Monthly Archives: July 2010

Barrel Dregs, Great Pub Co. Con. Update. (87)

Barrel Dregs, Great Pub Co. Con. Update. (87)

My apologies for raising this topic again, but it is essential to make as many people question what is going on and please pass it on to everyone that may appreciate it.

I had a phone call a some time ago  from a reader of the Web Site saying that he had just viewed a paper written about ten years ago by an ex lessee of a major Pub Co.

The content of the paper was virtually the same as my Pub Co Con, except it named Pub Co’s, names and figures involved.

The writer had been bought off for supposedly about £550K and sworn to eternal silence under pain of severe retribution should the document get publicized, he was asked to appear or submit evidence to the Select Committee which he declined and remains very nervous and in obscurity.

If this is correct, this is a terrible indictment of certain companies activities and the people that run them.

Having looked into it as far as I am able to, it coincides with a number of acquisitions at the time, where millions of pounds changed hands and any form of proof document of this nature would have caused a major scandal and financial mayhem, to buy silence for a few £100K was neither here nor there, but physical threats are something else.

We all know that certain undesirable people can be bought to carry out all sorts of activities assuming that you have enough money, totally anonymously, goes on. If this is in fact correct and I am assured it is, I just hope that the people involved are no longer connected with the industry, we have enough legally unscrupulous people already.

I have been subject to two years attempts to discredit me for my submission to the Select Committee and my efforts to stop corporate abuses to honest licensees, hopefully I will be able to say that the matter has been concluded to my satisfaction shortly, if not it will be a very interesting story for Barrel Dregs.

The Great Pub Co. Con or how to manipulate an industry. (Update)

Purely thoughts from a Bar Fly

First of all a group of City Whizz Kids get together, they decide to deal in property, but not just any property just pubs, there is no regulation the whole industry is fragmented, it is in fact wide open to manipulation.

The Monopolies and Mergers Commission have brought in the Beer Orders, no brewer can own more than a specific number of pubs, so a stack of pubs will be sold off at rock bottom prices, lots of land, buildings, tenants with leases and ties on supply. It’s a licence to print money.

They buy their tranches of pubs, they screw the suppliers for three months credit, put all their lessees on fourteen days direct debit, they have immediately generated stacks of cash, in fact millions before the first bill has to be paid. Banks think they are wonderful, being City Guys they know where to get the money to expand. They hoover up all the small Pub Co’s at good prices, this raises their estate value and impresses the banks.

How do they raise the rents without incurring a lot of legal come back, get their own and supportive surveyors to draw up a Valuation Paper under the Professional Institute banner hence this Valuation Paper  is born chaired by one of the Pub Co’s Chief Surveyor with other Surveyors who are possibly dependent on Pub Co’s for business. To be fair to the Institute this would be the apparently obvious thing to do, it is very easy to baffle anyone who does not fully understand the vagaries of the pub tied industry that the direction taken by this committee was not the correct one. They would appear to have completely overlooked having a surveyor on the committee to represent lessees and tenants or anyone that had the foresight to realise the future implications for lessees and tenants. This document professionally legalizes rent increases on a basis of future trading or an alternative use, none are specifically definable or can be calculated, in most cases on the middle to lower end of the estates existing turnovers are ignored and a rough bricks and mortar valuation is used.

Totally over valuing the trading ability of the property and creating unsustainable rent levels.

High turnover property is valued on trading ability, if the bricks and mortar valuation produces a lower notional value, this is why high turnover pubs are not having the same problems as the middle and lower end pubs, their rents are still high as part of the aim for high estate values.

By constantly pushing up rents this in turn revalues their whole estate, further impressing the banks and shareholders. At the same time they have been buying up all available good freehouses and depending on the turnover or the bricks and mortar valuation to achieve the highest rent and ultimate valuation.

(One major Pub Co bought a high turnover destination pub for just over one million pounds and set the rent at £75K, which was possible with a good operator, both lessees struggled, the second is in serious trouble, the property itself without the level of business would barely fetch £550K.

The second pub bought for £465K with a turnover of £220K and given a rent of £34K, based on the bricks and mortar valuation, all three lessees have been in trouble, the first vanished overnight, the second sold it with unaudited accounts owing money everywhere, the current one is hoping to sell as soon as possible before his credit runs out, the turnover is just below or the same as the original at purchase six years ago, all were and are experienced operators.

A newcomer to the industry took over a pub in South Devon the Turnover was £120K the rent £32K, the Pub Co involved accepted his business plan, he was delighted.

To service the rent and overheads he needed to increase the turnover by 300% to break even. The term Caveat Emptor is conveniently used by all these Surveyors, Pub Co’s and business agents, this to my mind is totally unacceptable and has to be stopped.

They have not released any pubs back into the open market as freehouses as the old brewers used to do to stabilize the freehouse market, in stead they have sold them on to other Pub Co’s at high prices because of the rental levels. This in turn creates a scarcity of freehouses and ensure that prices will always remain high, safeguarding their securitization against loans.

