Pub Insurance. Tips for making sure you have the right cover.
When purchasing a pub or taking hold of a lease whether it be for the first time or an addition to a growing portfolio it is important to make sure that you have not only got the correct level of pub insurance but also that the right covers are in place to protect you from a large array of potential claims and ensure that the damage to you business is also kept to a minimum.
You need to consider what is the most amount of stock you are likely to carry at one time during an average period. (You don’t want to find yourself short of cover should a claim arise).
A lot of pub insurance policies now take into account seasonal increases in stock and give you an uplift at traditional busy times such as Christmas. Check with your broker or provider if your policy includes this or have the option to do so.
Contents which may also be referred to as fixtures and fittings may be split into office electrical equipment and all other contents such as your tables, chairs, bar, tv screens, kitchen fittings etc. It is simply all the furniture, business equipment and accessories within the building.
When taking out this insurance it is important to make sure that the value you are insuring for will cover all of the contents in the building as in the event of a total loss for example due to a fire all items within the building may be lost.
This cover will be needed if you are the owner of the building or your lease contract states you are liable for the building insurance.
The value you need to insure the building for is the rebuild value of the property which is not necessarily the same as the market value. This is the cost of removing any debris from the site, architects/ surveyor’s/ consulting engineer’s fees, material and labour costs. This information is normally acquired when consulting on the mortgage.
Business Money is covering the two different parts of your money; physical cash on the property and non-negotiable money.
Physical money on the property relates to any cash which has been taken during the day and over night, this will normally be split between working hours, in transit and in a bank night safe and over night in a safe on the premises. Non-negotiable money is any card payments which could be lost if there were to be a theft or insured peril.
When thinking about cover for money it is important to remember you may have money stored in a gambling machine, jukebox or in an ATM on the premises as this cover may need to be added to the policy.
This section is broken down to three subsections;
Automatic cover usually included on all of our pub policies, it will provide you with cover for a loss of gross profit following any loss or damage to the insured. By correctly estimating the expected level of gross profit you will be indemnified for
Accounts receivable, cover for any outstanding debit balances owed to you or owed which cannot be traced following a loss.
Loss of licence will cover your business for any loss of gross profit due to the pub/ business losing its licence under no fault of its own. If you were to serve underage customers and lose your licence as a result this would not be covered. However if the local council decided to re-evaluate your licence due to persistent drink related problems occurring in the area of which you were not entirely to blame, you could be indemnified for a loss of earnings. (Remember all insurance policies are different and to check your cover with your provider if you are unsure about any aspects of your cover).
Pure and simply the most common type of insurance for business’, this protects you from any claims arising in conjunction with injury or accidents that has occurred to any third party or property whilst on your premises. Third parties such as contractors, suppliers and entertainment providers.
Employers Liability is a legal requirement for any employer of staff. Employers Liability can automatically include cover for any stated employees including temporary staff you will take on at seasonal peaks such as Christmas. Most policies will include this to a standard level of £10million despite the law only really specifying £5 million is required.
BII in serious financial trouble
This is a copy of an article from the PMA on the BII, for those that do not have access to the PMA.
BII interim CEO Peter Thomas has been asked to serve in the role full-time for 12 months to offer “stability” and “commercial leadership”, following a turbulent year in which the institute has run up a deficit of around £400,000.
According to documentation seen by the PMA, the organisation’s finances are described by BII (British Institute of Innkeeping) chairman Martin Grant as “pretty grim”. Cash and reserves have fallen from £1.5m in April 2006 to the point where the BII will “require an overdraft in June”.
Membership has dropped by a third from 17,261 to 11,643 over the same period.
A joint venture to provide training and accreditation services to Chinese interns has collapsed (see below), leading to £124,000 of debts due being written off.
Speaking to the PMA before his appointment was ratified by the BII Council on 24 April, Thomas said he was comfortable with current membership levels and insisted there was no crisis at the BII, adding: “Normal financial management is running. We own our offices and have plenty of cash.”
However, he accepted that concerns about the future of the BII were legitimate. The institute is putting a major reorganisation to a high-stakes members’ vote at its AGM on 8 May. The national council would be reduced in size from 40 to 16, comprising 10 regional chairmen and six industry experts.
“This is not necessarily about costs,” said Thomas, pictured. “It’s about trying to be a slicker, more clever organisation with the ability to focus on key issues.”
