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The Pub Code Adjudicator (PCA), Pub Co’s and would be Publicans.
One of the biggest problems in the Pub Co Tied Lease Sector is that you have two factions in todays world, you have Pub Co’s and all their supportive companies and so called specialists, the other faction are the lessees, who have very few supportive companies and far less specialists acting for them.
The Pub Co faction have access to all the most costly legal advice, the lessees when they need costly legal advice, have invariably run out of money, in addition, in many cases taking legal action under those conditions is a sure fire disaster.
Having taken legal action in a Small Claims Court against the Official Receiver, on good legal advice. The judge was about to award me compensation of a few thousand pounds, the barrister acting for the Official Receiver said that the Receiver could not be seen to be negligent, they would take it to the High Court, which would cost in excess of £50K, I had to withdraw and got caught for the barristers costs. The moral of the story is that Pub Co’s cannot be seen to be negligent or failing and they have the money to ensure that they win or the Lessee withdraws on a range of different disputes.
The Pub Co Model is in theory based on the long established Family Brewer Tied Tenancy system, which worked for years with long term tenants, where Family Brewers knew exactly what their market share was or is within their estate and what every pub should be doing called Fair Maintainable Trade (FMT). The total FMT for the estate with off sales and free trade would represent their potential brewing capacity for the year, plus a realistic percentage increase for the next year. They were in business to sell beer, not vastly over estimate FMT.
The Pub Co’s have screwed this system by peddling their Tied Lease Pubs using technically adjusted normal Commercial Lease formats, whose responsibilities far exceed the Tied Tenancy agreements, with dire results for the unwary.
What was a career for life with a Tied Tenancy from a Family Brewer, a Pub Co Tied Lease is now, in may peoples view, a question of how long you can survive with the conditions of the Tied Lease, all perfectly legal, you go in with your eyes shut or half closed and hit the panic button when they are fully open, unless you are an amazing slick operator, multiple operator or retail genius.
Sadly nobody tells you every aspect of a Tied Commercial Lease, with all the individuals who purport to provide the information that you need to take a commercial lease and the ultimate nasty sting in the tail when you hopefully assign the lease.
Having had the unfortunate experience of the Chairman of Fleurets sitting next to me for a business lunch, he mistakenly assumed that I was a Pub Co Surveyor and proceeded to expound his theories and actions to gain suitable rent increases for his Pub Co clients. LINK
It was patently obvious that he had no idea or experience about running a pub, the same would apply to the bulk of commercial agents, very few have ever run a pub, let alone a successful pub.
I was appalled at his comments, which were based on historic dealings with Family Brewers, who previously provided accurate figures of turnovers, barrelage, external issues affecting the estate and individual pubs.
The term Comparables, FMT and Reasonably Efficient Operator (REO), formerly Competent Operator, were acceptable within the Brewers Estate, because the tenants in the main were long term publicans, their barrelage and rents were related and identifiable by many years records.
With the formation of Pub Co’s and the so called Pub Co Model the above terms were put into immediate use as the basis for rent and rate calculations.
Comparables, the immediate assumption was that any pub that looked vaguely similar to the pub being assessed, in a ten mile plus radius should be rented and rated on any reasonably successful similar pub, in fact cherry picked, from the horses mouth. All local issues were to be ignored, like a depressed area, bad access, village by passed by a new major road etc., no back up statistics, especially if the pub had been recently purchased in a takeover.
FMT, the over estimation of turnover on a similar basis, even one of Enterprise Inns Consultants, in an unguarded moment, said the over estimation of FMT across the country would need a 50% increase in brewing capacity, yet the pub sales were shown to be dropping.
REO, (Reasonably Efficient Operator) a new Lessee with no experience and minimal training cannot be an REO, but the rents are based on an REO, very little in house training after moving in occurs or the Lessee has insufficient spare time to use further training benefits.
Good Family Brewers with a Tied Tenancy know the value of further training, they want stability within their estate.
With Pub Co’s, there is always another would be Lessee, 2,800 Retailer Failures in two and a quarter years with one Pub Co and confirmed correct by an ex Area Manager on the spreadsheet, which was also sent to the Government Inquiry.
So what do we have a formula for rent increases based on a system that works with Tied Tenancies but wide open to questionable exploitation.