Pubs were only released into the open market individually with covenants restricting any future use as a pub, they are for alternative use.

By virtue of this massive estate value and the cash flow creates the illusion of a very safe company, provided a recession does not come along.

Update:-The recession has caused mayhem with these companies cash flow and they are now being forced to sell pubs on the open market, which totally undermines the book value, since pub values are not quite in free fall, but money is vital to service the debt mountains. A recent Pub Co pub was sold for around £165K, it was up for rent at £26K and the mortgage payments are £331.00 per month, if the pub doesn’t become viable in a year it will be sold for development.

Having created these massive estates of pubs, they put all their aspiring lessees through very rudimentary training, very few being capable of reaching the dizzy business heights to service the rent and tie combined, they last roughly eighteen months purely because of the problems disposing of an over rented lease, to be replaced by another aspiring naïve lessee. The rents are supposedly established for a competent operator at the greatest stretch of the imagination these newcomers will never achieve that status without a number of years of profitable trading.

Business agents could be construed as misrepresenting the pubs that they sell, since they are all aware of the competent operator standard relating to rent levels, they again hide behind Caveat Emptor.

They have various rescue packages which usually takes the form of cash with order which substantially improves the Pub Co’s cash flow and means the lessees future is strictly limited without a major cash injection, often very hard to do. Their other rescue packages are short term expedients, temporary rent reductions which are repayable on selling the lease. On assignment of the lease the out going lessee is responsible for any defaults by his successor, a kick over from the Privity of Contract banned in 1997, the option to get out of that is a payment of a percentage of the sale figure, usually £7K plus or the greater by percentage.

Having created these monster Pub Co’s far in excess of the Beer Orders requirements, since they do not brew beer they can legally own these vast amounts of pubs. They now have a dominant position in the market and effectively exert control over various organisations, professional bodies and endless suppliers, they can now dictate the market, they have a cavalier disregard for their lessees who are failing constantly and losing their hard earned money and being made bankrupt, evicted and homeless or just might manage to sell their lease to another sucker. They decline at all times to disclose the failure rate and how many lessees are totally disenchanted with their trading conditions, their Web Sites promise everything and give very little apart from an ability to extract cash at every opportunity.

The whole thing is a brilliant con in achieving this power and sadly this power is being abused. The rents are unsustainable the tie and lack of discounts makes lessees uncompetitive, even if the tie was removed it would not make the bulk of these pubs viable because of the rent levels, which have been pushed to the crazy heights to raise the estate values to raise more money. The myth that leases could be sold at a profit, which the Pub Co’s have always pushed, applies to high volume pubs up to a point, but all the others the high rental levels are making them uneconomic and extremely difficult to sell even with minimal value, certainly not the expectations promoted to newcomers to the industry, which these Pub Co’s feed off.

The levels quoted for the average value of their pubs is far in excess of normal freehouse valuations, since normal freehouses are based on turnover figures and not inflated rental values. In fact in my opinion the true values are up to 50% less than quoted, which puts these companies into negative equity, which would be fine as long as the market is expanding, but since it is falling as well as property values, the cash flow is dropping, pubs are boarded up and even more people are failing since banks are very reluctant to loan money to overstretched lessees. It raises the spectre of a very inflated bubble about to burst with the recession biting. Very few companies are in a position to take over these mega companies especially with unsustainable rents that are not linked to turnover and profitability, the key source of their income is stretched to the extreme and falling. They cannot sell pubs back into the open market as individual premises because the true valuation of their estates would be exposed, something has to give. See Update above.

The suppliers across the board have been sucked in by these companies to provide them with up to three months credit with minimum of profit on their products, they in turn are owed thousands of pounds and cannot afford to let them collapse, in a number of cases it could create a domino effect with disastrous consequences, similar to the early sixties in the building industry with a number of large companies using the same tactics.

Sadly all the other pub owning companies have followed suit in rent levels following this seriously flawed Institute document, which is in mine and a number of others opinion the key to all the lessees problems. It was set up by people with a vested interest in raising all the values of rent and freeholds across the industry with no concern for the tenants, it may have been unintentional initially but when the enormity of it’s effect was understood, it has been utilized without any consideration of business viability to achieve the maximum value by very aggressive companies to the maximum effect. The result is expendable, ill trained lessees, the Licensed Trade Charity is inundated with hardship cases of new and vastly experienced, long term licensees who are being evicted from their pubs and homes by the avaricious greed of these companies.

If they had not been so greedy, they could have had sustainable rents linked to existing turnovers, which may not have given them the massive capital growth, they could have given up to £160.00 a barrel incentive based discounts on beers etc at today’s values and 28 days credit. Which would have made virtually all their pubs viable, their tenants would have remained longer, the administration costs and lack of continuity of these changes would be vastly reduced. They could have sold all their failing pubs back into the open market individually, which would keep the freehouse market active, they could have had a condition that they had first option to buy these pubs back at current values if successful, they could have agreed to supply all beers at say up to £170.00 a barrel, which would have given them an enormous discount coming back for no work at all. Their natural growth would not have been so rapid, but their assets would have been well consolidated and they would not have failing lessees and public opinion against them.