However, there is opposition to the plans from some regions, and Thomas is nervous about the vote being lost, asking: “If that vote fails, what happens to the council?”
Thomas has issued a challenge to the BII to get back to a core, compelling offer and tell people: “Here’s what we can do for you.”
He accepted the organisation has taken its eye off the ball in the face of new competition offering cheaper and easier qualifications. “We can’t complain about that,” he said. “We need to be slicker and better and our marketing must improve. Our marketing hasn’t been good enough. We should have competed on quality.
“The quality of our exams is unquestionable — it’s the best product on the market. I’m comfortable we’ll get through this.”
However, Thomas believes the BII needs “clever, sensible strategic brains that understand what’s going on”. He admitted the organisation’s leadership is getting old. “The average age is near 70. We’ve been looking at a three-year plan, but where’s the 2020 vision? Where is the next generation?”
Thomas vowed to work with a “genuine core of people who want to help”, to “flush through issues and bring new people on board”.
He added: “I’ll stay on for as long as it takes, and I will go as and when it is appropriate, and the future is clear. The BII needs to be a different organisation. It will be.”
The China deal:
Partners Beijing Compound World Education & Technology Co and the Education Section of the Chinese Embassy (UK) have walked away from the BII deal, querying the suitability of “imperfect” BII qualifications to their market. However the BII is trying to rescue the partnership.
The BII, which describes itself as “the professional body for the licensed retail sector with a remit to raise professional standards” has been criticised by its auditors Sayer Vincent for failing to: carry out sufficient due diligence; draw up a legally-binding contract; and mitigate against financial, legal and reputational risks on the Chinese deal.
However, the BII CEO Peter Thomas insists the BII has not lost money on the deal, saying an initial £60,000 payment covered the BII’s set-up costs. The Chinese delegation has been removed from the BII’s Surrey HQ to minimise further costs.
And Thomas said: “[The project] is still running. We’ve a new agreement coming through. I’m not walking away. We must redefine what we are doing with the Chinese.”
The finacial reports below are a clear indictment of serious problems within what was a sound body and is no more.
Nigel Wakefield ex CBII unless there is a serious change in management and greater focus on members and not Pub Co’s.
My own thoughts put on the PMA Forum
The BII has been in steady decline since Martin Grant took over as Chairman, any member with any serious involvement in Regional Activity or membership will back this, the movement has always been away from recruiting long term members and pursuing paid for members from Pub Co’s.
Giving a total dependence on Pub Co remuneration, whether through qualifications or bought membership, many of us expressed our concerns and were ignored.
The qualification side has always been an expensive farce with highly paid staff writing more and more qualifications that very few people took up.
One proposal for a qualification on Rent and Rating calculation, an absolute essential with the present rent and rate level, the director of membership at the time said to me that the Pub Co’s would not like it, a further attempt to get this approved was continually blocked as being not suitable.
As Dave has said all these quango courts for Pub Co abuses etc are bound to secrecy for whose benefit, certainly not the licensee.
The Industry needs open and fair arbitration, it needs a totally fair and neutral body, not one controlled by people with long affiliations to the worst Pub Co’s by BISC’s standards.
The BII should be totally fair and honest to both sides, though there should not be any question of sides, the industry should be working together as it used to until the Pub Co Model emerged.
The financial side of the BII was always predictable, many senior staff were and are grossly overpaid for their input and their attitude towards many members in distress I found appalling with minimal investigation before passing it over to people like me to deal with, because I was not employed by the BII and removed their responsibility.
The Industry needs a body to Police the Industry with enforceable powers the BII has totally failed to achieve this, failing it’s members and has now failed financially, serious questions have to be asked at the AGM if it is to be taken seriously ever again, and not to be considered as sub branch of the BBPA as it is at the moment in many lessees/tenants eyes.
I spent thirteen years recuiting members and the last six were restricted by lack of professionalism in the BII approach to membership, obtaining members names and money at all costs rather than serious professionals to become members of a professional body, people being made members over the phone with absolutely no idea of BII benefits or contacts, it was driven like Pub Co’s in a dash for cash, a sad day, I will certainly not be renewing my membership for two reasons, one lack of professionalism the other, will the BII be in business in a year with the present management.
The people I feel sorry for are the great staff below executive level, my apologies to them for downgrading the BII.
The Smoking Newsletter
Posted: 23 Apr 2012 03:00 PM PDT
Pubs Closures are at 50 every week
With 50 locals closing every week, Britain’s hard-up pub trade has become one of the most distressed sectors in the country, according to figures from an insolvency specialist.
