COP Overview Part 2
Unfortunately, Bateman’s COP has been the subject of my scrutiny following my learned colleagues comments.
I would like Stuart Bateman to take the comments, not as a rant against a brewer, but objective observations from a long lapsed brief member of the RICS who has been involved in commercial property and pubs for many years.
The thought behind his companies COP is extensive, but certain aspects which, if incorporated into and obviously accepted with other COP’s raise serious doubts by some of us, as leaving the door open to abuse by the unscrupulous.
Rents are based on FMT, what is Fair Maintainable Trade in a falling or virtually static market, depending on where your business is.
FMT was the term by the old brewers for the level of business that could be reasonably achieved by a specific business, they knew exactly how much business was available and set realistic figures based on the historical trading by that business, you did not get a BDM/BRM or whatever name the company called them coming in and demanding a 30% increase in FMT based on Cherry Picked Comparables within a fifteen mile radius as I have seen on too many occasions.
FMT should be based on actual trading, economic conditions at the time and subject to detailed facts.
The trading within the business at that time is it’s actual market share, any growth is at the cost of another business, business is finite, FMT assumes that business is infinite and the same by the use of Comparables.
Comparables when used in conjunction with FMT ratchet rents higher and higher, in many cases unjustifiably so.
FMT is always viewed in respect of an individual business, but in reality the industry would probably need at least six new major breweries to satisfy the perceived demands of a collective total of all FMT’s throughout the country.
This why if FMT is to be used in rental calculations, it has to have a clear cut defined method of calculation and be based on the existing business at that time, which whether high or low is it’s market share at that time.
If a business loses business to a new tenant, the rent should be reviewed at the next scheduled review, if this is ignored it collectively ratchets rents higher and over estimates the true business available.
The other point about FMT is that in theory the use of FMT irons out the goodwill factor in that none should be carried over into the assessment of FMT.
This never happens in real life which puts the whole dodgey business of FMT assessment to the sword !
It would be very interesting if every brewer with pubs, viewed their overall sales to their tenants and then calculated the over estimation of the collective FMT for those tenants and compared the difference, then compared their own sales performance on overall brewery sales and projected sales, it would be excellent if both figures were similar and indicate a thinking brewer, sadly I think the majority would find the FMT percentage figure way in excess of the brewery overall sales percentages.
The use of the RPI is another costly step for all tenants in the valuation of rent, it does not reflect the state of the market within the licensed industry, but the inflation in most essentials to living.
Drinking in pubs and the use of pubs is not an essential to living as we can see from the cheap sales of alcohol in supermarkets.
The licensed industry has in recent years one of the highest business failure rates of almost any, industry, before the Banking Crisis one major Pub Co’s Taw and Closed Reasons Tracker showed 5,800 enforced changeovers/failures in two and a half years, that is not a successful trading record, what it is now with the recession is an embarrassing closely guarded secret.
The RPI does not reflect the loss of business within the licensed industry, brought about by the recession, government legislation and the activities of a number of companies within the industry.
In addition the use of the RPI is only appropriate if a premises can be granted a change of use with a straight forward planning application, pubs in the main do not enjoy this benefit, the majority are locked into the licensed industry as a source of business, by tradition, community and the configuration of the building combined with location.
If the RPI was a direct reflection of the economics of the industry it would be suitable, but since it is not in virtually all respects of it’s calculation, it is in my opinion a serious error of judgement to link any rental calculation to the RPI.
To the thinking brewers with pubs, your pubs always used to be your showcases to sell your products, with the tie they should have fair rents to make them profitable for tenants and brewers as they used to be, not a vehicle to squeeze more blood out of a near bloodless stone.
I always wanted my tenants to make money and invest in their businesses and my property, keeping tenants poor achieves nothing, every enforced change costs around £30K , lets try to make the industry a success and a fair and transparent industry to be proud of.
Brewers are in business to sell beer, not getting their fingers burned on property speculation.
If you agree with these comments in both articles, send them to every pub owning brewer, the BIIBAS section dealing with COP’s and anyone that may appreciate these comments, we need to make all these bodies think outside the present box, use the facility to email at the top of the articles.
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