Optimism is a precious commodity and if you were paying heed to several of the Chartered Surveyors acting as experts for Pubcos in recent arbitration submissions, you would truly believe that the green shoots of recovery are now spreading into a flowery meadow of positive spending in all aspects of the On-licensed trade. We also hate being negative and would be happy to see the trade that we know and love, thriving right across the board. However, it would seem that direct statistical data is pointing in another direction as are proposed levels of Fair Maintainable Trade (FMT) which, magically, all seem to be increasing right across the board!
1. Beer Sales Increase over Consecutive Quarters for the First Time in Ten Years
This is the headline in an article in the Publican’s Morning Advertiser published on the 27th January 2014. Very positive, very forward-thinking, until you look at the detail. The statistics were published by the BBPA and record that total sales for beer volumes rose 0.8% in Q4 for 2013. However, the big boost that pulled those figures into a positive rather than a negative, was a sales increase of 3.9% in the Off-trade. Yes, dear subscriber, the Off-trade is effectively the supermarkets.
It transpires that although there were 15.3m extra pints bought beer sales in the On-trade declined by 2.2%. Regrettably, this supports our overview that pubs other than in Central London are all seeing a gentle but fixed decline in beer sales on a year-to-year comparison. The decline is not confined to wet-led only boozers, but covers the full spectrum – even in heavily food-dominated outlets.
Whilst it is accepted that the overall economy is in a state of growth rather than recession, the actual level of disposable income as addressed in previous monthly Newsletters, still continues to decline. Curious isn’t it, that all of the rent reviews that we handle have Pubco Fair Maintainable Trades in almost always well in excess of current levels, right across the board. We have yet to see a single Pub Rent Assessment Form that acknowledges that Fair Maintainable Trade is falling rather than rising. Curious or deliberate?
2. A Question of Colour
The Enterprise Inns’ initiative to spruce up the exteriors of a number of pubs in their estate, is both welcomed and applauded. We love the wonderful corporate speak of ‘sparkle’ and ‘kerb appeal’ (hello kerb, am I appealing? – enough! I hear you say). Driving past a number of recent such schemes, it would seem that the preferred colour for external signage is drab olive green with either white or gold lettering. The only problem is that in certain lights, the gold lettering completely disappears and becomes almost invisible. We also wonder why of all the vibrant colours in the spectrum, the choice should have been what is in effect khaki, as a medium to entice you through the door. After all, if you were trying to hide something and make it disappear in to the background – such as a tank or a howitzer – erm…. you paint it khaki.
Ours is not to reason why.
Squatting in a residential building in England and Wales, became a criminal offence on 1st September 2012 under Section 144 of the Legal Aid Sentencing and Punishment Act 2012. Squatters are generally a fairly well organised bunch and have fully understood that the weight of the law can now be used against them.
Our precious caution of the law of unintended consequences comes into play, as it would have been so easy to have included commercial buildings in the Legal Aid Sentencing and Punishment Act 2012. However, commercial buildings are exempt from that legislation and, guess what, squatting in commercial properties has now swung into full play. This, of course, includes closed public houses.
Legal redress is available, starting with an Interim Possession Order which must be made to the County Court, together with supporting Witness Statements and confirmation from the Freeholder. Technically, an Interim Possession Order should be served within 24 hours of being issued, requiring the squatters to leave the property within a further 24 hours. There is a criminal offence incurred if they do not leave within that time span. The offence is punishable by six months’ imprisonment, although if such a case did ever come to the County Court for enforcement, it is more than likely not to attract a custodial sentence.
In previous years, Freeholders always sought to have the identity of at least one of the squatters in occupation. However, the Interim Possession Order can now be issued against ‘persons unknown’ and is usually enforced by the Court Bailiffs.
The best action against squatters is, of course, the usage of steel shuttering. However, this is horrendously costly, with the companies supplying this line of defence, usually renting the steel panels on a weekly basis. There is also the further expense of a continuing commercial rates liability, despite the building standing empty.
It is hoped that the Ministry of Justice will finally align commercial property with residential property and that the law will be modified in that respect.
4. Deeds of Variation on Rent Review
Since the detail on the same subject in our January Newsletter, it seems that matters have moved on substantially in that clarity has now been obtained from the British Institute of Innkeeping that the BII logo used on the Enterprise Inns’ Deed of Variation document, does not signify that the BII have sanctioned and approved its content. It would seem that there are robust discussions in play between the BII and Enterprise Inns in this respect.