Figures released by Begbies Traynor showed a 95% rise in ‘critical’ financial problems in the pub sector since the beginning of the year, making the sector the hardest hit of any type of business in the first quarter of the year.
The report classifies problems as ‘critical’ when a company has debt-related county court judgments (CCJ) worth £5,000 or more.
The numbers are stark when compared to the 7% fall on average in critical distress levels across all business sectors, and a significant drop among manufacturing firms.
The restructuring firm previously warned that football clubs were experiencing 19 times the average levels of business distress in the country, with the industry seeing several high-profile failures and administrations.
“Duty increases are hitting pubs particularly badly, and a survey out today suggests in the first quarter of the year, the consumption in pubs was down by 57 million pints and at the same time there was an almost equivalent increase in terms of drinks spending in supermarkets,” Begbies Traynor’s Julie Palmer told Sky News.
The company said many pubs were unable to keep up with changes in consumer behaviour which has resulted in more at-home drinking by increasingly less affluent young people and students, once the staple customer of pubs and bars.
Ms Palmer added that industries that depend on discretionary spending from hard-pressed consumers were suffering, raising concerns that the withering of the football club sector and the local pub trade will have a damaging impact on Britain’s communities.
“The fact that pubs, football and other sports clubs are on their uppers is not simply a matter for economic concern, as these once thriving hubs of community and regional identity are part of the fabric of British society, and once lost can never be replaced,” chairman Ric Traynor said.
“Whether you view that as a good or a bad thing, the fact is it will, in the long term, change the character of the country as a whole and this should be recognised.”
The high number of closures has prompted Camra, the Campaign for Real Ale, to launch an initiative to re-establish the pub at the centre of community life and persuade landlords around the country to look at different ways to attract new customers.
But Begbies’ quarterly review found the overall situation for businesses was beginning to improve, boosted by the uplift in the manufacturing sector.
“Distress levels year-on-year are actually down about 17% at the moment, which shows there is some good sentiment in the economy in the sense that business are ready to start recovering,” Ms Palmer said.
Firms involved in food and beverage manufacturing reported less financial trouble and even the printing and packaging sector performed better than previously.
However, the firm added that significant problems in the property services, construction and utilities contractor sectors in the past quarter indicate that while the private sector has surfaced from the depths of the economic turmoil, public spending cuts are still hitting many companies hard as long-term infrastructure and construction contracts are held over or shelved.
Note: The long term rot was set up by greedy Pub Co’s exploiting unjustifiable rents to enhance freehold values to fund further borrowing (Read The Great Pub Co Con in our April 09 Archives).
This was followed by the Smoking Ban, which decimated many small pubs core businesses, the Supermarkets jumped on the Bandwaggon grabbing a massive influx of people drinking at home with cheap booze that tied licensees had absolutely no way of matching price wise.
The Pub Co’s blame retailer failure on every closed pub, claiming that they are the saviours of the industry, when the majority by over borrowing to fund expansion are on a permanent dash for cash to stand still.
The industry is controlled by incompetent money grabbing Pub Co’s, bring back the old Brewers Predecessors who valued Licensees as essential to their business, and not to be screwed until breaking point as a large number of their Successors are doing.
PR&SR Act 2011 – TEN’s if only life were straightforward!
18 April 2012
The Government have now released a tranche of new application forms to anticipate the changes or some of them being brought in by the above Act on 25 April 2012 – see many updates passim!
These include a number of regulatory based forms – such as an amended application for premises licence review – but also a new proposed form of application for a Temporary Event Notice to anticipate the opportunity to make a ‘late TEN’.
Unfortunately it would appear that this form is not entirely correct! The notes to the form will require correction in due course, as there are incorrect references to the entitlement of a personal licence holder to apply for such late TENs; the entitlement within the Act is 10; there are references to only 5! See notes 7 and 13 to the form.
The form can be found here and should be used from 25 April; this and other forms shouldbe available on the Home Office website on (or hopefully before) 25 April 2012.
Call us on 0114 266 8664or email email@example.com
Commercial Kitchen Extraction Cleaning
This is frequently over looked in the order of things in the average commercial kitchen, you clean the visible grease and ignore the ducted areas and mechanical parts that collect grease.
