authorized personnel. It is important to be clear how the policy interprets ‘home’ if the pub or bar is also the home of the policyholder or any employees.
Where there is living accommodation on the insured premises only the business premises limits may apply. The home or private residence cover limits would not therefore necessarily apply in addition.
The cover on any vending or gaming machines needs to be checked. Whilst some policies will automatically provide very limited cover for money and / or stock in vending machines this is not always the case. Gaming and amusement machines may not be covered by the definition of vending machines.
Automated teller machines (ATMs) are becoming more common in pubs, bars and clubs. They will be excluded unless specific cover is arranged as they remain a significant attraction to thieves. Insurers do have market agreements with the ATM suppliers governing the installation and security of the machines.

All fixed glass is usually included in a package policy and is often stipulated by a pub company or brewery as needing to be co-insured by the licensee.

Goods in Transit
Most stock is usually delivered and as such would be protected under the carriers insurance. It is useful to have this cover if you transport any stock in your own vehicles.

Assault (PA Assault)
Part of the money cover, this protects you and your employees against injury as a result of assault in the event of a malicious attack by persons stealing or attempting to steal money or trade contents.

Business Interruption
Organisations in competitive fast moving industries need to get their businesses back up and running as soon as possible as their competitors will quickly seek to attack their customer base.
Licensed premises, particularly if the establishment is a ‘trendy nightspot’, should therefore consider additional (or uneconomic) increased costs of working cover in addition to the standard increased costs cover provided under the ‘gross profit’ item of the business interruption section.
Additional increased cost of working cover is not subject to the economic limit applied to the standard cover under the gross profit item, that is, a sum equal to the gross profit saved as a result of incurring those additional costs.
This allows the policyholder to recover all reasonable costs incurred, with the insurers’ consent, in getting the business back up and running as soon as possible.
The licensed trade is almost universally a seasonal business and therefore should have business interruption cover for a maximum indemnity period of at least 18 months, in practice, usually 24 months.
Whilst it is accepted that a minimum of 18 months is required policies are usually sold on a 12, 24 or 36 months basis.

The policy should include business interruption following:
• denial of access to the premises as a result of damage by the insured perils to neighbouring property
• failure of the public utilities, gas, electricity, water and telephones, due to the insured perils at their premises
• murder and / or suicide at or in the vicinity of the insured premises, usually limited to a specified radius
• outbreaks of infectious diseases (excluding Aids) in the vicinity of the business premises, usually limited to a specified radius.
Careful consideration needs to be given to the policyholder’s reliance on individual suppliers. Some policies will automatically include cover for unspecified suppliers up to say 15% of the gross profit sum insured.
If the dependence on any supplier or customer exceeds this figure, or there is no automatic unspecified cover, then a specific extension will have to be arranged. This could be a significant factor if the establishment is ‘tied’ to one brewery.
Often included under the business interruption section is cover against loss arising out of the loss of a liquor licence from causes beyond the policyholder’s control. The policy would, up to the agreed sum insured or limit, cover:
• depreciation in the value of the business
• subsequent loss of profit.
Particularly if the establishment is a ‘trendy nightspot’ additional (or uneconomic) increased costs of working cover should be considered under the business interruption section.
This avoids the standard economic limit to additional costs insured under gross profit insurance and allows the policyholder to recover all reasonable costs incurred in getting the business back up and running as soon as possible.
The standard economic limit would otherwise restrict the additional costs insured to a sum equal to the gross profit saved as a result of incurring those additional costs.
Many licenced premises have modern point of sale technology (tills) that assist stock control and management. Computer breakdown business interruption cover should be considered for such systems. Larger computers may need to be insured under a separate engineering policy.

Employers’ Liability
This is a statutory requirement and the standard cover is set at £10 million. Your Employers Liability Insurance Certificate should be displayed at all times in a prominent position.