It would be nice to put the clock back, but this cannot happen and a lot of blood letting will occur. Licensees are not an expendable commodity, but an essential commodity in this operation. The major Pub Co’s and a lot of small ones could be between a “Rock and a Hard Place”, I just hope that they have the sense to realise by having expendable lessees, tenants that they are killing their money makers, vacant pubs do not make money, they cost money.

The recession, has as predicted, played mayhem with the majority of Pub Co’s, their inability to understand how to motivate a Licensee persist, added to a reluctance to accept that the only cash source is by selling products, in a shrinking market.

The thinking Regional Brewers have realsied that the Pub Co Model is doomed and are trying desperately to distance themselves from this method of trading and getting back to their core business of brewing and selling beer, sadly because of the removal of the need for existing business figures to be factored into RICS original rental calculations guide lines, virtually every company using a member of RICS has been infected with over renting.

This in turn has created enhanced balance sheets and to explain to shareholders that they have to come back to reality is not easy.

The COP’s being approved so far are, unfortunately endorsing the Pub Co Model by failing to define precisely and accurately a Competent Operator, Reasonably Efficient Operator or an Average Operator, all can be interpreted at what the decison maker sees fit, in fact the lowest common denominator if need be, i.e. having taken the NCPLH which entitles anyone to have access to a licence provided that they do not have a criminal record.

FMT without detailed guidelines based on facts is equally as wide open to abuse.

The Industry has to get back to selling beer and products, with defined professionalism, there are too many people who are incompatible with the industry, the lack of adequate in depth continual training and guidance would remove these people and develop the abilities of the people with potential.

We need the best operators and they need to make a decent living, not screwed for being successful and evicted, to have an inexperienced hopeful run a good business into the ground.

One of the founders of the Pub Co Model who has left the industry now, said that the Pub Co Model is unsustainable and to pursue it is financially folly, he in my opinion is right.

Barfly

The views expressed are not necessarily the editors and www.buyingapub.com accepts no responsiblity for them, we do try to avoid offensive or litigious statements being made.

 

Barrel Dregs, a further sequel to BD64 (87)

……Pot Boy seems to have stirred up an almighty hornets nest over Barrel Dregs 64. Calls are being made by a certain Pubco to “pass the tape to them”. Well,first of PB has not even identified the Pubco ! Caps are fitting and all that. Guilty is as guilty does.

Word has it that the Pubco concerned wants to weed out the person concerned.Promote them to higher places ? Sack them ? PB just hasn’t a clue other than the person concerned, if he’s reading Barrel Dregs, is having a very sweaty time not knowing what the future holds.

Any number of Companies could in theory be turning such a blind eye to their BRM/ARMs bully boy tactics.One thing for sure NO DICE in handing over the tape. What was given in total confidentiality stays in TOTAL CONFIDENCE. PB will continue as one of the free and unfettered voices in Barrel Dregs and continue to publish that which is sent/told to him with names and places “protected”,but the facts,if verified,will go out to the world at large.

Pot Boy

Comment

Two well known whistleblowers were proved legally right, but they never worked in the industry again, the establishment closed ranks and sealed their fate, we can expose the abuses and hope that the companies involved will take action to rectify these activities.

We would suggest that all companies give their Managers instructions to look at Barrel Dregs and make sure that they don’t feature in it, conversely if a Manager does do a brilliant job then we would like to give credit where credit is due.

Finally, please, please, all our readers, get a small tape recorder and insist on recording all discussions with the company representatives, if you have the least doubt about the content of the subject or person you are dealing with.

If they refuse to talk report them to the MD of the company involved or us and we will raise it with the company.

Tape recorders can be bought off ebay for very little money, I carry one everywhere, it’s amazing how the conversation changes from aggresion to moderation.

Barfly

The views expressed are not necessarily the editors and www.buyingapub.com accepts no responsiblity for them, we do try to avoid offensive or litigious statements being made.

 

Barrel Dregs, sequel to BD No 64 (83)

Pot Boy is more than chuffed at the continuing daily expansion of the readership of Barrel Dregs and the increasing number of messages that come in from all parts of the Country.

Very heartening and thanks to one and all.

Keep it all coming as your identities and case histories are safe and sound.

We now have  a complicated double Catch 22.

Bit of background first.

Pot Boy passim No 64 was a precis of a long tape recording sent in strictest confidence.

No names,no pack drill and the Pubco was not identified as were none of the people involved.

Well shock horror when PBs Editor was contacted the other day by The Oval Man, hot foot from discussing Pot Boy with the No 2 in a Pubco (“Igor”) who demanded to know both the identity of Pot Boy plus the identity of the beleagured Tenant and the release of the tape in question.

Well go swivel “Igor”!!

First,Pot Boy NEVER EVER reveals his sources.

They stay buried and will always be so.

Second , the Pot Boy identity stays as evenly BURIED in the Licensed Trade with feet in both camps, one lease and one freehold.