Grease is pervasive, it is designed to get everywhere, particles in the air are heavy they drop and stick to the first available surface, consequently it builds up and if not cleaned reasonably regularly, depending on your system, creates a massive fire risk.
You might say that you only have two large extractors and no ducting, but they have electric motors, generate heat, grease vapourises and becomes combustible, the slightest spark could cause a fire and does, if you have uncleaned ducting, you have a major fire source as many kitchens have now discovered to their cost.
This is not scare mongering, it is common sense, one of my pubs had just this, the tenant had failed to clean a very basic system and the whole kitchen went up.
They were excellent tenants and apologised saying that they had tried to put it out, I said by all means observe immediate attempts to put the fire out with the available equipment, but DO NOT be a hero, people lives are not expendable when a grease or fat fire takes place get everyone out, the fumes will knock you out faster than you can imagine, as my tenant discovered nearly to her cost.
The average person may well not have the knowledge to dismantle a commercial extractor and clean it effectively, it can be complex and frequently is, likewise gaining access to ducting, I have seen a number where the installers have left no access, which is not far short of criminal negligence if it goes wrong, you have the heat from the kitchen and a spark or fire in the extractor can lead to a very serious inaccessible fire.
P H ENVIRONMENTAL EXTRACTION LTD are a small company generally operating in London and the South East specialising in the cleaning of commercial kitchen extraction systems for over 15 years.
Normally we find, when called out to a public house or small restaurant, it is usually when a problem has arisen with their system.
This can be anything from the system not pulling the smoke correctly, or leaks of oil coming through ceilings or canopys or a complete break down.
All of these problems can be averted with regular servicing.
On some sites we have found extract fans running so noisily that Chef’s can hardly hear themselves think and in the most part, this is due to the fans being dirty and struggling motors.
This is generally easily solved with cleaning and servicing.
We supply before and after pictures of the system serviced and can install access doors into the systems to gain better access for cleaning.
With a foot note regarding these photos, most companies do supply these pictures, it’s worth while with whoever you use to check the engineers camera at the end of the service and review his photographs to ensure that the before and after pictures once published are relevant to their site.
Some people say that the cleaning of the extractors should be carried out as part of their insurance policy and fire and risk assessments but obviously we cannot confirm as to whether this is correct for all policies and should be clarified with your insurance providers.
ROB HAMMETT, Service Manager
: www.ph-environmental.co.uk, PH-Environmental Extraction Ltd., 33 Richard Street, Chatham, Kent, ME4 4AH. Tel: 01634 404080.
Brulines and any other beer monitoring equipment under scrutiny
Or is it the end of Brulines?
Government to publish guidelines for trading standards on beer flow monitoring equipment
At long last Beer Flow Monitoring equipment is set to come under renewed scrutiny as the Government publishes new guidelines for trading standards in mid-April.
The controversial equipment, often nicknamed the ‘spy in the cellar’, will be the focus of guidance that is being compiled by the National Measurement Office (NMO) in conjunction with the Local Government Metrology Group. The guidance will focus on “what could constitute false or unjust equipment”.
The move comes after ex-BIS minister Ed Davey confirmed to the Business Innovation & Skills Committee last December that theequipment is covered by the Weights & Measures Act if used to fine licensees for buying outside the tie.
Davey told the committee: “I am told now, in general, that when it is used, not just to monitor, but to actually go ahead and fine someone, the act of the fine, in general, means it is in use for trade.”
GMB, the union, then called on the Department for Business, Innovation & Skills to issue guidance to local trading standards officers , detailing how to apply weights and measures legislation to equipment such as Brulines when this is used to fine tenants.
A spokeswoman for the NMO said: “The guidance is in the process of being published and will be for any beer and cider flow monitoring equipment, not just Brulines. Brulines is currently not covered by weights and measures legislation.
“We can’t shed any more light on what false or unjust equipment will mean as the guidance is still being compiled.”
Extract from the PMA
STOCKTAKERS- When they can be an Asset or sometimes, through their errors, a Liability?
Stocktakers are they of value?
I have detected a serious issue relating to the use of professional stocktakers that needs to be aired.
While many publicans may baulk at the cost of a regular stocktaking exercise, its value could be to:
- serve to protect their income,
- offer support for the examination of their takings by either Inland Revenue and Customs & Excise,
- show that they have the desire to display competence in the running of the business,
- be used to support the assessment of volumes and profit for rent reviews.
