Supplementary memorandum submitted by
Nigel Wakefield
I have just been to one of the D11 Rent Road
Shows sponsored by a number of the largest Pub Co's.
My submission was based on the massive failure
rate of our D11 members and others caused by unsustainable rents
and the supposed methods to calculate them, set in motion by,
in mine and many others opinion a seriously flawed directive by
the RICS.
The Rent Road Show was extremely interesting
since it's aim was to get more openness Into rent appeals and
matters relating to rental assessment to enhance the RU Codes
of Practice that a number of Pub Co's have put forward to suit
their Individual methods of operation.
I assumed wrongly that a complex mathematical
approach would be implemented to assess rent Increases or valuations
for individual pubs. I sat there, with total incredulity, whilst
one of the so called top Rental Valuers told that, his method
would be to go two three or four local pubs within a ten mile
radius and ask the landlord what his rent was and by using comparables
arrive at figure, discounting the best and worst pubs.
Because of his position he would probably have
rent details if the others were owned by a Pub Co that he deals
with. Accounts of the pub in question could not be used, since
they would be possibly out of date or unreliable, he declined
to use the full description of Competent Operator as used by the
RICS and failed to give a definition of what he considered met
that criteria.
I deal with licensees all the time, very few
would rush to tell a total stranger what their actual rent was
unless severely over rented, these who based their rent on a percentage
of turnover of the traditional brewers, would not tell anyone
what their actual rent is or by so doing their turnover.
We then had a presentation by a Director of
Enterprise Inns which was most impressive. about what they were
doing and going to do. I had a lengthy talk with him pointing
out some of the over renting on pubs seeking my advice He agreed
to investigate an suggested a permanent rent reduction rather
than a rescue package, which if it happens will be a start, if
nothing happens i will inform you.
I raised the issue of Business Plans and people
signing leases because Pub Co's have accepted their business plans,
regardless of the viability of the pub or plan, i pointed out
that Caveat Emptor applies and has been quoted by the RICS and
selling agents, he said this was totally unacceptable i again
pointed out that a solicitor who contacted me had not had a Business
Plan queried or rejected by a Pub Co in five years regardless
of the viability of the pub, again he said he would investigate
since the acceptance of the plans was done at Regional Manager
level as with the rents.
I and one of my colleagues had emailed over
a thousand lessees to see if they could obtain a copy of the rent
calculations on their leases, to date nobody has received anything,
I wrongly assumed that in any rent review the business viability
and turnover had some relevance assessing rent. It confirms my
suspicions that the whole rental system is totally flawed and
open to abuse and misuse by unscrupulous people and companies
and I am even more convinced that my original findings are correct.
The values of freehouses are normally based
on one and quarter to one and a half times turnover, in extreme
cases in a buoyant market they could get to double the turnover
which can make borrowing difficult or limited. By ignoring the
turnover in rent assessment and over valuing the rent, this increases
the notional value of the property, in many cases well beyond
the pubs viable business value, this has been used as previously
mentioned to fund additional acquisitions, which from most City
analysts Is raising questions about the whole viability of the
Pub Co operation.
I have also been advised that the recent further
hike in rents in a number of companies with the fall in business
is to meet the REIT requirements, which raises further issues,
which I will leave to people with more experience than I on the
subject.
I am also enclosing copies of Morgan Stanley's
report on various Pub Co's where they stress that unsustainable
rents are causing serious problems within the Industry.
I have no desire to see these Pub Co's collapse
because of the financial strife that it will cause to a large
number of struggling lessees, but their operations have to be
changed. The rental levels that have become the Norm are unsustainable
and the SACS Valuation document needs totally revising to Include
business viability.
I trust that you will discover the real truth
behind all these activities rather than the corporate spin.
29 September 2008
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