(Ed.”.I think we will call it a day there !”)

Next, that piece 64 must have hit a very raw nerve to get the urgent request that it did.

This raises the first Catch 22.

If the Pubco Director’s cap fits so neatly and he  thinks he knows who it is, why not give the offending mortal the boot.

Problem !!

Pure conjecture , but the guy might just be getting spectacular results for the Pubco by again and again using the same appalling tactics that were confirmed in piece 64.

Heaven knows, he might even be headlining the rent success story in house for exceeding targets.

Turn a blind eye and let the results keep rolling.

Sod the Tenants, think of the toxic debt mountain and troughing solid bonuses.

The Pork Barrel wins yet again.

Should he go or should he stay ?

Difficult if the Corporate hand is not forced.

Let sleeping dogs lie.

What if the true identities are , by consent of the Tenant, allowed to came out ?

The next catch 22.

The Tenant is rightly concerned that the Pubco will easily bear a massive grudge if the good ‘ol boy concerned becomes a sacrificial lamb and is for expediency fired as “a rogue element” to keep the corporate image squeaky clean.

Discourages the troops doncha know.

Although the blind eye is always turned,any of his colleagues might be caught out by a steerwise Tenant with a hidden tape recorder.

Tatty Bye safe job, no company car, no pension and no laptop.

What chance of easy employment for a failed BRM.

Well work that one out with a pencil !!

The outwards corporate image is all and BRMs seen as failures are but cannon fodder !!

The Tenant is no fool.

The Corporate memory is exceeding long.

Remember Bernie and Delores Creehan, they were effectively black listed for ever more as a result of standing up and being counted.

Was it truely worth it ?

Good question.

Todays Pubcos are if anything more vindictive so I don’t blame the Tenant in piece 64 for staying beneath the radar.

So neither side has any real incentive to “fess up”.

Sort of Catch 44 !

Another day another dollar and more barrels to change.

Love the polycarbs,they are so much lighter !

Pot Boy.

Comment from Ed, there is at least one other cases very similar to No 64 with another company, my advice would be keep the tape safe and I would suggest that it might just make the company take large steps to ensure that it’s BDM’s etc act responsibly, if not it is one for the Select Committee at the right time.

Comment from Barfly, I have been subjected to recrimination for exposing the truth and my advice is like Pot Boy’s keep your head down until you are sure that you cannot be got at and use the information where it will be most effective at the right time, if you need to. The main thing is use your mobile phone or get a small tape recorder and record every conversation with any company representative that you do not trust implicitly, for your own peace of mind. I see too many people who have been promised everything and received nothing. What happened to honesty?

The views expressed are not necessarily the editors and www.buyingapub.com accepts no responsiblity for them, we do try to avoid offensive or litigious statements being made.

 

Barrel Dregs, Oh dear! Oh dear! Marstons have upset Potboy??? (78)

The Net is a wonderous research tool in the proper hands.

Pot Boy was hearing glowing and glossy praise for Marston’s new “Open House Lease” as championed to the trade press and anyone else who would care to listen,by their guvnor Alastair “The Choirboy” Derby.

So PB Googled “Base Lease: Marston’s Pub Company” and up she came.

You can do the same to cross check what comes below if you can be really bothered !

First,the very good bit.(Yes there is one !).

The Lease is written in compliance with Crystal Mark 6763 with clarity approved by the Plain English Campaign.

Thank heavens, a clear and easily understood document..at last!

But as ever the devil is in the detail,and there are some very nasty mucky bits.

The Base Lease is Fully Tied (other bolt on semi or FOT options exist but lets stick to the simple Fully Tied version).

Rent for the first FIVE years is linked to annual increases in RPI with a generous “cap” of 5%.So , as an example, if RPI continues as it is this month at just over 5%,and the rent is say £30000, the rent at the end of year five is £38288.

Thats a 27.6% increase, not 25%, because the annual increase compounds itself.

Geddit ?

Then at the end of year five there is a full rent review.

The review is UPWARDS ONLY.

So much for the rubbish about “upwards and downwards” reviews.

Good on”The Choirboy”,  just how slippery can you get !

Oh,and the solid Parliamentary recommendation that the machine tie should be a thing of the past.

NO CHANCE.

Full machine tie on a 50/50 split of net proceeds basis, so the Tenant gets about 30%.

NICE !

There is Flow Monitoring , par natch, because they really trust their trading Partners, so that’s allright then !

Plus a Service Charge and a Decorating deposit.

Then comes the fun bit, what Pot Boy calls THE STASI FACTOR.

Clause 4…Access.

Clause 4.c.1/2 page 17. (Standard three days written notice for all sorts of things)…but…”Where we have good reason to think you have not carried out your obligations under this lease we will not give you any notice…we will promptly repair all damage we cause to the property and replace any goods that we damage in carrying out these rights”.

What this means is that if there is an inaccurate Brulines report (highly probable according to Trading Standards nationwide !) and Marstons THINK you have been buying out, Marstons can break in at any time 24/7 to suit themselves, and so can their Agents…read Brulines blokes or even the Bailiffs !!