There is no reason at all why a competent independent stocktaker should not be engaged to produce monthly, or at least a quarterly, reports on consumption and cash movement. The content of the report is important. The stock report should provide an overall statement of the stocks, including age and condition together with purchases, consumption followed by identifying gross profit margins by item, evaluation of allowances and promotions as well as comparing anticipated income with actual to reveal cash variations. Shortened versions of detailed stock reports are generally a waste of time and money.
When coming to a rent review or lease renewal it is certain that without the support of independent stocktaking records the landlord will accuse the tenant of overstating allowances, or under-declaring takings, and these are just two elements. It is difficult, virtually impossible to prove the existence and accuracy without those stock records. In my experience I have found that by ignoring allowances and overstating volumes a landlord will create a case for a higher rent of a several thousand pounds a year which can be difficult if not impossible to challenge without the aid of independent professional record that can be submitted as a rebuttal.
The cost of the stocktaker would be easily balanced against such excesses in the rent, quite apart from the peace of mind relative to the other issues.
Minimum necessities for stock and cash control.
The essential ingredients for good stock control is a proper record of purchases, wastage and ullage, gratuitous drinks, staff drinks, promotions, breakages, pipe cleaning and where there are multiple bars a cellar book is essential. Both the bar and cellar should keep a record book to note down those allowances and events. Essential are till rolls, till readings with till cards all to aid cash control. Records should be kept up to date, never less than once a week, preferably daily.
Stock and cash Allowances
Incorrect examination and application of allowances can also give HMRC cause to believe that the proprietor, owner or manager is pocketing takings. Very dangerous and costly to defend but then again without those professional stocktaking records it could be worse.
There are problems relating to allowances. Both firms that are involved in training publicans, as well as some stocktakers fail to explain the importance of calculating allowances. The following are just a few of the more important issues that need to be considered.
- 1. It has been said that barrels, and kegs of any size, 9;18;22;36 gallon or 50 litre etc, can have a surplus of beer built into them. That is a gross exaggeration of the truth. A brewer can include up to 2.12 litres [ 2.49 pints] in a 36 gallon barrel, or 1.36pints in any other size under Excise rules. That means that for a pub purchasing 160 barrels a year and assuming that they have mixed keg sizes then if every container included a surplus then they may have received not more than 652 pints of beer extra over and above what they pay for. That is very unlikely because average must apply; not every container would have a surplus and as a consequence that absolute maximum possible should never be relied upon.
- 2. A pint of beer with a head ensures that the customer gets less than a pint. Not so! Even when beer, and that includes lager, is metered for delivery if fobbing occurs then the glass of beer needs a top up, and there will be spillages. There is no such thing as “no spillages”. The law regarding the “head” on a glass of beer is always under attack but the reality is that technically a pint should always be served. Often in achieving that pint there will be an overspill. What is totally unacceptable is for the stocktaker or the pub employer to assume that the publican will ensure that all customers will be under-measured to compensate for any spillages and breakages thus resulting in there being no allowance in the stock computation. . Regrettably I am aware of at least one of the biggest firms of stocktakers and a large managed house pub company taking this line. That attitude if applied has distinct overtones of fraud and if a publican or manager becomes aware of such devious practices then they should report them to the Police. Perpetration of Fraud is still an offence that can result in a prison sentence.
- 3. Keeping the dispense of beer in good order is not only essential for the customers but it is also a legal requirement. Beer sitting in pipes for a quantity of time may need extra cleaning cycles. There are instances where pubs choose to close down certain lines for lunchtime use or specific days. Pipe cleaning is thus essential and cleaning less than once a week is unacceptable, particularly with real ales, and so therefore cleaning should be applied even more frequently. Any assumption that the beer loss arising from the cleaning process is a percentage of beer purchases would be totally fraudulent. It is obvious to any sensible person that if it takes 18 days to sell a branded 18 gallon container of beer with just one dispense point it will have been cleaned at least twice, hence probably 10 pints of beer plus spillage etc; it has been known for a stocktaker, quite wrongly, to assess on a percentage basis just 2 pints as an allowance creating an under-allowance difference of at least the 8 pints. That cannot be acceptable! Although he loss of beer applicable to each line and each clean should be recorded in a bar/cellar book the absence of a such a record must never be the excuse for not making an appropriate allowance.
