Pub Companies - Business and Enterprise Committee Contents

Supplementary evidence from Simon Clarke

  Thank you for allowing me the opportunity to speak at the first Committee meeting in respect of the above on 19 November 2008.

  I should point out that our Arbitration result, a rent reduction of 12%, is to the best of our knowledge the first and only time this has ever been achieved against a Pubco.

  I was all too aware that we were pressed for time and that Mr Luff, quite rightly, was keen to try and draw the proceedings to a close. Rather than enter into a lengthy debate on Mr Willis' answers I considered my response would be better outlined in a further short submission to the Committee which would clarify my opinion.

  In his final question, to the witness Mr Martin Willis, Mr Luff asked, loosely, "if the valuation approach used by the RICS is working so well then why are the problems heard today being described and why are 20-30% of tied pubs are not economic due to high rents?"

    Mr Willis replied "I don't think anyone is arguing with the profits method of valuation"

  No one is arguing that the RICS method, in principle, is the best method available at this time BUT it does not accommodate the recommendation from the 2004 Inquiry that tied tenant should be no worse off than the free of tie tenant. The "tie" (wet rent) is not adequately allowed for and until it is the tied tenant will always be worse off.

    "Essentially problems faced by the industry at the moment are largely down to the recession which is effecting every other form of commercial property in particularly small businesses" (Martin Willis).

  The current economic climate is having a significant effect on all businesses but pubs have been exploited for so long most licensees have no "war chest" to weather the storm. No one has had the opportunity to save for a rainy day and now we have the perfect storm.

    "Any business, maybe a small shop, could have had a five year rent review where rent was agreed in a boom period, of course trade has dropped off and there has been increased competition from the major retailers. Its effecting all small businesses." (Martin Willis)

  Those same "small shops" do not have inflationary increases every year when trade is in decline, they are not tied to buy products from a single source. Using the witness Mr Paul Daley's example, in session one, if you rent a house and buy your household goods from say Marks and Spencer, and times get hard, you seek cheaper products elsewhere, and shop at Asda. You would not think it fair to be forced to continue to buy expensive products from M&S who may at any time choose to increase their prices still further.

    "We read in press that several pubco's have ploughed several million back to licensees." (Martin Willis)

  See the Morning Advertiser 30 September 2008, Enterprise Inns has shelled out £5.5 million to 850 struggling tenants. Sounds a lot, big number—lots of noughts! Actually, amounts to an average of £124 per week for each of those tenants. We can assume these tenants are suffering severe financial crisis otherwise they would not have sought help. I do not believe that an average of less than £18 per day is going to save them. This is just a publicity stunt.

    "Certainly recession and economic situation over last 15 months is causing all sorts of problems." (Martin Willis)

  Five pubs are day are shutting their doors for good; 33% more than the same period in 2007. Pubs are now closing five times faster than in the same period in 2007. Pubs are now closing nine times faster than in 2006 and 18 times faster than in 2005." Whilst the economic crisis is no doubt playing its part in the rate of Pub closures clearly this accelerated rate of closure started long before our current recession and the smoking ban. The current economic hardship faced tied tenants has merely deflected from the fundamental culprit—the tie and the Pubco's.

  Mr Willis openly agreed that the tie (wet rent) is not considered in the RICS valuation method (confirmed in the Arbitrators Award quote attached full details available on request). The RICS valuation method for Pubs is drafted by the "Trading Related Valuations Group". Rob May of Enterprise Inns was Chairman and now Mr Willis Chairs this group, whose company derive significant fees from Pubco's, particularly Enterprise Inns. It comes as no surprise to me that the RICS valuation approach is detrimental to tied tenants given the Pubco's influence over the Trading Related Valuations Group.

  I appreciate the Committee may find it hard to make the abolition of the tie a statutory requirement. The Pubco's will no doubt argue that it would be an administrative nightmare. Would it be simpler to require the RICS modify the valuation method to encompass the recommendation that "tied tenants should be no worse off than the free of tie tenants?"

  Pubco's, without the financial benefit gained at the tied tenants expense, would probably remove the tie themselves as it would no longer be to their advantage to maintain it.


Eagle Ale House, 104 Chatham Road, London SW11 6HG, January 2008


Alternative Valuation Approach

  61.  In addition to the profits method of valuation, Mr Clarke has considered an alternative approach whereby the rent paid by the tied tenant is calculated by first establishing the notional rent payable on a free of tie basis then deducting the supply discounts available to the free of tie tenant, which he describes as "wet rent", leaving a "dry rent" payable by the tied tenant.

  62.  This approach is rejected by Mr Gooderham (the "independent expert" employed by Enterprise Inns).... I concur with Mr Gooderham that there is no compelling reason to calculate the rent on this basis.


T M E Munden Bsc FRICS

Davis Coffer Lyons

19 November 2008

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2009
Prepared 13 May 2009