APPENDIX 2
Supplementary memorandum by the Association
of Licensed Multiple Retailers
QUESTIONNAIRE TO MEMBERS OF THE ALMR
All information given will be treated in the
strictest confidence.
Please do not leave any question blank—please
give an approximate figure if you are unable to give an exact
one, write N/A if you are unable to answer the question or write
0 if you mean none.
Please return by 5.00 pm on Monday 12 July 2004.
The Trade & Industry Select Committee announced
last month that it would be connducting an inquiry into the relationship
between pubcos and their tenants following complaints from the
Federation of Small Businesses about unfair treatment. The ALMR
submitted written evidence to the Committee and then gave oral
evidence on Tuesday 6 July. The Committee has asked us to provide
additional statistical information on the nature of pub leasing
agreements across a range of landlords and styles of operation.
This is designed to provide background information to put the
specific complaints about the pubcos into perspective.
The ALMR is obliged to respond to the request
for information and must provide it ahead of the next evidence
session. We are therefore writing to all landlord companies within
the Association to seek information about two specific areas—the
use of Upward Only Rent Review clauses and the rate of churn of
tenants. In the survey, tenancies refer to traditional three or
10 year agreements and leases to anything over that.
We need all companies to respond to this request
and will be following up this survey with telephone calls. The
information will be collated and used in additional written evidence
to the inquiry. No individual company will be identified and all
information provided will be treated in the strictest confidence.
PRELIMINARY ANALYSIS
The Association of Licensed Multiple Retailers
(ALMR) has 30 companies within its membership which issue leases
or tenancies to retail operators. Following a request from the
Trade & Industry Select Committee a short survey was circulated
amongst these companies to provide an overview of the terms and
nature of these agreements, in particular the use of Upward Only
Rent Review clauses and the average length of tenure.
In the survey, members were asked to differentiate
between their tenanted and leased estates. In this context, tenancies
refers to traditional short-term agreements—typically three
years in length but occasionally up to 10 years—which are
non-assignable and where responsibility for repair and maintenance
rests with the landlord. Leases are longer in length and are assignable
and normally fully repairable.
BACKGROUND INFORMATION
ON THE
SAMPLE
Replies have been received from 27 member companies,
comprising 17 regional brewers and 10 pub companies. Of these,
just over two-thirds (68%) issue both tenancies and leases and
the remainder only operate tenancies. The remaining three members
of the Association which operate as landlords are small in scale
and have a hybrid estate or managed, tenanted and contract tenancy
outlets. They were unable to provide meaningful comparable data
but their omission will not adversely affect the results due to
their small size.
Between them, respondents own 22,702 pubs. Of
these, 10,240 (45%) will operate on short term tenancy agreement
and a further 12,462 (55%) operate on longer leases.
The companies included within the sample vary
in size considerably, ranging from 14 pubs to 8,910. They include
the two largest pubcos and the two largest regional brewers. Between
them, these four respondents account for some 18,500 pubs.
|
| | No of companies
| Total pubs | No of tenancies
| No of leases |
|
| Under 100 | 12
| 730 | 676
| 54 |
| 100-250 | 6
| 1,122 | 1,038
| 84 |
| 250-500 | 3
| 1,060 | 900
| 160 |
| 500-1,000 | 2
| 1,247 | 866
| 381 |
| 1,000-2,000 | 2
| 2,293 | 1,630
| 663 |
| 2,000+ | 2
| 16,250 | 5,130
| 11,120 |
|
Of the pubs covered by the survey, just under a fifth are
owned by regional brewers. Their estate is predominantly traditional
short-term tenancy agreements as opposed to longer leases, which
are still a relatively new phenomenon in their estate—almost
83% of their agreements are tenancies (3,647 tenancies and 767
leases). In comparison, pubco agreements are dominated by longer
term, assignable leases—64% of their agreements are leases
(6,630 tenancies and 11,691 leases).
UPWARD ONLY
RENT REVIEWS
Companies were asked what percentage of their agreements
included an Upward Only Rent Review (UORR) clause—split
between tenancies and leases—and whether they had abolished
such clauses for any of their agreements.
