Pub companies: follow-up - Business, Innovation and Skills Committee Contents


Memorandum submitted by Mark Fearon

  I would like to comment on the RICS forum report.

  I consider the RICS is the only body that matters in this debate about how to get fair rents. Ultimately, the rents will be set by RICS members whether they are acting as independent experts or as arbitrators.

  The forum report suggests more transparency in calculating rent on the basis of the profits method, which is a useful practice. However, it is wasted if, in practice, rents are set on the basis of comparables, ie what the market will bear. I have evidence in terms of correspondence from Robert May, when he chaired the RICS Committee for establishing best practice in pub rent reviews, that this is the key factor in rent determination. I note the forum report includes proposals for a Code of Practice, and this includes "Recommended best practice for both landlords and tenants in seeking the advice of a Chartered Surveyor to establish a tone of comparable rents"

  To me, this implies that practice will not change. The profits method of valuation will continue to be used, but in practice the surveyors and landlords can and will bend it to arrive at the rent the market will bear. I have experience of this being done by an arbitrator, although it is in practice difficult to prove that this is how he reached his conclusion. I very much doubt that the Committee can alter this fundamental practice, and there arguments as to why it should not try to do so. However, the RICS practice , which will not change, involves establishing a separate market for pubs, as opposed to general retail premises, which in my opinion is indefensible. You only have to look at the success of Wetherspoons, based on buying retail or convertible premises freehold, and free of tie, to see that the market could be changed significantly if pubs really were in the open market.

  I consider the Committee should focus on abolishing the tied lease, which is arguably a contract in restraint of trade, and is a fundamental in establishing the excessive power of the landlord in rent negotiations. I also consider the profits method of valuation should be another target. It is in practice a sham, and a waste of time and money. It could easily be replaced by a simple comparison with rent per square foot for retail premises in the locality, and an allowance for the value of domestic accommodation where provided. These two achievable targets would make a huge shift in the balance of power between landlord and tenant, and result in a better deal, ultimately, for the consumer.

5 November 2009






 
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