5. PIRRS – It is a Question of Attitude
As you will be aware from previous Newsletters, the PIRRS system has been gently coaxed into being more user-friendly with the opportunity of requesting the PIRRS-elected Expert to issue a limited reasoned award and also not to have the same Draconian confidentiality requirements. The limited reasoned award has, however, raised the as yet unresolved, situation of an additional extra cost. Whilst we hope that that extra cost will be minimal – as all that we are seeking is the rent calculations (which have to be done in any event to calculate the rent) – there is still uncertainty over the added cost.
We approached the major Pubcos seeking their thoughts and advice over how that extra cost would be handled. The following is a verbatim quote from Enterprise Inns:-
“My understanding is that the party requesting the Reasoned Award pays all the extra charge for it but the reasoning must be made available to both parties. That is simply natural justice to be able to respond to any challenges that may be made against the reasoning.”
The following answer was received from Punch, again a verbatim quote:-
“In terms of cost, yes, Punch would be prepared to accept the 50:50 split. I suspect, though
we would need to seek confirmation that the company may even accept a weighting so that the tenants’ costs are reduced.”
Star Pubs & Bars have not commented directly on the apportionment of any additional cost concerning a limited reasoned award on the understanding that the core principles of accessibility, speed and low cost linked with transparency, should be achieved at all times.
6. RICS Pub Benchmarking Survey
This is a not much publicised facility that has become a useful tool for a general overview of the rent scene that resulted from the Parliamentary Hearings and the RICS intention of being open and transparent.
The Pub Benchmarking Survey has now been established for four consecutive quarters. The contributors are Enterprise Inns, Punch Taverns, Marston’s and Star Pubs & Bars (formerly Scottish & Newcastle). Transactions are reported on a willing lessor/willing lessee basis where the lessee is able to walk away if they do not like the new lease terms. The survey includes letting transactions and some lease renewals but not rent reviews. The data concerned is taken directly from the Business Plans and accounts for willing lessees making open declarations. The survey is, of course, an average.
The results of the survey, which is the ratio of rent as a percentage of turnover, is as follows:-
Q4 2012 9%
Q1 2013 8.5%
Q2 2013 8.2%
Q3 2013 is 8.3% (the latest result)
Being diligent rent review specialists, Morgan & Clarke Chartered Surveyors then cross-referenced this influential Pub Benchmarking Survey with other rent aspirations from the major Pubcos, some of which were significantly in excess of 10% and questioned how was it that the rent aspirations were so far out of kilter with the RICS Pub Benchmarking Survey.
You have guessed it already! There is always an explanation as to why in reality this influential Benchmarking Survey of little genuine use.
The following verbatim quote has arisen out of our negotiations with Star Pubs & Bars for a supply-tied lease in the suburbs of Leeds:-
“With regard to the RICS Pub Benchmarking Surveys, we do indeed provide information for the results supplied often related to tenancy agreements rather than leases with no assignability and with the projected turnover for the next two years sits at an average of £300,000. In addition the geographies (?) look at post codes to give a “flavour” for rents set and so the survey is useful for assessing the tone of the market but the Valuer must make adjustments based on facts and comparable evidence.”
In other words, rent proposals are based on the facts of the case which can mean that the RICS data can be ignored.
The following was the considered thinking from Enterprise Inns:-
“Percentage of turnover as a basis for rent assessments is way too crude and I am surprised that you are getting drawn into such a discussion. The RICS Benchmarking is based on new lettings and lease renewals. Many of the new lettings are on fully tied leases with correspondingly lower rents. The data supplied to the RICS splits the lettings between fully tied/part tied/FOT but that has not been disaggregated by RICS to show the relevant rent bids for these three categories. In any event the ‘part-tied’ category would also preferably need further disaggregation.”
So, there we have it, the RICS Pub Benchmarking Survey which was clearly meant as a tool for transparency and understanding – not only by members of the RICS, but also pub tenants and leaseholders themselves – is far from simple. Basically, if the proposed rent is way above the RICS Pub Benchmarking then you have the full and clear explanation as above. However, the fact that the RICS Benchmarking Survey is an average also means that there are rents set that are lower than the prescribed percentage ratio.
We still think that it is a valuable general survey which, of course, is an inconsistent own goal to the providers of data to the RICS if, as is now commonplace, rent proposals are way higher than the data confirms.
7. And Finally
“One more drink and I’ll be under the host” – Dorothy Parker
“You’re not drunk if you can lie on a the floor without holding on” – Dean Martin
Best wishes from the Team at M & C
Phone: 01285 719292