MORGAN & CLARKE MAY 2014 NEWSLETTER NO. 32
It is a pleasant change to report positive news concerning the overall economy. Beyond any doubt, the detail of the fall in both inflation and the annual rate of consumer price inflation – albeit marginally – must be good news in the long term. As the General Election is now looming as a certainty on the political radar, great capital is, of course, being made out of the recently published statistics. If only the weather would be just as positive. Bring on the sunshine!
1. Inflation and Interest Figures
It is acknowledged that the licensed trade has experienced a difficult trading period in recent years, but there are now significant signs of improvement in the market with many Pubcos, be they managed or leased operators, reporting improved trading conditions over the last 12 months. Companies that have reported increased retail sales include Fuller Smith & Turner, Shepherd Neame, Mitchells & Butler, Marston’s, Greene King, JD Wetherspoon and Hall & Woodhouse.
2. Commercial Rent Arrears Recovery
The Tribunals, Courts and Enforcement Act of 2007 has been largely activated with the exception of the change in rules of the Ancient Remedy of Distress. From 6th April 2014, the full weight of the Tribunals, Court and Enforcement Act is now in being.
Commercial Rent Arrears Recovery (CRAR), unlike Distress, now requires that a tenant must be given seven clear days’ notice before the remedy is exercised. This would usually be the removal of goods, chattels and effects to satisfy the outstanding debt. Several commentators looking in on the pub world, have suggested that Pubcos and Brewers seeking to minimise the risks of the notice requirement involved and effectively tipping-off the lessee as to their intended actions, might arrange for Enforcement Notices and the giving of seven days’ warning, to be served whenever a lessee falls into rent arrears. Having served the Notice, a view can be taken as to whether or not to remove goods.
The process of CRAR also brings into question what exactly is determined by ‘net unpaid rent’ which means that the Pubco or Brewer will have to give very careful thought as to the calculations, which should not include any insurance or service charges from the arrears as calculated. Neither of these items can be recovered using CRAR. There is also a specific requirement that the landlord is compelled to take account of the value of any right of set-off or counter claim, such as statutory compliance deposits, decorating funds and general security deposit.
However, there is a sting in the tail in that CRAR is unavailable where premises include a residential element which, of course, is the majority of public houses. CRAR does, however, apply to all lock-up licensed premises which means that it still has a considerable effect and in all probability will be written into new leases concerning just such property.
3. Zero Hour Contracts
Figures recently released by the Office of National Statistics (ONS), is the first comprehensive analysis of the extent of zero hour contracts in the labour market. There are a surprisingly large number of licensed / leisure property operators who have zero hour contracts as standard employment policy. People on such contracts have no minimum set hours. It is estimated that 13% of all companies use such contracts, rising to nearly half in the tourism, catering and food sectors.
On one side, the employers say that the contracts offer flexibility for both staff and firms. However, economists argue that the price of this flexibility is lower productivity, given the ONS statistics that more than a third of zero hour employees say that they would like to work more. The general view is that zero hour contracts and their associated flexibility, is a hindrance to productivity growth. It is allowing far too many employers to operate a low-skill business model.
The ONS, having surveyed employers (rather than a previous estimate based on a survey of staff), have concluded that almost 1.4 million people are on zero hour contracts which indicates that the pace of hiring by firms, is not as super-strong as the figures indicate. The ONS confirm that employment has risen by 239,000 over the past quarter and 691,000 over the full year, to stand at 30.4 million. However, self-employment – according to the ONS – accounted for over 60% of the rise in the last quarter.
4. The Right to Make a Noise
A recent case has passed through the Supreme Court which puts a veritable ‘cat among the pigeons’ on issues concerning noise from licensed / leisure premises. The case in point is Lawrence v Coventry (trading as RDC Promotions)  UKSC13; PLSCS65. However, before describing the details of this intriguing case, it is appropriate to backtrack to the guidance issued under Section 182 of the Licensing Act 2003 as issued by the Department of Culture, Media & Sport on 7th September 2009.
Section 11.28 of the 2003 Act, concerns public nuisance caused by noise coming from the premises. The Act does not define the term ‘public nuisance’ which has always been left to be determined upon the circumstances of a particular case. The judgement is subjective and senior police officers are required to judge reasonably whether the noise is causing a nuisance. A Closure Order can be invoked if it is considered that the noise coming from the licensed premises is such that specific individuals in the vicinity are being annoyed by the noise and that enforcement powers are warranted. The ultimate power is to review the Premises Licence with the possibility that the Licensing Authority could determine that it is necessary for the promotion of its licensing objectives, to take steps in relation to the licence, either curtailing hours of operation, or restricting the use of the areas from which the purported nuisance emanates. This would include trade gardens, courtyards, patios, and even smoking shelters.
The original thinking was that an objector to a continuing licenseable activity, had to be within what was known as ‘very close proximity’. This, however, has now been relaxed considerably with far great scope being allowed to the objectors.
Returning to the Lawrence case, this concerned the owners of a house who brought proceedings against the operators of a motor sports stadium. They claimed an injunction and damages on the ground that the noise generated by the motor sports stadium, was causing a nuisance.
The Supreme Court found that a land owner can acquire the right to emit noise that would otherwise create a nuisance, either by agreement or prescription, which would create a new easement in the form of a right to transmit sound waves over land. The precise extent of the easement will be highly fact-sensitive, with the difficulty of allowing the perpetrator of the nuisance to have the same leeway that is available by easement in the use of say, for example, rights of way or drainage. Basically, if a prescriptive right has been established (over 20 years), then there are strong grounds for the creation of the easement.
