Pub Companies - Business and Enterprise Committee Contents

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 Accounts of the pub in question could not be used, since they would be possibly out of date or unreliable, he declined to use the full description of Competent Operator as used by the RICS and failed to give a definition of what he considered met that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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