MORGAN & CLARKE MAY 2013 NEWSLETTER NO. 20
Pigeon House, The Broadway,
Oakridge Lynch, Stroud, Glos. GL6 7NU
Email: email@example.com Phone: 01285 719292
(Also at: London, Cardiff, Matlock, Braunton, Lewes)
Vagaries of Buying and Leasing Pubs, Inns, Restaurants and other Commercial Property.
More than ever this year, the On licensed property market (Buying Pubs and Restaurants) seems to be polarised between the continuing and general rising success of hospitality businesses and asset values within Inner London and a small number of the major cities within the UK, set against the almost complete opposite movement of asset values in smaller towns and the countryside in general. The adage “every cloud has a silver lining” must be tempered with the financial casualties that have now created the bargain basement scenario of pub values which in certain instances, set against residential values, appear staggeringly cheap – particularly in London. The only problem with this glut of economically priced real estate, is the spectacular difficulty in attempting to raise the relevant finance if you do not have at hand, at least 50% of the purchase price. The ultimate stranglehold is the last point of the supply chain, which is the Banks. Belatedly, this now seems to be on Vince Cable’s radar.
If that last element in the equation can be unlocked, hindsight looking back on 2013, will marvel at how cheap freehold free houses were in comparison with the residential market. Time will tell.
The team at M & C are particularly flattered by the continued growth in circulation of our monthly newsletter, specifically amongst M’ Learned Friends and other Chartered Surveyors representing both Landlords and Tenants. This month, we have some relatively heavyweight legal points to clarify.
The difficulty with keeping all of the financial plates spinning on the end of their respective sticks is that at some stage, they begin to fall to the ground. Rent, as we have often emphasised, is one of the more sacrosanct payments that at all costs should be kept up-to-date. However, if rent is either substantially in arrears or quite simply not paid, a commercial Landlord has five different options to take up, namely:
- Pursue the guarantor;
- Serve a Statutory Demand;
- Issue County Court proceedings;
- Forfeit the lease; or
- Levy Distress.
The fifth option is the quickest and most devastating, which is to send in the Bailiffs to enter the property, levy Distress and generally take walking possession of such items that can legally be construed as having value, but not to result in the closure of the Tenant’s business.
For many a long year, there has been an attempt by the Law Society through Parliament, to modernised the rent recovery process and it is thought likely that ‘Distress’ as it has always been known, is expected to be replaced with what is known as the ‘Commercial Rent Arrears Recovery (CRAR) procedures which should hopefully stop some of the more blatant abuses of the Distress system by over-enthusiastic debt collectors who are not necessarily Certified Bailiffs. Generally, Certified Bailiffs know full-well how far they can press their on-site attention, which is (almost always), within the current law and the control of the Courts.
2. Distress and Ancient Law
Whilst Ancient Law can be the cornerstone of current legal action as witnessed in the Vicky Price / Chris Huhne “marital coercion” case (incidentally the Government want to legislate against that legal tweak), there are other elements of ancient law that can be surprisingly powerful.
The case of Warrant Securities Ltd –v- TFW Ltd and Greatrix, was heard in the Southampton County Court in December 2012. Here we tip our hat to the team at Charles Russell Solicitors, who acted for the Landlord and in so doing, brought Ancient Law into full focus.
First out of the box is the Distress for Rent Act 1689 which confirms that the Tenant actually has five clear days from the Distress Notice being served (Walking Possession), to make payment of the arrears and re-claim the items that are the subject of the Distress Notice. During the five day period, the Landlord cannot sell the goods and in fact, there can be a further 10 day extension on the giving of formal notice by the Tenant.
The sting in the tail was the invoking of the Pound Breach Act 1843 which comes into play if the items that are the subject of the Distress Notice, have been removed from the property (the keys have been chucked back and the property is stripped of all of its contents) and are not available to the Landlord for onwards sale in the satisfaction of the outstanding rent debt. Under the Pound Breach Act, the Landlord can claim treble damages from an individual acting as guarantor where the Tenant Company has become insolvent and the goods distrained upon cannot be located, but can be proven, or solidly inferred, to be very valuable.
Which only goes to show that legislation that is “ancient”, can still be powerful, that is if you know it exists!
3. Wine Spend
News come to us from the Grocer Magazine, of recent research which indicates that there has been a substantial percentage increase in “trading up” for supermarket wine purchases. Aside from an increase in volume sales of wines between £5 and £10, the largest percentage increase has been noted in the spend on wines between £10 and £12.
