Examination of Witnesses (Question Numbers
120-124)
MR MARTIN
WILLIS, MR
DAVID MORGAN
AND MR
SIMON CLARKE
18 NOVEMBER 2008
Q120 Mr Weir: Is there any organisation
that can give help to tenants to fight cases like this?
Mr Morgan: There is no such organisation
that exists. I seem to be at the sharp end of a lot of the pro
bono work, I must admit, because I will always take phone calls.
It is singularly distressing. I must admit I am a fairly positive
person but at the end of a working day I can get thoroughly depressed
having had licensees who are in fact crying their eyes out. It
does tend to get to you little bit.
Q121 Mr Binley: Might I ask, did
the OVA used to do this work effectively or am I looking to a
golden age that did not exist?
Mr Willis: There was help. I do
not think there was a situation where a tenant was given direct
support. There are a number of licensed property valuers who will
guide a tenant as to the process but I do not believe even in
the pre-MMC days. We had probably a closer relationship with tenants
and people helping each other, but I am not aware in those days
of anyone actually taking on rent reviews.
Mr Morgan: In those days it was
a completely different sort of regime. It was rather benevolent,
it was the fact that you should and you did know the people you
were working for and with. As an estates manager for Courage Western
I had something like 350 pubs and I reckon I knew probably 90%
of them by name. I used to drop in and have a chat and the rest
of the bits and pieces. It was a wholly different culture.
Mr Binley: I was Courage Central and
I had 154 pubs.
Q122 Mr Weir: Do you think there
are any terms frequently found in leases which are so unreasonable
that they should be deemed unenforceable by the courts?
Mr Morgan: I think there should
be clarity over the disregard of structural works. Rather than
saying "the effect of" (because that causes huge amounts
of strife) it ought to say "not the cost". It would
be so simple. It would be three words but it would clarify the
matter beyond any doubt. Secondly there should not be upwards
only rent reviews. Thirdly, there should be the absolute insistence
upon transparency in the rent review negotiation. That is quite
easy to insert; all it has to say is that you would follow national
accountancy standards. It is an easy thing just to put in there.
It is all down to clarity and aiming to take away the areas of
adversarial conflict.
Mr Clarke: In addition to Mr Morgan's
ideas, I think the inflationary increases are grossly unfair on
tenants. In a situation where we have a decline in turnover I
think it is totally out of order that the rent is still going
up every year. It is just expanding an existing problem that goes
on and on and gets a bigger and bigger and deeper spiral for the
tenant. The tie itself I think we are pretty well all agreed that
we want to see the back of that. Whilst there will be a comment
that rents will go up if you are made free of tie, the difference
is that they will not go up by the same amount as the existing
commercial rent plus the wet rent. It would be left to market
forces to establish it. It would be easier for the valuer anyway
because everything is on a level playing field. One tenant is
very much easier to compare to another tenant; one pub is easier
to compare to another pub because the tie arrangement is one element
of the lease, it is not different. The machine tie is again grossly
unfair to the tenant. I do not really know why that many tenants
bother with a machine at all, we do not; we would rather have
the bums on seats as they say. That is about it I think in terms
of the immediately obvious. I am sure there are many that could
be reworded that would reduce the amount of conflict between landlord
and tenant.
Mr Morgan: I concur with that
as well.
Q123 Chairman: If the valuation approach
used by the RICS is working so well then I do not understand why
the kinds of problems we have heard today are being described.
I do not understand why Enterprise rent per barrel has gone up
by 11% and Punch by 4% since 2002. Profitability is nowhere. Also
I am concerned about the Morgan Stanley report which said that
the 20% to 30% of tied pubs are uneconomic due to high rents.
There are some facts there that really are rather disturbing.
Mr Willis: I do not think anybody
is arguing with the profits method of valuation. One of the factors
that the new leases bring in is the quinquennial rent reviews
or the three yearly rent reviews and there is also this issue
of the RPI annual increase. Essentially the problems that are
in the industry at the moment are largely down to the recession
which is affecting every other form of commercial property and
particularly small businesses. Any business, even a small shop,
may well have a five yearly rent review that could have been agreed
when we had boom periods and of course trade has dropped off and
there has been competition from the major retailers. It is affecting
all small businesses and I believe anybody faced with rent review
increases at the moment is having to look at them very closely.
It depends whether the pub companies and brewers are actually
pushing for substantial increases at the moment or indeed reducing
them. We read in the press that several of the pub companies have
actually ploughed several millions of pounds back to licensees.
I do not know the detail of that; that as is press comment. Certainly
I think the recession and the current economic situation over
the last 15 months is causing all sorts of problems
Q124 Chairman: Do either of you gentlemen
want to add anything before we draw things to a conclusion?
Mr Morgan: I think that is enough.
Chairman: Thank you very much indeed
for your time and trouble. We are very grateful to you for your
evidence. We will proceed with our next session in December and
hear from the other side. Thank you very much indeed.
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