- 4. Another questionable area of allowances arises from post mix systems for soft drinks. The valves can become blocked if not cleaned, and the water mix distorted. Regular checking is essential since a change in the ratio may cause excessive shortages or a highly watered drink a huge surplus. This is very much a management issue which needs attention since it can have an enormous impact on the stock result.
- 5. Pubs do have promotions in spite of the desire of the government to remove them. The day, length of time the promotion exists and the retail value of such promotions should be recorded in a bar book. It is never advisable to engage in any form of promotion where the cash effect in retail terms cannot be sensibly measured.
- 6. Apart from promotions there will always be times when the proprietor may supply gratuitous drinks to supplier’s reps, advisers or customers. A record of the product and cash value of such unpaid drinks is very desirable. It is definitely not sensible for a proprietor to try to remember what gratuitous drinks have been incurred at the end of a month or quarter; it is often difficult to remember just the following day.
- 7. Depending on the policy of the proprietor/manager staff drinks, even soft drinks, may be supplied without cost. The occasion and retail value of such should be recorded. Again it is dangerous to assume that at the end of a month or quarter a quantity can be remembered. Such allowances should be pre authorised by the proprietor/manager.
The employment of staff is always comes with a question as to whether they are honest or not. It has to be remembered that systems and controls are in place not only for the proprietors benefit but for the staff also, and this becomes even more important when a manager is employed.
Stocktakers – incorrect instruction that can result in unfair staff dismissal.
Although there are substantial benefits that can be derived from stock reports prepared by independent and reputable stocktaking companies there is a downside. Either specifically the training procedures of the Stocktaker firm, or the inexperience of their Stocktakers coupled with inadequate systems and controls in place, can lead to the Stocktaker reporting a stock/cash shortage when in reality there is not. That is why clear systems and controls coupled with explicit instructions to and from the Stocktaker, specifying the terms of reference, is essential. The instructions regarding the issues above are central to the validity of stock reports.
Should staff may be dismissed on the basis of a stock result that has been incorrectly formulated, allowances missed, policies ignored, incorrect assumptions made it is the employer that can become responsible for unfair dismissal and the costs associated with such a claim. And in the case of in the case of managed houses, both the manager and the company that owns and operates may become financially responsible.
How stock results can lead to deception.
Recent experience has shown that some stocktakers carry out their inspection and calculations without prior agreed terms of reference relating to the keeping of records of cash, stock or any allowances.
I have found specific evidence where a firm of stocktakers produce results for managed house company under direction that their reports should assume that all substantial genuine allowances should be ignored on the basis that managers and staff should short measure customers by up to 5% to compensate. The problem that emanates from that managed house decision to the stocktakers is that the Valuers when considering rent reviews for tenants adopt the same practice as if it such were acceptable. Valuers and stocktakers adopting such policies when preparing stock reports or rent reviews can only be defined as both unprofessional, and effectively fraudulent.
It is worth reflecting on a statement made by Christies some time ago relative to their subsidiary Venners in which the letter stated that “managed house chains will not permit their managers any wastage allowance except where electric pumps and oversized glasses are in existence. The manager and their staff are expected manage wastage out of the typical 95% pint, which is sold in rim measure glasses. There is, however, an acceptance of a small pipe cleaning allowance but this relates to the number of dispense points and pipe runs and tends to be a fixed cost rather than an allowance against turnover”. It is interesting to note that the 5% wastage was the view from a Director of Christies, my experience has been that Christies when handling a rent review only allow 8 pints per 288 pints, which is 2.8%,and totally inadequate. It was interesting that there is a pub managed house division that that is supporting the rather unethical, and totally illegal, practice of expecting their staff to give their customers a five percent short measure.
Lawyers acting for employees or managers dismissed for so called “cash/stock shortages” resulting from such flawed stock results would be well advised to seek independent examination by either an experienced trade accountant or independent qualified stocktakers.
Rent review or lease renewal
The calculation of a proposed rent for a pub is based upon a “shadow” profit and loss account for the premises reflecting the trading beliefs of a Valuer or the freeholder, which may subsequently be amended by subsequent negotiation with the prospective tenant. The calculation should be presented in whole detail to allow the prospective tenant to understand and discuss.
Often the Valuer/landlord will attempt to use in their arguments a comparative of the performance of other pubs, including managed houses. The danger of those comparatives may be that they are nothing more than a statement of performances expected from other tenants; they are not factual performances and the claim that such projections have been agreed with tenants is deceitful because they may have been procured without advice or with duress, a highly questionable practice. Only factual performance should ever be considered asa comparative.