Public Liability
Products Liability (if applicable)
The public liability indemnity limit will generally be at least £2 million any one claim but should certainly not be less than £1 million. The products liability indemnity will be the same as the public liability indemnity limit but aggregated in the insurance period, that means the indemnity limit will apply to the period of insurance rather than any one claim.
The critical factor for pubs, bars and clubs in assessing an adequate indemnity limit is typically the public liability accumulation risk. This is based on how many people can be on the premises at any one time, allowing for special functions and events.
If there is a car park on the premises it may be a condition precedent to liability that a notice is displayed stating that vehicles are parked at the owners’ risks and that the proprietor does not accept liability for damage to the vehicles or their contents.
The public liability section should cover wrongful arrest or eviction and nuisance as well as negligence and trespass and both the employers and public liability sections should extend to cover the Health and Safety at Work Act defence costs.
Where a club keeps membership records cover for legal defence costs arising out of data protection law would be advantageous.

(Another possible edit point, although I expect you will have had to edit quite substantially by this stage!)
Additional Fringe covers and Legal Expenses
Others which are frequently included as standard (either according to the needs of the trade or the quality of the insurance product the insurer wishes to provide) or available as options, are:

Book Debts
Primarily this is protection for businesses who have numerous clients paying on account.

Engineering (Inspection)
Often a separate policy is required to provide any engineering cover required for example, a statutory inspection service, or deterioration of freezer contents if the sum insured is too high for the combined package. Steam vessels and passenger lifts could fall into this category.

Exhibition cover
Provides public liability and stock extensions for business that exhibit their wares away from the primary business address.

Frozen Foods
Deterioration of freezer contents cover is provisional upon the freezer, chiller or cold store being the subject of a regular maintenance agreement and often has a limitation in respect of any of the equipment insured.

Legal Expenses
Commercial legal expenses insurance should be considered, in particular for:-
• defence of statutory licences
• employment disputes
• criminal defence costs
• property disputes, particularly if the brewery is the landlord
• representation costs for tax investigations and VAT disputes will be more       attractive to the smaller businesses, most typically, freehouses.

Never before have businesses had to comply with so much red tape with regards the employment of staff. This comes at a time when most businesses are also suffering with the gloomy economic outlook; in short it’s a tough time for business owners.

The statistics in relation to employment disputes are worth close consideration; they show a startling rise in litigation. What makes employment disputes such an issue for employers is that almost all claims against them fall under the jurisdiction of an Employment Tribunal,  where, in the vast majority of cases, they have to pay their own legal fees, regardless of whether they have acted correctly or not. Because of this fact, and the considerable management time it takes to oversee such issues, many SME’s are now buying protection from such costs in the form of commercial legal expenses insurance.

Theft by employees (fidelity) cover may be available but is rarely purchased by smaller businesses. The loss of money cover will usually cover theft by employees as long as the loss is discovered within a specified time, 7, 14 or 30 days. Theft of stock is not covered.

Important Points that may affect your cover in the event of a claim

Ensure that you read your documents, including any clauses, exclusions and
warranties, as if some are not adhered to your policy could be invalid

Ensure that all facts are disclosed, ie previous claims, financial
problems, ie CCJ’s or bankruptcy. Quotations can still be given, however
non-disclosure could invalidate the policy

Under insurance will cause concern as policies are subject to the “Average Clause”, ie if you insure for £250,000 and in fact you should have insured for £500,000 and you have a small or large claim, only 50% of the total amount of the claim will be paid as you were only insuring 50% of the sum insured

Picking your insurer can be a tough decision, do you pick the cheapest or
go in the middle? Provided you have checked the sums insured, cover
provided, warranties, endorsements and exclusions the price should not have a bearing on the cover.
Conditions precedent to liability or warranties may require the proprietor to take specific precautions when using deep fat frying equipment and / or comply with any minimum security requirements, important in respect of both the fire (arson) and theft covers.
A stillage warranty is likely to apply to any premises with a basement or cellar requiring all stock to be stored at least 150mm off the groun