Signing this lease gives away ALL YOUR RIGHTS.

Not even bad old Inntreprenneur was as evil as this.

This clause can only be a back up to Brulines,the good old spy in the cellar.

There just cant be any other plausible reason.”Ere,I think there is some dodgy Brie in your fridge”…No I dont think so !!

What a trusting bunch they are !!

Oh, and if you object to a 6 AM bust and stand firm to protect your property, under Clause 6(a)(8) it quietly states… “if you are abusive or violent towards or physically or verbally threaten any of our employees we can bring this lease to an end”.

My,My,they really want to love their partners don’t they.

There is yet another STASI clause in 4.k.(6) page 22 “You must allow us and our agents to enter the property without notice to inspect the alcohol and food “Er,we dont think your raspberry ice cream is pink enough !!

Then the weasel words, its a sort of fig leaf gesture, but it exists bless ’em.

Clause 5 (a) page 28 “As long as you keep to the terms of this lease, we will allow you to use and enjoy the property without us or anyone under our control interferring”.

A true Pinnoccio moment for “The Choirboy”.

Just when you were feeling warm and cuddly about being left to your own devices, you should reflect back to something which will really help you to look after yourself and your loved ones, Clause 4 n (3) page 25…”You must give us within seven days of us asking copies of your trading accounts and VAT returns and any other business records and information we reasonably ask to see”.

You see, Marstons are so close to you as Partners, they want every last ounce of you personal financial records.

ENJOY !!

It would appear that this so called ground breaking lease is a true tightening of the screw in a manner that would make Inntrepreneur blush.

If you must take on the Open House lease, and you won’t be able to change one single clause, reflect on all the other options that are increasingly available in this wide open leasehold market.

Back to cool sanity.

Pot Boy.

The views expressed are not necessarily the editors and www.buyingapub.com accepts no responsiblity for them, we do try to avoid offensive or litigious statements being made.

 

Barrel Dregs, how Self Employed are you???? (77)

Ah, the joys of self-employment.

The freedom that comes with being your own boss.  You can work when you want, do what you want to do, buy stock from who you want to do.

You’re running your own business.

The search for freedom was probably a major factor in your decision to enter the licensed trade in the first place.

No more rat race, no more commuting to a dreary office, no more having to take orders from a boorish boss.

Sure, you don’t get a regular monthly salary, but that’s okay because you’re a savvy entrepreneur.

You accept the risks and reap the rewards and relish the opportunity to be successful on your own merits.

But what’s this?  Your Enterprise Inns BDM has just told you not to do any repairs, maintenance or improvement works without their pre-approval.  You scratch your head and start to wonder who is in control of your business.

You thought that by owning the lease you could run and organise your pub the way you wanted, but now it appears not.

At the end of a tiring day you sit down and have a think.

You have to buy your supplies from your Pub Co, at whatever prices they dictate; they can increase your rent at any time without even an explanation; they can demand to review and approve your accounts at any time; they can evict you with the flimsiest of excuses.

The list of things that you have to buy through or from the Pub Co, insurance, accountancy etc. is endless, even more so with a so called Rescue Package, they take their cut at every corner.

And then it dawns on you.

You work for the Pub Co – you’ve become a de facto employee.  But it’s worse than that, because you’ve had to pay your Pub Co many thousands of pounds of your own money for the privilege and shoulder all the burden of risk.

You have little or no security, and what security you have can be taken away from you by the Pub Co with the slightest of provocation.  And yet you don’t receive a comforting, steady pay cheque at the end of the month as other employees get.

More and more, employment specialists are now questioning the employment status of landlords.

It used to be simple – if you had a contract of employment with a company you were an employee.

If you operated your own business you were self-employed.

But that changed several years ago – no longer would the Inland Revenue treat a person’s employment status as simply a black and white matter.  And that’s where it gets interesting for pub lessees.

The Inland Revenue have, for many years now, assessed people’s employment status on the actual reality of their contractual relationship with another company, whether it’s a supplier, agency or contractor.

They’ve a series of tests to assess whether you’re an employee or self-employed.

It’s a process called IR35 and it’s designed to ensure they get their fair wedge of tax from “disguised employment” at a rate similar to employment.

“Disguised employees” are workers whose relationship with their client is such that had they been paid directly they would be employees of the client.

So what are the tests the Inland Revenue use?

Well, to be self-employed, you need to be in business “on your own account”.

You’re responsible for correct payment of tax and national insurance for yourself and all staff who work for you.

You’re not subject to any other company’s Policies and Procedures and therefore cannot be dismissed.

To be deemed as an employee, the Inland Revenue consider whether you work regular hours, are subject to another company’s Policies and Procedures, and – here’s where it hots up – you’re required to use another company’s equipment, buy stock only from them, adhere to their trading rules, produce results that they can approve or not and get permission to make changes to the way you work or the environment you work in (such as maintenance, making repairs or improvements).