One of the main arguments at a rent review will always centre on the liquor gross profit margin and again comparatives which are not factual performance are irrelevant, disingenuous and deceptive because it is known that stocktakers and Valuers do have the habit of ignoring the impact of legitimate allowances when constructing profit assessments.
One of the more common practices experienced is for a Valuer/negotiator to state that a barrel of beer consisting of 36 gallons or 288 pints will generate 280 pints for resale, representing an allowance of 2.8%, arguing that this is accepted by Stocktakers as being adequate to cover all the allowances as already mentioned above. This has been proven to be totally false however to reinforce that point consider the following and then consider the deceptive impact of using an allowance of just 8 pints a barrel on rent calculation.
The example below is for a pub that has proven to lose 4.5 pints of beer each time it cleans just one font. This example has nine beer types and a total of 14 fonts generating 160 barrels per annum. Of course in real life there should be documented paperwork for the following but for the purpose of this illustration
- · the operating policy for the pub is that staff would have one free drink at the end of each session fore which an allowance of 1% has been adopted.
- · spillages will occur and that they are also estimated at a mere 1% of throughput,
- · similarly promotions, including gratuitous drinks, have been evaluated as 2% of volume.
- · And there may be a proven cash loss, derived from stock reports, that should also be included since they are a legitimate business cost.
To put all these into perspective Promotion and gratuitous drinks may equate on average to £47 a week, while spillages and staff £23 a week each which considering the volumes may be considered reasonable. These are summarised thus:
|Pipe cleaning, 9 beer types used in a pub with 160 barrels throughput|
|Retail Pt||£ 2.62|
|Gross value||£ 8,583|
|Base promotion, spillage||% of|
|and staff on % of turnover||Turnover|
|Adjust net of vat for|
|allowances in total net||13,188|
This review helps to identify the real impact of ignoring allowances in the calculation of rent. A rent Valuer/negotiator for a pubco taking the view that the total allowances on those 160 barrels would be only 8 pints a barrel [that is 8 out of 288 pints] at £2.62 less vat their assessment of the allowances would equate to just £2,854. Comparing their figure with the table above reveals a difference of some £10,334. The omission of those allowances would have the impact of increasing the annual rent by as much as an extra £5,000 a year.
That extra financial burden constructed by the Valuer would be the result of applying flawed evaluation principles derived from Stocktakers. What is worse is the fact that the tenant would not only be forced to pay a rent that is excessive but still have the cost of those allowances which the tenant would have to bear. The £5,000 rent plus the £10,344 allowances, total £15,344 per annum. And they would have to bear that annual cost till the next review, possibly five years hence so the cost to the tenant would be £76,720. The major problem is proving the allowances and this would be greatly facilitated by having used a professional stocktaker preciously since only that independent professional evidence could secure the tenants position.
The double edge sword, friend or foe.
While it is clear that the annual cost of using a professional competent stocktaker pales into insignificance when compared with the cost of the higher rent without that evidence. It all depends upon the stocktaker applying a professional and ethical standard coupled with written terms of reference which should include how allowances are recorded and included ensuring that the stock results become an asset to the business.
Without the results of a stocktaker acting for a tenant they become at the mercy of the rent Valuer/negotiator of the landlord. As already shown above the Valuer may rely on a firm of stocktakers that have a habit of reflecting values implanted by managed houses, which may neither be in the interests of tenant or consumer.
Examining an illustration of a detailed stock result reveals both essential and worrying issues. For example
- · Ullage from cask beers was cast at 1.25 pints per container of an average of 11 gallons, the equivalent of 4 pints per 36 gallon barrel. I would have thought is highly questionable considering the sediment that real ales are known to produce.
- · Pipe cleaning is shown as an average of 1.8 pints per font per clean per week. Without knowing the length of the run that would appear to be very light compared with the more common claim, particularly from experienced managers, it was nearer 5 pints per clean per font per week, a far more likely truth.
- · Spillages, there does not appear to be any allowance. This is even more questionable considering the thousands of pints being poured without a single drop lost, remarkable. Even if the beer is metered that is still questionable. And what about topping up?
- · Breakages, none not a bottle of wine or beer, which is very unlikely for any pub.
- · Hospitality, has been shown . This I would presume includes staff drinks. This is shown as an average of £6 a day, or about a couple of pints a day, which could be reasonable.