The considered view is that the change in trading profile has been triggered by the underlying cost of midweek pub expenditure / visits which is more and more being seen as a social luxury rather than a standard “drop by and have a chat”. If you combine the increase in wine spend with one of the more attractive meal deals being offered by the major supermarket chains, you suddenly see a £30 plus saving on a pub visit. Is the sociability of going to the pub midweek, now being sacrificed on the altar of cost-sensitivity? We hope not.
4. Assets of Community Value (ACV)
There has been much press comment recently over the availability of ACV. There has also been a degree of confusion over precisely what ACV means and how it can be best used within the pub industry. The existence of ACV should not be seen as a silver bullet.
To wind the clock back, the enabling legislation was contained in Part 5, Chapter 3 of the Localism Act 2011. It allows community groups to have the opportunity to identify and formally list assets of community value, register their interest with the Local Authority and then have the opportunity or right to bid for the asset, should it ever come up for sale.
First thing to realise, is that the registration of interest for an ACV does not give the right of first refusal. At the end of the day, the owner of the asset can sell to whoever he chooses and at whatever price, having acted within the ACV process as below.
Community bodies can include non profit-making companies limited by guarantee, neighbourhood forums if an identifiable, cohesive unit, parish councils and charities. If a neighbourhood forum is formalised, it has to comprise of a minimum of 21 members who as a group, can be individually identified.
The application itself to the Local Authority for an ACV, does not guarantee that it will be listed as such. The Local Authority has an eight week period to decide if it is in the interests of the local community to register the ACV. The Localism Act excludes all and any residential property and any operational land that is in the ownership of a statutory undertaker. The listing, if authorised, lasts for a maximum period of five years, with the owner having the opportunity of a review of the decision and also a subsequent right of appeal.
So what happens next? Should the owner want to sell the registered property (and there is nothing that forces him to have to sell), the owner has to notify the Local Authority of that intention. In turn, the Local Authority informs the nominating community group who have the opportunity within a six week period, to be treated as a formal bidder for the property. During that six weeks, the owner is unable to sell the asset to any other party and is not obligated to accept any specific bid from that nominating party, if he thinks that he is not achieving his opinion of open market value. If the bid is unsuccessful, then there is a further 18 month period from the date of the initial notice (known as the Protected Period), wherein the owner is free to dispose of the asset to anyone that he deems has made an acceptable bid.
Basically, the ACV is a procedural matter with specific time frames, rather than an automatic right to buy for the nominating party, at a price that suits them. Also, the service of an ACV does not restrict the authorised use of the property which in the case of public houses, could easily slide down the Use Class Order from A4, all the way through to A1 with the ACV being powerless to halt that change of use
5. Private Arbitration on Court Terms (PACT)
There has been a growing trend recently for certain Pubcos and Brewers in situations of lease renewal, to recommend that rather than taking the procedure to County Court (which is the normal and structured progression of events), a disagreement in respect of rent should be settled through PIRRS rather than PACT as a cost-saving exercise. Here at M & C we fully endorse any effort to bring down the costs associated with lease renewal, which certainly if it extends to a direct County Court referral, is an expensive business. PACT is, in relative terms, significantly faster and cheaper, although certainly not as cheap as a PIRRS referral.
Early last month, David Morgan wrote to Bernard Brindley, Chairman of PIRRS, to clarify which of the PIRRS Valuers has had the requisite formal training to act as an Arbitrator under Court Terms. Also raised, was the necessity of having Reasoned Determinations and operating outside a strict confidentiality agreement as is normal with Court procedure, upon which PACT is founded.
We are delighted with Bernard Brindley’s response in a letter dated 23 April “I can confirm nonetheless that a number of PIRRS Valuers are PACT trained…… the issues you raise concerning Reasoned Determinations and confidentiality are under active consideration by the PIRRS Board and hope to be commented on shortly”.
It would be excellent if the PIRRS Board confirmed that the Draconian confidentiality requirements in the Deed of Variation can be lifted and that the PIRRS Valuers can actually now explain in a Reasoned Determination, how they reached their conclusions. Hats off to the PIRRS Board and we look forward to receiving both the identity of the PACT trained Valuers and the confirmation of the shift in policy which would have the effect of opening up a floodgate of applications for what has been proven to be a very cheap dispute resolution service.
6. And Finally
Our favourite George Best quote…….
“I spent a lot of money on booze, birds and fast cars. The rest I just squandered”.
Fortunately he didn’t buy a Pub.
Best wishes from the Team at M & C
Phone: 01285 719292