The problem with these so called Pub Experts that have never run a pub, they hide behind the RICS Banner in any dispute and the supposed guiding light for the industry.
What they fail to understand is that Business is Finite in a catchment area, a catchment area could be a half mile radius or in rural Dartmoor could be five mile radius or more.
The business that a pub has is it’s Market Share at that time, any increase is at the cost of another pub or similar business in that catchment area, whatever the catchment area radius, the pub losing the business will in turn fight to retain their business.
Never estimate more than 5% increase in the first year, for the above reasons, in addition if you put in a high percentage and it doesn’t happen, you are in danger of becoming a Retailer Failure in the eyes of the Pub Co.
Now if one of these experts over estimates FMT and the Lessee increases his turnover and his rent is raised, what about the business which has lost the business, is the expert going to reduce the rent or the Inland Revenue reduce the rates, not on your life.
I was invited to the RICS to discuss over renting of commercial licensed property. I pointed out that their surveyors were out of control with the system that they were using, they all assumed that business was infinite and not finite, ignoring the fact, that over estimation of the FMT has been and is the cause of far too many failures.
Rents should be between 6-9% of turnover, with the lowest turnovers at 6% and up to 9% for the most profitable.
If you have any sort of money making machine on the premises, the Pub Co normally expect a 50% divisible split factored into the rent calculation, what they don’t do is in the divisible split on profits, include the massive discounts they get from supplying brewers, effectively increasing your rent for every hundred barrels by £20K plus annually.
The Family Brewers give minimal discounts to Tied Tenants, but their Tenancies are only liable for painting and decorating, whereas a Tied Commercial Lease you are responsible for the full maintenance of, in many cases, aged buildings and dilapidations when you leave, these costs can be enormous, without a switched on surveyor when you buy and leave.
So what do we have? A totally screwed system run and administered by people who have never seriously run pubs, to add to the chaos, Paul Newby was appointed as Pub Code Adjudicator (PCA) to administer the New Legislation.
His appointment aroused a number of objections, since he was a director of Fleurets, has never run a successful pub and would appear to be obviously steeped in his ex Chairman’s philosophy, which I found totally unacceptable, as above.
Fleurets major client is Enterprise Inns or was, knowing how quickly these companies change hats.
The Pub Co’s are having a concerted blitz on the New Legislation, which could take years to resolve, they don’t want anything that will affect their major Cash Flow Income, legally the PCA can do little and appears to be doing just that.
Having read the PCA’s brief, it would appear that he is supposedly responsible for ensuring that everyone taking a Pub Co Tied Lease is fully informed of all their responsibilities before, during and after they take that Tied Lease.
That seems fair enough, but where do they do that, they assume that all the myriad of commercial agents, trainers, valuers, surveyors, accountants, solicitors etc. do that, they don’t, some try, but most give you a smidgen of your immediate and long term responsibilities.
Consequently the stream of gullible people continue, like lambs to the slaughter.
A commercial lease is virtually favoured, almost wholly to the Landlord, a Pub Co Tied Lease, is in our opinion, even more favoured to the Pub Co Landlord.
If the PCA got it’s act right, if that is humanly possible, with the legal blocks that the Pub Co’s take to maintain their status quo, I think unlikely.
We wrote a list of questions with answers and offered it to the PCA, to make people aware of their responsibilities, before during and after taking a Commercial Lease and a Tied Pub Co Lease. LINK
We offered it to the PCA, with suggestions as to how to get this information to would be Tied Pub Co Lessees, had various correspondence, much got lost in the Trash, with apologies eventually, then a meeting after which we heard little.
After politely enquiring as to how they were proceeding, received an email saying in simple words, that it was not the PCA’s policy to give ongoing information, bearing in mind they were supposedly using our information to stop or advise would be Tied Lessees of their total responsibilities.
Interestingly, we found the Family Brewers (IFBB) web site had virtually word for word of our questions relating to Tied Tenancies, also saying that if anyone offers a tenancy that does not give positive answers to these questions, walk away from it.
If the PCA can stop people taking Tied Pub Co Leases, until such time as the Pub Co’s comply in their entirety with the new Legislation, Tied Pub Co Leases will remain with a very questionable reputation, we certainly would not recommend them as a career move, unless you are a multiple operator.
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.
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