Supplementary memorandum submitted by
BII
COMMITTEE TO
REVISIT THE
ROLE OF
PUBCOS
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.
BACKGROUND
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 PROCESS
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.
HOW WOULD
IT WORK?
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.
IMPACT
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.
COSTS
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.
CONCLUSION
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
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