ASSIGNMENT
101. Enterprise suggested some of their tenants
might not have received all the information they needed, especially
in cases where their tenants' leases had been assigned. Tenants
wishing to sell their public house business, through the assignment
of their lease to a third party, are under no obligation to provide
prospective tenants with information. The Chief Executive of Enterprise
suspected "there will be a strong correlation between those
who have come to you with complaints, those who have failed to
prepare a detailed business plan and, indeed, those who took the
lease on an assignment".[125]
102. Several witnesses suggested that in the purchase
of any other business it is standard practice for the historic
profit and loss accounts of a business to be made available to
the purchaser.[126]
Unfortunately, the profit and loss account of each tenant is not
known by pubcos as there has never been a requirement in their
agreements to share such information. Tenants generally keep these
details confidential from their pubco.[127]
103. Large pubcos offer tenants the right to information
should they choose to look for it. However, many prospective tenants
are unaware this information exists. This appears to be particularly
true of those who become tenants through taking leases from incumbent
tenants on assignment.
104. Judging from Punch's and Enterprise's descriptions,
their approach to the application process and the type of information
supplied appears to be extremely thorough. It may well be that
not all pubcos follow best practice. However, prospective tenants
must take some responsibility themselves. Prospective tenants
should make themselves aware of the information available to them
from the pubco before committing to a lease. If there is information
prospective tenants believe should be available but is not, they
should ask the pubco for such information. If the information
is not forthcoming, then prospective tenants should look to other
companies.
105. We are aware that pubcos, as landlords, do
not have the right to unreasonably withhold consent to assignment
by tenants[128]
and can only offer advice to these prospective tenants. Pubcos
should insist that tenants assigning leases provide prospective
tenants with the same level of information that their pubco would
provide.
106. Prospective tenants entering the trade through
lease assignment should not sign agreements until they are fully
aware of an incumbent's annual profit and loss accounts for the
business they are purchasing. They should also contact the pubco
for information they believe is not forthcoming from their assignor.
LEGAL ADVICE
107. All parties, including the pubcos, expressed
concern that prospective tenants were failing to take the correct
legal advice before committing themselves to lease agreements.[129]
Morgan Stanley found 40 percent of prospective tenants took no
legal advice before signing their contracts. Only 42 percent said
they were encouraged by the pubco to do so and 63 percent were
not asked by their pubco whether they had.[130]
M&W told us that in their experience tenants who became involved
in business failure or disputes with their landlord had not only
failed to obtain proper legal advice when taking their lease but
had also failed to obtain adequate accountancy advice. These tenants
had also not obtained valuation advice or had not commissioned
a survey report on the condition of the buildings, even when they
took a full repairing lease.[131]
108. We asked the pubcos what assurances they demanded
from tenants that they had taken legal and other professional
advice. The Chief Executive of Punch told us they "strongly
request that they [prospective tenants] take legal advice".[132]
The Chief Executive of Enterprise told us their prospective tenants
were "subjected to a positive barrage of reminders to take
independent advice. On no less than four occasions are they reminded
of this in writing".[133]
These were: at the time of their application when they received
Enterprise's code of practice; the advice Enterprise gave prospective
tenants to aid them in completing their business plans; at the
time of offering a specific public house; and at the time of their
agreement proposal.
109. Pubcos asserted that no matter how hard they
attempted to get prospective tenants to take independent advice
they did not always do so.[134]
Mr Payne, the Chief Executive of the Federation of Licensed Victuallers
(FLVA), confirmed this by telling us that tenants were advised
by pubcos "to get advice, to get a solicitor, an accountant
but a lot of them will run in and sign because they want the pub".[135]
The FLVA found when they asked pubcos for information they were
always sent the information they required. To combat prospective
tenants' lack of prudence, the Chief Executive of Enterprise proposed
to make the taking of independent advice by prospective tenants
mandatory. In these cases, they intended to pay for, or at least
contribute towards, the costs of advice.[136]
110. Prospective tenants should seek independent
professional advice before committing themselves to a lease agreement.
This should not be limited to legal advice but should include
advice from a suitable accountant with expertise in the licensed
trade and a qualified surveyor with experience in valuation in
this sector.
111. We believe that many of the disputes which
arise between pubcos and their tenants would be eliminated if
pubcos insisted as a condition of acceptance that tenants obtained
all necessary professional advice. This should be one element
of an industrywide code of practice. We also strongly commend
the example set by Enterprise in proposing to contribute to the
cost of this. In the long run, ensuring that tenants know exactly
what they are committing themselves to when they take on a lease
will be to the benefit of the reputable pubco itself, as well
as to its tenants.
85 Appendix 23, Annex A Back
86
Deutsche Bank, UK Pubs Sector Report - The bear pit, 31
October 2003, Figure 31 Back
87
Appendix 1, para 16 Back
88
Appendix 3, para 5.3 Back
89
Appendix 23, para 97 Back
90
Appendix 2, para 10 and Appendix 10, page 2 Back
91
Appendix 23, para 94 Back
92
Ibid. para 92 Back
93
Appendix 3, para 5.9 Back
94
Appendix 12, para 3.1 Back
95
Appendix 8, Annex 4 Back
96
Appendix 16, para 1.4 Back
97
Currently 46 percent of Enterprise's estate. Source: Appendix
10, para 27 Back
98
Appendix 1, para 13 Back
99
Appendix 23, para 84 Back
100
Appendix 2 Back
101
Appendix 3, para 5.13 Back
102
Appendix 23, Annex G Back
103
Ibid. Back
104
See Appendix 19, Section 6 Back
105
Appendix 17, para 4.16 Back
106
For example see Appendix 19 and Appendix 15, para 8 Back
107
Appendix 23, para 465 Back
108
Appendix 19, Section 6 Back
109
For example see Appendix 21 Back
110
Appendix 8, para 2.7 Back
111
Appendix 23, Annex G Back
112
Ibid. para 96 Back
113
Appendix 23, para 10 Back
114
European Commission Decision 2000/484/EC, Case IV/36.492/F3, Inntrepreneur
(OJEC (L) 2000 195/49 para 49) Back
115
Appendix 23, para 120 Back
116
For example see Appendix 15, Appendix 19 and Q 62 (Ms Newport) Back
117
Appendix 20, Annex 2 Back
118
Appendix 8, para 3.1 and Q 339 Back
119
Appendix 23, para 132 Back
120
Assistance for prospective tenants in compiling their own business
plans is usually provided on pubcos' websites or in hard copy Back
121
Appendix 23, para 254 Back
122
Ibid. para 135 Back
123
Q 339 Back
124
Q 538 (Mr Thorley) Back
125
Q 327 (Mr Tuppen) Back
126
For example see Appendix 17, para 5.10; and Appendix 23, para
451 Back
127
Appendix 23, para 104 Back
128
Under Section 19 of the Landlord and Tenant Act 1927 as amended
by Section 1 of the Landlord and Tenant Act 1988 Back
129
For example see Q 282 - 286 (BBPA) and Q 108 (A.B. Jacobs) Back
130
Appendix 20, Annex 2, table 13 Back
131
Appendix 23, para 449 Back
132
Q 538 (Mr Thorley) Back
133
Q 326 (Mr Tuppen) Back
134
Ibid. Back
135
Q 167 Back
136
Q 326 Back