For pub lessees it’s not clear cut.

Almost certainly, you’ll recognise in yourself some of the factors of employment as well as those that signify self-employment.

The Inland Revenue will make a judgement based on the balance of each criteria.

Many pub tenants are, on balance, self-employed, particularly if their Pub Co maintains a clear distance between them and the tenant.

But amongst the more draconian (and that includes some of the largest) Pub Co’s there’s growing evidence that the balance is changing, and in some cases it could have tipped the other way, so some lessees should be deemed as employees.

So, do you run your own business, safe in the knowledge that you can run it however you like?

Can you personally benefit from all the hard work you’re putting in to the business to make it a thriving and profitable success?

Do you enjoy autonomy from any other company in the way your pub is run?

Or have you become an employee of your Pub Co without your knowledge?

One thing that is very certain, the majority of lessees are so hard pressed that the taxman will owe them money if they have paid any tax in the previous year, the Pub Co’s are so debt laden that their tax committment will be very low, so the Inland revenue loses out big time.

If the Inland Revenue were convinced that lessees were employees of the company because of the tax that they are losing, the Pub Co’s would have to release their draconian positions, the lessees may start to make money and pay tax, the Pub Co’s will continue to lose money because of their debt situation, it’s an interesting poser, which only the Inland Revenue can make a definitive statement, they are losing millions in possible tax revenue from hard pressed lessees paying for the Pub Co’s unsustainable conditions.

Revenue Man.

The views expressed are not necessarily the editors and www.buyingapub.com accepts no responsiblity for them, we do try to avoid offensive or litigious statements being made.

Barrel Dregs, beware of becoming a TAW (Tenant at Will) (76)

A very nasty story was passed to me today.

A couple of years ago a Pub Co who shall remain anonymous put a family into one of their pubs under a Tenant at Will Agreement (TAW), they were delighted, the terms were very favourable and they were making a success of it.

The children were delighted with their new school and doing well, as soon as the BDM heard this he insisted that they sign a lease at a grossly inflated rent and the rest would have been history, not quite, the Pub Co were threatened with exposure and backed down.

How many others have been caught on this same scam with children, I know from my own experiences, that having the children in decent schools is paramount whilst you are running a pub, to exploit this is criminal, forcing people to accept an unworkable lease because of family pressures.

The variation on this is putting someone in on a TAW with a low rent to stop a pub closing or to encourage a lessee to occupy a pub and develop a commitment.

I have too many people who have done this, liked the pub, invested money in the premises to make it work only to find that they are threatened with eviction once they are committed unless they sign a lease at an inflated or unsustainable rent, invariably they do not have a survey, the legal side is neglected because they are occupying the premises, the result is a financial disaster.

Please, Please, Please if you become a TAW ensure that you at least have a written commitment as to what the rent will be and ensure that it is viable.

My latest heart rending story is a very honest lady took a TAW, had all sorts of hassle from the last evicted lessee, she managed to invest all her available money in putting the pub right, thought she was trading well and building up business, when the BDM insisted that she sign a lease or be evicted, Mr Nice Guy turned into Mr Nasty as soon as he thought she was committed.

The rent was more than 25% of the turnover, she thought she would lose all her investment if evicted and signed the lease, the BDM then said in a casual throw away statement which she has recorded “This Pub has never ever made money.”

Because she has no hope of making a profit, she is now in debt and the caring Pub Co have served her with an eviction order, all this within a year and her husband has left her.

She has cleaned the pub up into a viable concern and the Pub Co will let it again, to some unfortunate.

These activities cannot be given press coverage at the time only afterwards, we have to stop it.

We are thinking of putting a book on this site with all the devious practices by Pub Co’s to extract money by any technically legal way to warn newcomers.

Barfly

The views expressed are not necessarily the editors and www.buyingapub.com accepts no responsiblity for them, we do try to avoid offensive or litigious statements being made.

Poppleston Allen, Licensing finally moves to the Home Office

Responsibility for licensing finally moves to the Home Office

  • Date: 20/07/2010
  • Source: Poppleston Allen
  • Author/Solicitor: Jeremy Allen

 


In one of the new Governments most widely expected moves the responsibility for licensing is transferred from DCMS to the Home Office. That is all except in relation to regulated entertainment which remains with DCMS. This may be because of the work that has been done in relation to a Bill to govern the provision of live musical entertainment in licensed premises. We shall see.

In many ways this is sad news. DCMS was given responsibility for licensing in the early years of the decade and was responsible, arguably with inadequate resources, for the Licensing Bill which became the 2003 Act. They also dealt with Gaming. The Home Office made determined efforts to regain control and have now done so. It will be interesting to see how the law develops.

For more information please contact Jeremy Allen

Barrel Dregs, a comment from a BDM who has seen the light???? (73)

Joining the dark side

 

After eight (5 happy) years working for breweries and pubcos as a BDM I have decided to leave to run my own pub, “are you mad” I hear you cry, “but you have seen what happens”.

