Some of you may think that we are a trifle obsessive with Rent, Rates and FMT, those that have freehouses may think it has no bearing on them, sadly it does.
The Rates are calculated using the same system that Rents are calculated on, with comparables being used for convenience and expediency by Valuers, having crossed swords with a number Rating Valuers in respect of my freehouses.
The RICS are well aware that the industry has been infected with many abuses of their system and by the use of comparables this has perpetuated the abuses until it has virtually established a Norm of high rent and rating valuation.
The serious weak link in this could be the FMT which nobody has queried in depth.
People have appealed against the calculation of FMT and had the assessment reduced, thereby effecting the rent demanded.
We raised the issue in a previous article to gauge opinion and it was surprising how few people had viewed the issue of FMT logically.
Having just discussed some outrageous rent demands by landlords with aggrieved tenants in the order 20-33% where their businesses turnovers have dropped conservatively by 25% in the last two years, the FMT’s that the increases were supposedly based bore no relation to reality and would appear to be based on a desire to regain the lost discount on the tie generated by the recession on the part of the landlord.
This raised the question of the capacity needed by brewers etc to meet theoretical demands of the FMT across the board, which may well enter the realms of fantasy, in the difference between reality and speculation for convenience.
Theoretically if you take the overall running costs of the business annually, plus your stock purchased, you should arrive at a figure, which when deducted from total sales and other income directly derived from the pub wouls leave the amount of the divisible split for rental valuation.
The fact that the Pub Co’s do not allow a basic wage for the tenant and partner is highly contentious and has to be included in the net profit, in theory allowing the Pub Co to claim half the tenants wages if a 50/50 divisble split is used.
The Brooker case has raised serious comment and thought on the 50/50 divisible split as a figure.
For mathematical convenience, we will assume a 50/50 split of the divisible balance.
Using this method you may well find that your rental level comes out to say 6% of your gross turnover, but in fact your actual rent equates to 15% of your turnover.
Assuming a turnover of £200K your rent would equate to £12K but in reality is £30K.
If you then take the proportion of wet and dry purchases say 70% and 30% against a notional purchase figure of £100K (assuming a GP of 50%).
The actual wet purchases figure equates to £70K, if you now multiply that by the actual rent divided by the theoretical rent 30/12 =2.5 and multiply that by the £70K, you have a theoretical sum for wet purchases £175K.
If that were the case the brewers would have to more than double their capacity.
The pubs that I have viewed in the last few weeks all fall into that category.