The question that particularly taxed the Supreme Court was when will the prescriptive right clock start ticking? The Supreme Court categorised the right as a positive easement as it enabled the dominant land owner to emit noise over or into the servient land (as opposed to a negative easement which limits the use that can be made of the servient land).
Lord Neuberger did suggest that the acquisition of the prescriptive right, or when the clock starts ticking, will not begin to run until the noise being emitted actually constitutes a nuisance.
Our understanding of the situation is that if, for example, you held a three day music festival in a field behind your pub for over 20 years and you have been belting out the noise – which some could certainly describe as being a considerable nuisance – you would then have acquired prescriptive rights to form an easement in the transmission of sound waves over the adjoining land.
Lord Neuberger further opened up the can of worms by rejecting the argument put forward by the stadium operators, that the home owners had only recently ‘come to the nuisance’. The defence for the perpetrator of a nuisance to say that the claimant purchased the property after the nuisance started, was not accepted. Lord Neuberger did, however, clarify the position slightly by saying that it could be a defence if a claimant had changed the use or built on the servient land, only then did a pre-existing activity become a nuisance. For example, we could envisage that if, say, a large wall or particularly thick hedge had been removed between a trade garden and a house next door, the argument could run that only then would the trade garden be deemed as causing a nuisance, notwithstanding that its use or activity had not been complained about prior to the physical change in circumstance.
It should be noted that in such cases, the acquisition of a prescriptive right, only falls into place if the ‘activity’ has been carried on for over 20 years. We can think of a great many trade gardens, courtyards and patios that fall into this category.
In the Lawrence case, the motor sports stadium had not been in its noisy current state for over 20 years and the Supreme Court restored the injunction that was granted by the trial judge and which had been then set aside by the Court of Appeal. Despite the fact that the Lawrence family in their house next door to the motor sports stadium won the case, Supreme Court ruling sets an interesting benchmark for the acquisition of an easement by prescription to transmit sound waves over adjoining land. Quite how this will impact on the 2003 Licensing Act, is an entirely different matter. The can of worms is now well and truly open and after all ‘Lawrence’ was decided in the Supreme Court!
5. Alcohol Consumption
Figures recently released by the British Beer & Pub Association have highlighted what now appears to be a continuing trend of gentle year-on-year reductions in alcohol consumption. The assumption is made that the statistics have been drawn from the On-trade rather than the Off-trade which probably means that these statistics are not entirely compelling in their accuracy. The alcohol consumption per total population, expressed in litres per head for 2013, was 7.7. That has consistently seen a general decline since the peak of consumption which was in 2004 at 9.5 litres per head. Curiously the 2013 figures at 7.7, are higher than the recorded figures for 1980 which backs up our theory that the figures themselves might not be the pinnacle of accuracy.
The interesting general trend is that the overall levels of alcohol consumption for those under 25, would appear to be falling even faster, if you believe the popular press. If this habit continues, spin the wheel on another 15 years and in middle age, those now under 25 year-olds, may not be using the facility of the public house at anything like the current popularity. Similarly, if their drinking culture is significantly reducing, that habit will be passed on in turn to their children. Long term food for thought!.
6. Wine Sales
A recent published survey has confirmed that the average UK spend on a bottle of wine is just £4.84. Currently more than 80% of all wine in this country is sold in supermarkets and a vast majority of those sales is as a result of promotions.
Say you spend £6 on a bottle of wine, what are you really getting for the value of the content of the bottle? Currently duty is at 20% with VAT on top of that, so about 50% of your £6 bottle goes straight to the Government. A further 12% goes on the cost of the bottle, labelling, the closure be it screw cap or cork, and shipping. This leaves just 38% of your £6 represented in the cost of wine. To save you doing the calculation, that means the wine in your £6 bottle, is actually worth £2.28. As you trade up, only the VAT element increases. Virtually everything else stays the same. With a £10 plus bottle of wine, suddenly the value content of the wine itself is now the biggest component.
The negative attitude of spending more than £6 per bottle to a very large number of wine consumers, then carries over into the cost of wine in a pub. Very little wine consumption in the On-trade is in the smallest glass size, i.e. 125ml. as it looks such a miserly serve. The majority is either in 175ml. or 250ml. – the latter representing one third of a bottle. However, the resentment factor comes in with the largest size glass, when often the retail price of that glass is over £6 and suddenly the consumer wakes up to the fact that they can buy a full bottle in the supermarket for the same or less.
That would seem to support a recent straw poll that we have undertaken amongst clients in the On-trade, that wine sales are either static or slightly falling, despite what is being said in the trade to ‘big up’ sales.
The solution? Raise VAT on alcohol sales in the Off-trade to give pubs a change.
7. And Finally
“If you drink, don’t drive, don’t even putt”. (Dean Martin)
“I was one drink away from a tattoo”. (Lily Savage)
“I just heard I won a competition. The prize was a year’s supply of Marmite – 1 jar”. (Tim Vine)
Best wishes from the Team at M & C
Pigeon House, The Broadway, Oakridge Lynch, Stroud, Glos. GL6 7NU
Email: firstname.lastname@example.org Phone: 01285 719292 www.morganandclarke.co.uk
(Also at: London, Cardiff, Braunton, Lewes)