So what is the difference between myself and all the other hardworking (some) licensees; Well first of all I have come into it with my eyes wide open, I have researched the area, the potential customers, what those customers are currently being offered and what they want.

Secondly I am investing in the pub – if you have always done the same thing how can you expect different results.

And finally I have bought the freehold.  This pub on a tied lease was paying £26k per annum rent with no discount.  My interest repayments are £351 a month and beer is half the price I was charging tenants a few months ago.  What if it does not work?  With 12 months trade figures of the business struggling I can apply for change of use.

So why did I leave?

 

For the past two years I was having around three conversations a day with tenants with serious financial difficulties.  I can not blame the pubcos for the rent they were charging, the tenants were more than aware of this, they had produced business plans to show this works.  I blame the pubcos for everything else – Extortionate beer prices, inflated insurance charges, imaginary service charges, that odd £500 that appears here and there and not to mention the stealth back handers…. I mean royalties they collect – AWPs, buying groups, nominated suppliers, accountants the list goes on.

What needs to change?

 

I think we all know this; the pubcos need to rebase all rents, beer costs and other charges.  Will they? NOT IN A MILLION YEARS!

If a PLC pubco owned by shareholders turned round at there next AGM and said next year the profit we made from rent and beer sales will be halved to allow the licensees to make some money, the share price will hit the floor, if it can go any lower, there will be a big rush for those shares to be sold and someone will be knocking on George Osbourne’s door at 11 Downing Street to ask to be bailed out.  It is never going to happen.

There is a big understanding in all pubcos that they need better operators.  We can bang on about better training and better entry requirements but the more people know about what they are going to take on the less likely they will.  The pubcos need the great operators who are already established, these operators know what they can buy freeholds for so are looking for free of tie leases at tied lease rents, or discounts to the same extent £150+ a barrel.

Final Thoughts

 

If buying a freehold stay clear on the pub companies that are 49% owned by Lloyds TSB and market pubs for sale with every agent that will have them.  They will accept your offer along with everyone else who makes an offer.  After you have incurred arrangement fees, surveys and solicitors costs, two hours before they exchange with someone else they will pay you the courtesy of telling you that they have issued contacts to someone else.

Wiser BDM

One comment that I would question, is about tenants understanding the rent levels, the majority that I meet have no c0ncept of an unsustainable rent levels and the acceptance of their business plan however fatuous or unrealistic to the experienced eye makes them believe that their proposals are viable.

Sadly the pushy BDM, desperate for a tenant is often economical with the truth, the pub industry is littered with shattered dreams and totally unacceptable business plans.

I see them too frequently and my phone rings too often.

Barfly

The views expressed are not necessarily the editors and www.buyingapub.com accepts no responsiblity for them, we do try to avoid offensive or litigious statements being made.

Poppleston Allen, Government’s Proposals for Licensing Reform (Update)

The Government’s Proposals for Licensing Reform (Update)

  • (Press Article)
  • Date: 28/07/2010
  • Author/Solicitor: Jeremy Allen

 


The Home Office consultation that I reported on in my eNews earlier today also deals with the whole issue of banning below cost sales. It points out that there has been growing concern over the last few years about how cheaply some alcoholic drinks are being sold. Over a quarter of local residents perceived drunken, rowdy behaviour to be a problem in their area and it states that the Government is committed to ensuring that local people are able to enjoy all parts of their community without feeling intimidated by those who have drunk too much alcohol. It also wants to reduce the burden on frontline services of dealing with drunken behaviour. The Government is carrying out a review of alcohol pricing and taxation. It is considering with this a ban on the sale of alcohol below cost. It points out this consultation will inform the review.

The consultation points out that the definition of “cost” of an alcoholic product significantly differs. All retail businesses negotiate their own prices with suppliers. There may well be differences between the off trade and the on trade in the definition of “below cost”. The Government is also concerned about EU trade and competition laws and points out that most EU countries with similar policies have banned selling below “net invoice price”. It points out that one option might be to specifically define an “average cost”. It points out that this might be easier to enforce than determining the true cost of each product but it could also be a barrier to trade. As an alternative, the Government is considering a mandatory licensing condition. This would make it a breach of the licence to sell alcohol below what it costs. In other words, no sale could be below the cost of purchase.

The Government is clearly being careful in respect of this proposal and we shall have to wait and see how it is finally resolved.

For more information please contact Jeremy Allen .

Poppleston Allen, Government’s Proposals for Licensing Reform

The Government’s Proposals for Licensing Reform

  • Date: 28/07/2010
  • Author/Solicitor: Jeremy Allen

 


The Home Office has published a consultation entitled “Rebalancing the Licensing Act”. It talks about empowering individuals’ families and local communities to shape and determine local licensing. Whilst it starts by praising licensed premises working with the police to reduce alcohol related harm, mentioning BIDs and BBNs, it then goes on to make suggestions for improving the licensing system, which will make most licensees’ hair stand on end. The changes suggested could have a bigger impact than those made when the Licensing Act 2003 came into force. That was consulted upon and took around five years to come into force. Here the response is required by the 8th September and the intention appears to be to legislate as soon as possible using the Police Reform & Social Responsibility Bill, which will be produced later this year.