The use of UORR clauses is more common in long leases than
traditional short term tenancies and therefore some companies
with a mixed estate indicated that their use of UORR clauses was
restricted in this way. The use of the clause appears to be a
matter of policy, with all but three companies indicating that
it was applied either to all or none of their estate.
Just under three quarters of companies surveyed (70% or 19
companies) did not include an UORR clause on some or all of their
agreements. In terms of pub numbers, this figure increased to
76%, with just over 17,100 pubs not being governed by such a clause.
Of these companies, 84% had never included an UORR clause in their
contracts.
Three companies stated that they had recently abolished UORR
clauses for some or all of their agreements, two pub companies
had done so retrospectively in 1996 and 2001. These two operators
between them own 8,950 pubs and these figures have therefore been
included within the total set out above. A further regional brewer
abolished UORR for new lease agreements from October 2003; at
that time, this latter operator had relatively few lease agreements.
A further three operators indicated that they were in the
process of removing UORR clauses from their new lease agreements.
All were regional brewers.
It is worth noting in this context that several respondents
(28%) noted that whilst their lease and tenancy agreements included
UORR clauses, these were not applied automatically and that discretion
was always exercised, with rents being frozen or reduced in exceptional
circumstances. Others said that in practice, the clauses were
often ignored or unenforced. The total number of pubs covered
by such operators was 5,347.
These comments were unprompted and anecdotal evidence would
suggest that this practice is more prevalent within the industry
as a whole, particularly amongst smaller operators where directors
of the company will be involved in rent negotiations and are more
likely to know their tenants/lessees' circumstances.
AVERAGE TENURE
The Committee also asked ALMR to investigate the average
length of tenure of tenants and lessees within the industry. The
ALMR asked members to provide information on the average length
of time an individual remained with the company as a whole, and
to exclude from the calculation tenants coming to the end of their
agreement and taking out a new one, which may distort the average.
Replies have been split between tenancies and leases as these
agreements attract a very different style of operator. Leases
are, by their nature, more long-term agreements but they are also
assignable and therefore designed to be able to sold on as part
of an individual's business plan.
The overall average length of tenure was 6.32 years for both
tenants and lessees of all landlords. For regional brewers, the
range of average tenures was 3 to 20 years and for pub companies
it was 2.9 to 7. Whilst pubcos had a slightly lower average length
of tenure, there was no substantial difference between the two
categories of company. Median and Modal figures have also been
provided by way of comparison and to demonstrate that the use
of the mean is appropriate in these circumstances.
|
| | Regional Brewer
| Pub Company | Both
|
|
| Tenancy | Mean
| 6.9 years | 4.7 years
| 6.26 years |
| Median |
5 years | 5 years
| 5.5 years |
| Mode |
6 years | 3 years
| 5 years |
| Lease | Mean
| 7.125 years | 6.3 years
| 6.55 years |
| Median |
7.25 years | 6.7 years
| 6.6 years |
| Mode |
N/A | N/A
| N/A |
| Total Estate Average Tenure | 6.9 year
| 5.1 years | 6.32 years
|
|
It should be noted in this context, that there were substantially
fewer replies for average length of tenure of lessees, with only
four regional brewers and three pub companies able to provide
this information. This is largely due to the fact that long leases
are still a relatively new phenomenon for regional brewers and
many smaller pub companies are still in start up phase. Where
companies had been issuing leases for less than three years, there
was no meaningful data on average tenure as no assignments had
taken place and hence no information was provided.
These figures are in keeping with a recent survey of tenants
and lessees carried out by the Morning Advertiser which found
an average tenure of 6.2 years amongst current operators. The
Publican Lifestyle Report also found that two-thirds of its respondents
had been running their current pub for more than three years,
with one in four entering double figures. Given that the average
age of individual tenants/lessees is between 45-60, this type
of average tenure is not unsurprising.
We understand that the DKW analyst report referred to by
the Committee which suggested that the average length of tenure
of a pubco tenant was three years in fact referred to the number
of pubs changing tenants in a particular given year. The report
was dated March 2003 and referred to 20% of pubs changing tenants,
suggesting an average tenure of five years.
| 
