Pub Companies - Business and Enterprise Committee Contents

Supplementary memorandum submitted by BII


  Further to the Select Committee meeting on 9 December 2008 and subsequent telephone calls with the clerk I am writing in connection with the proposed BII Independent Expert Determination Service which Mr McNamara mentioned during the Select Committee meeting.

  For clarity I should point out that Mr McNamara left BII at the end of 2008 to take up another role as Chief Executive of the Alliance of Sector Skills Councils and I took over at BII in February 2009.


  As the professional body for the licensed retail trade, our charitable aim is to raise standards in the industry and to educate members in all aspects of running their businesses.

  In communications with our members the issue of rent reviews has been raised as an ongoing and particular source of concern and unrest.

  As a response to this feedback, and following a pilot in June 2007, in the latter part of 2008 we held a series of events which were aimed at educating members (and non members) in relation to the rent review process. These events were supported by three of the largest Pub Companies and breweries and presentations were made by representatives from those Pub Companies, Chartered Surveyors and independent experts. They were hosted by the Morning Advertiser.

  During feedback and question sessions, it became clear that an area of concern was the dispute process when negotiations had reached an impasse. In the majority of agreements, when this situation occurs the options are to go to arbitration (in which case the losing party may have all costs awarded to them) or an independent expert is appointed. This latter method carries a fee which is divided between the parties. Both methods provide a binding outcome on both parties.

  Both methods can be expensive and in the latter case members have raised concerns in relation to the perceived independence of the expert chosen by the Brewery or Pub Company, despite that expert being a member of RICS.

  As a result of this feedback and at the request of our corporate members (ie the major Pub Companies and brewers), BII undertook to look into creating an Independent Expert Determination service which would have the objectives of being:

    —  transparently independent;

    —  at a relatively low fixed cost; and

    —  binding on both parties.

  Such a scheme would facilitate all sides of the industry coming together to create a transparent, relatively low cost, binding outcome to one of the areas of most contention within the industry.


  The first stage was to set up a steering committee whose role it is to determine the feasibility of such a scheme and to consider how this would work in practice. The steering committee is made up of representatives from the Breweries, Pub Companies, Chartered Surveyors a BIII trustee (who is also a licensee), BII consultant and BII staff.

  This work is coming to a close and the conclusions are that an independent expert determination service which is completely transparent, relatively low cost (which is fixed at the outset) at the point of use and ultimately binding on both parties is workable and practicable.

  Once this work is completed, there will be a full proposal to place before the BII National Council who will decide if this is a project worthy of BII's involvement and if so how this will be funded and resourced.


  What follows is merely an outline of the steps within the process. More detailed work is going on to underpin each of the stages to ensure the scheme is practical and legal.

    1. The two parties (Pub Co and Licensee) fail to agree on the proposed rent review outcome.

    2. They agree to use the BII Independent Expert Determination Service.

    3. They contact BII who will appoint an independent expert from the list which has been created.

    4. Agreements and deeds of variation are signed and the independent RICS expert carries out the review in accordance with the scheme instructions.

    5. A decision which is binding is made and conveyed to both parties.

  The expert's fees will be fixed and will be shared between both parties to an agreed formula and will be payable at the outset. It is proposed that the licensee's share of the fee will be between £1,000 and £2,000 in accordance with a sliding scale based on current levels of rent and location of the outlet.

  As mentioned above this is an outline only and clearly there are significant issues surrounding each step and this is currently being determined and resolved.


  Currently the incidence of invoking the use of an arbiter or independent expert is limited to around five or six per annum for each of the largest of the Pub Companies. The reasons for this are usually the unknown costs and lack of confidence in the system by licensees involved in using either of these routes.

  Within the UK there are approximately 31,000 lessees/tenants and most are on a three or five year rental cycle. Therefore there are approximately some 7,000 potential rent reviews each year.

  Once introduced, it is anticipated that the scheme will be used on a more regular basis as they see a certain cost and independent means of settling the impasse of an unresolved rent review.

  We would estimate that the scheme could see up to 5% using this route ie 350 per annum. This is based on anecdotal evidence and also the anticipation that the recession will result in an increase of disputes as belts are tightened and every pound of expenditure will be the subject of much scrutiny.


  The BII's role would be to administer the scheme. It is envisaged that this will involve the creation of a bespoke website to provide full information on the scheme as well as detailed instruction regarding how to apply, payment of fees etc.

  With an anticipation of 350 per annum there will also be a need to resource this level of take up and this will include staff costs and other disbursements.

  We would also need to maintain a managerial watch overseeing the administration of the scheme and organising and recording of steering group meetings.

  We estimate the requirement of a budget of around £100,000 per annum to ensure the scheme is adequately resourced.


  We believe this is a vital piece of work and one which will lead to a valuable improvement in the way in which rent reviews are finally determined where other means have failed to reach a mutually acceptable outcome.

  It will benefit the licensee by taking the unknown cost out of the equation. He/she will have the peace of mind that the valuer will be chosen from a BII panel of RICS experts and finally the decision will be binding giving a clear independent outcome.

  The Pub Company would similarly benefit by having a relatively quick outcome to any dispute regarding rent reviews. They would also know the costs from the outset.

  This would therefore be a win/win situation.

  As mentioned above, work is currently being undertaken to determine the mechanics of the scheme and has therefore yet to be considered by the BII National Council. However a key area for their consideration will be that of cost as outlined above.

  As a body of charitable status, BII must ensure it has the related income to resource any activity and to meet the likely expenditure associated with it.

  As the scheme depends on low cost at the point of use and therefore does not include an income for the administration, our recommendation would be that consideration be given by H M Government to fully fund the scheme as outlined above.

27 February 2009

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