In this eNews, I will attempt to highlight the Government’s proposed measures for change with a few of my own initial comments. In future eNews, I hope to deal in more detail with some of the proposals:

• Give licensing authorities the power to refuse licensing applications or call for a licensing review without requiring relevant representations from a responsible authority – A major change with licensing authorities being able to rule on their own representations. It is additionally proposed that the authority will have to accept all representations from the police, and adopt all their recommendations, unless there is clear evidence that they are not relevant.

• Remove the need for licensing authorities to demonstrate their decisions on licences “are necessary” for (rather than of benefit to) the promotion of the licensing objectives. – The Government is consulting on shifting the onus onto applicants to show how their licensing application will impact on the local area.

• Reduce the evidential burden of proof required by licensing authorities in making decisions on licence applications and reviews –

Making it much easier to take decisions which may impact adversely on the licensed trade. There are a number of proposals which would give the licensing authority much greater powers to make decisions that would be difficult to challenge. There are proposals to affect the appeal process to reduce the number of appeals that go to Magistrates. In addition, and very surprisingly, there is a proposal that the licensing authority’s decision should take immediate effect pending any appeal. If the licence was therefore revoked, no trading could take place prior to the appeal being heard.

• Increase the weight licensing authorities will have to give to relevant representations and objection notices from the Police.

• Simplify Cumulative Impact Policies to allow licensing authorities to have more control over outlet density –

The Government feels that there are too few CIPs – only 129 in March 2009 – it believes that the evidential requirement is too high and should be reduced. It is worth remembering that Cumulative Impact Policies weren’t even included in the Licensing Act 2003 but were introduced by local authorities. There legitimacy has never properly been challenged.

• Increase the opportunities for local residents or their representative groups to be involved in licensing decisions without regard to their immediate proximity to premises – They will remove any need for residents to be within the vicinity. This could raise the possibility of an organisation objecting to licences all over the Country. The government also proposes to increase the definition of interested parties to include school governors, housing associations and registered social landlords.

• Enable more involvement of local health bodies in licensing decisions by designating health bodies as a responsible authority and seeking views on making health a licensing objective – It is difficult to see what representations health bodies could make unless health is a licensing objective. This would follow Scotland.

• Amend the process of appeal to avoid the costly practise of rehearing licensing decisions – This would give licensing authorities almost complete control over the whole process of licensing without it being capable of being challenged. It is difficult to see how this proposal will be compliant with Human Rights’ Legislation and European Community Law.

• Enable licensing authorities to have flexibility in restricting or extending opening hours to reflect community concerns or preferences – The Crime & Security Act 2010 – if it comes into force – would enable local authorities to restrict the sale of alcohol between 3am and 6am. The suggestion is to amend this to enable local councillors to decide between which hours (e.g. from midnight to 6am) they would like to prevent premises from opening. If the Crime & Security Act is used, this would mean all premises having to close between those hours rather than allowing, say, night clubs to operate later than pubs.

• Repeal the unpopular power to establish Alcohol Disorder Zones and allowing licensing authorities to use a simple adjustment to the existing fee system to pay for any additional policing needed during late night opening – ADZs were always difficult, so the new proposal will make it easier to cover all premises selling alcohol and will also pay for the police and possibly taxi marshals and street cleaning etc.

• Substantial overhaul of the system of Temporary Event Notices to give the police more time to object, enable all responsible authorities to object, increase the notification period and reduce the number that can be applied for by personal licence holders – Bang goes the power to reduce the application period for a Temporary Event Notice, in fact longer periods of notice are proposed, e.g. pub/ off licence, one month instead of the current ten working days. It suggests the police period of objection could be extended to five working days and allow other responsible authorities to object using the licensing objectives.

• Introduce tougher sentences for persistent underage sales.

• Trigger automatic licensing reviews following persistent underage sales – In other words, there will be an automatic licensing review regardless of whether the police think it necessary. There is also a suggestion that the 48 hour closure notice should be increased to 168 hours or seven days.

• Enable local authorities to increase licensing costs so that they are based on full cost recovery – No surprise here. Mention made of the Elton Report proposing increases in licensing fees but surprisingly no mention of the Government contributing some ?£50 million to the shortfall! No surprises that the increase in fees should be based on full cost recovery so, if you are in an area where the local authority takes greater action, you could be paying more.

• Enable licensing authorities to revoke licences due to non payment of fees – This goes back to the old system of automatic revocation of a licence if the fee wasn’t paid on time so, if you don’t pay the fee for whatever reason, then you lose the licence.

• Consult on the impact of the Mandatory Licensing Conditions Order and whether the current conditions should be removed – They will probably still come into force but could be scrapped later.

I make no apologies for the fact that this eNews is much longer than most. The proposals would, if implemented, signal the most radical change to licensing laws ever attempted in the shortest possible time.

For more information please contact Jeremy Allen.