Supplementary memorandum submitted by
Mark Fearon
I have looked at the evidence to the Committee
on 8 December. I am particularly struck by the evidence from
Mr Rusholme in response to Question 32 from Miss Kirkbride,
where he states:
"There are perhaps two separate issues
here. First, the question is whether it is information that can
be captured in a benchmarking system. Clearly, it can be. I suspect
that the second part to the IPC's argument is whether in rental
calculations allowance should be made for a manager's cost or
a salary cost. I think that is a little more difficult. If it
is included the consequences may be a little more than we wish
because it goes back to the basis of valuation which is to establish
what someone would pay in the market. What variables you put into
the hypothetical calculation are only a way of getting to that
answer. I am unsure whether it will add a great deal to that process."
I have suggested in previous correspondence
that the "profits" method of valuation is a sham. This
is about as direct an admission as you could get from the RICS
that I am correct in that conclusion. Mr Rusholme is admitting,
(and I have the same in writing from Robert May when he chaired
the RICS valuation Committee for licensed premises) that the market
rent is what people will pay. The profits calculation, he rightly
states, is "a way of getting to that answer". In other
words it can and will be manipulated until it reaches that point.
Fair enough in a free market—but the pub business is an
oligopoly. The power of landlords to determine rent is not the
power which would be available to them in a free market. I doubt
whether RICS members wish to discontinue their existing practice
of dividing the market into artificial sectors of which tied leased
pubs are one, or of ditching the profits method of valuation.
If existing practice continues, tenants of leased pubs will continue
to pay rents which are significantly in excess of those paid by
occupiers of retail premises in the same locality, with no evidence
that there is a justification for the differential. They will
also continue to have poor returns for their time and money, and
many will become failed businesses.
I continue to maintain that the RICS should
compare rents paid by tenants of retail premises in an open market
with those paid by public house tenants on a square footage basis.
At present most public house tenants pay far more, because of
the use of the profits valuation, which has no foundation in fact
or logic, but enables RICS members to pretend that it has.
28 January 2010
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