Pub and Restaurant Rents
The world is facing a serious financial crisis, China could be holding the world to possible financial ransom, the US is certainly struggling with China holding trillions of it’s financial markers, if the news is to be believed, Europe and the Euro are teetering on the brink of something that a lot or most politicians fail to grasp.
They, like a lot of politicians are looking to see how they can promote themselves rather than address and understand the situation, it all sounds very scary.
In the pub/restaurant industry across the globe, the markets are shrinking as ordinary people try to contain their expenditure, because of the uncertainty.
The industry that we are all in does not manufacture and export, drinks suppliers do, but the people that run pubs and restaurants do not in the main.
The only solution is to cut overheads, not sack good staff, because unemployment reduces the market even further and discontented ex staff do you no favours in terms of PR.
Firstly we have the extortionate rip offs by the Energy suppliers, if you fail to renew or change your Energy contract they put you on an outrageous “Deemed Rate”, far in excess of your normal rate, they have been stopped from doing this on domestic property by law, but they still have a loophole on commercial property, contact (http://utilitiesdirect.co.uk) they will always talk to you, this is not a commercial for them, but I have always found them excellent.
The point of this article is for landlords of any commercial property, pubs, restaurants etc.
We all know that freeholds have been grossly over valued without any consideration of viability, the only exceptions are the ones where their viability value was in excess of it’s perceived rental value, these issues were raised to the RICS and steps have been taken to remedy this serious flaw in the system.
The only real way to lower the overheads is for landlords to reduce rents to bring the businesses that are struggling back to viability, I can see the shrieks of horror from our readers, I would point out that I am also a landlord on various commercial properties and it is a statement that I do not make lightly.
To a number of corporate landlords they have no room to manoeuvre with their corporate borrowings, especially those that have followed the Pub Co Model, but more realistically what are the alternatives?
You have a failed tenant, who has to be removed or has gone, possibly bankrupt, an empty property with a failed business in a recession, not good, a boarded up property with a lease for sale sign, again not good for your corporate image, deteriorating property with possible vermin and even worse squatters, finally the local authority want full rates as we found out, nearly to our cost.
As soon as we realised that good long term tenants were like “Hens Teeth” we put an application in for conversion to residential, being a brown field site, needless to say after eighteen months of planning stress we got the change of use, despite the original planners enthusiastic advice that the property should never have been commercial in a close residential area.
The planning as anyone knows is good for five years, rates for being vacant were nil for some considerable time, it was costing us nothing, but no tenants on the horizon and then the bombshell we had to pay full rates from April, this left one option, to implement the planning application and start work, the roof came off and still they wanted the rates, we finally managed to convince them that work had started and rates were non payable, but the thought that we would be liable for several thousands of pounds of rates very regularly with no tenants income or a tenant to pay the rates is a very sobering thought.
A number of companies are using the ploy of telling their lessees to assign their leases if they are struggling, sounds easy, what is the value of a struggling pub/restaurant lease, barely fixtures and fittings value, the landlord wants an assignment fee and a guarantee by the lessee of the incoming tenant for the duration of their time, a kick over from Privity of Contract, banned in 1997.
It’s a mess, the unscrupulous landlords using the dilapidations con without spending the money they receive, take over the property and hope it will relet, fat chance on a boarded up business.
The Family Brewers are in the business to sell beer and any other products that they produce, if they have empty, boarded up pubs, failing tenants they lose their core sales market and there is more profit in selling beer than collecting rent from struggling tenants.
Take a hard look at your rents, some family brewers have already reduced rents to help their tenants, a tenant making money invests in his business, one that is not drives business away, very few people support a loser and listening to whinging publican is not good for business.
You need good licensees, far too many have been put on the scrap heap with companies following the Pub Co Model, if rents come down, rates will have to come down since they are linked together, rents to be viable should be between 6-8% of turnover depending on the degree of tie.
I am making this plea to the Family Brewers to set the trend because they are in it for the long term, whereas the Pub Co’s are not it is straight money manipulation, see (The Great Pub Co Con in the April 09, Archives on this site).
There are Pub Co’s who are in it for the long term and act like brewers without brewing beer, it would be good if they would consider this proposal, if they have room to be flexible.
We need good operators and viable businesses, but we need to reduce overheads without destroying the businesses, we all accept apart from a few that many rent levels are unsustainable and the related valuations far in excess of their viable worth.
Punch Taverns shares are in danger of being converted to Junk Bonds, Enterprise Inns shares are tumbling, far from their dizzy heights, there are a string of these companies that have followed the Pub Co Model very much to their cost, all under capitalised to stand even a whiff of a recession let alone a major recession.
We need to stabilise the industry by realistic, pragmatic thought, we have lost too many good people and the industry has too many newcomers that have no idea of the minefield that they are entering, experience has to be earned not bought off an inadequate three or five day course depending on who you go to or even the rediculous multi choice answer questionaire that is supposed to give you the knowledge to understand your commitments with a Pub Co lease.
This is one reason why this site was set up, to try and provide information across the board, not just the information they teach you on a course, most is common sense, but a lot of buyers of pubs and restaurants common sense vanishes as soon as they open the door to customers, years later they kick themselves for being so naive.
Don’t condemn this article for suggesting this idea as a start to a solution, it has always been the first action that I have taken with good tenants, reduced the rent and as a multiple operator I have always negotiated better terms for my tenants on supplying beer etc than they can negotiate, I in turn was paid the additional discount above their discount and everyone was happy.
The views expressed are not necessarily the editors and www.buyingapub.com accepts no responsibility for them, we do try to avoid offensive or litigious statements being made. They are written by concerned professionals in the industry who feel that these issues should be raised to ensure that all licensees made fully aware of many hidden pitfalls.