- · A stock loss for the 41 days was reported at £294 while for the 203 days it amounted to 4 stock shortages totalling £4,163 an average of £20 a day.
It is interesting to compare that stock result on the web page with Christies view that 5% of volume should be adequate for al of the above, and even more interesting is a more recent case review, also from Christies that an allowance of 2.8% of beer was adequate to cover all allowances. That 2.8% represents 8 pints per barrel of 288 pints; clearly that is totally inadequate.
Given that the illustration revealed 4 stock shortages in a row it could mean that there would have been an employment warning or termination for the manager. Given that the illustration appears to have under-cast the allowances for ullage, pipe cleaning and spillage and correction could collectively more than wipe out that shortage there would have been a very definite possibility that staff or a manger could have been wrongly sacked. What would have been interesting, after the error was identified and wrongful dismissal confirmed, is if any claim of damages against the firm could have been extended to include the stocktaker.
The example above shows how easily an extra £5,000 a year rent can be erroneously claimed at a cost of over £75,000 to a tenant over a five year period. Hence the words of caution! Stocktakers can be an asset working for the publican but when valuers adopt practices applied by their stocktaking arm in their valuations that are neither ethical or professional then the odds are stacked against the publican. It can never be right that rents should be cast on the basis that the tenant must carry out fraudulent practices in order to meet the projections upon which rent has been based.
Although I have sung the praises of stock audits some of the practices adopted by them and the Valuers must be questionable. To ensure fair and proper stock results for the publican, and the protection of the integrity and professionalism of the stocktaker, it is essential that terms of engagement for the stocktaker identifying clearly the basis of stock allowances is procured. Subsequently the stock results can be used as evidence for any purposes for the benefit of the publican.
Without the support of a stocktaker or a proper an agreement as to their terms of engagement a publican may well be at the mercy of landlord, rent negotiator, HMRC or any other body.
NOTE ABOUT FRAUD: The following extract should be considered when reflecting on rent reviews and assessments by valuers on behalf of the freeholder when it can be shown that they include calculations that assume that the tenant should procure from the consumer a 5% reduction when delivering a glass of beer, in order to satisfy the financial requirements of the freeholder.
In criminal law, a fraud is an intentionaldeception made for personal gain or to damage another individual. Fraud is a crime, and also a civil law violation. Defrauding people of money or valuables is a common purpose of fraud.
Brian Jacobs 2012
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 are made fully aware of many hidden pitfalls.
Please view our other web site for Information Help and Advice www.usenumberone.com
Pub Rent review notice by a Pub Co.
Pot Boy South got together with a couple of Surveyors the other day in The Crown in Brewer Street that just happened to have a refreshing pint of Taylors landlord on hand. As the holder of both a free of tie lease and a tied lease to Enterprise a matter of “just about legal by the back door” had cropped up in a recent Enterprise Inns rent review notice that had been received by a close chum of PB south of the river no less.
The rent review notice stated in the second paragraph as follows ….
“I am pleased to enclose a copy of my Pub Rent Review Assessment which has been based on the valuation principles of the Royal Institution of Chartered Surveyors. My assessment has also had regard to available industry benchmarking data from such organizations as the British Beer and Pub Association and the Association of Licensed Management Retailers”.
Now that sounds as if every box has been ticked and all bases covered. Well, not quite !! The key words are “based on” and “had regard to”. What the paragraph does do is to give the veneer of authenticity to the calculations my alluding to following both the RICS guidelines and available benchmarking. What it does NOT say is that, OK we might give a passing nod to both but really you guys, we’ll do it our way and let you think that we have been reigned in by regulations and benchmarking out of our hands.
Anyway, back to The Crown and my Surveyor chums. Both are in London firms that deal big time with the Pubcos. Both were strictly off the record and both confirmed that as far as they were concerned not one single BRM or Regional Manager knew the vaguest about the RICS regs other than a single course that they had to attend, and definitely knew little if anything about industry benchmarking. Well shock horror !! So it might be that the Enterprise Inns rent review letter is, sort of legal, but don’t be fooled. The signatory probably doesn’t have a clue to what he’s referring other than the Company take on what they think the rent should be and their slant on their take on both the regs and the benchmarking.
Several pints of TT didn’t stop the irritation at quasi legality, but it did make the world look a bit more refreshing.
Back to the cellar
Pot Boy South.
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 are made fully aware of many hidden pitfalls.