Memorandum submitted by Brian Jacobs
COMMENTS OF
DEVELOPMENTS FOLLOWING
THE ISSUE
OF THE
BESC REPORT ON
PUB COMPANIES
The prime principle, that the tied tenant should
not be worse off financially than if they were free of tie, is
fundamental to ensuring fair competition. The fact is that every
effort by pubcos, valuers, members of RICS, the BBPA, and even
the BII have been towards either denying the existence of the
prime principle, or subverting by any means possible. It is a
fact that the pubcos have borrowed billions of pounds buying pubs
and they are having problems servicing that debt. The fact is
that their rapacious appetite led them to pay excessive prices
and now they expect the tenants and consumers to fund their foolhardiness.
Consider the recent activity.
REVIEW OF
RICS STATEMENT AND
IMPACT ON
ITS MEMBERS
1.1 The evidence is clear and absolute,
the member valuers, both pubco and external, have been failing
to observe the prime principle
1.2 The recent release from RICS states
"For example in the treatment of the valuation of the
wet rent, where it is clear to us that most lease agreements require
a valuation largely on the terms of the lease. This follows the
principle of the tied tenant being no worse off than the non tied
tenant; a position which is arrived at with a correct interpretation
of RICS guidance".
1.3 RICS have refused to either remove members
from their panel of arbitrators that have refused to accept and
apply the prime principle.
1.4 RICS have indicated that they will not
reprimand employees of pubcos or , such as Christies and Fleurets,
who have wantonly disregarded the prime principle.
1.5 The impact of the failure to observe
the prime principle has been that pubcos have increased their
profitability substantially to the detriment of both the tenant
and consumer. Profitability for both Enterprise and Punch Taverns
may have been overstated by £60 million a year each.
1.6 The RICS stance has confirmed that the
should not be the sole arbiters of rent, it requires other disciplines
such as Chartered Arbitrator or a member of the accounting profession,
after all profit is the basis of rent and who is more qualified
than an accountant?
THE BBPACODE
OF PRACTICE,
BII AND FLVA
2.1 The BBPA have rendered a fresh Code
of Practice, supported by the BII and FLVA.
2.2 Their Code regurgitates, cleverly, most
standards that should have been in force more than a decade ago,
and which the T&ISC recognised in 2004 as not having
been fulfilled. There is nothing in the COP that the pubcos can
be forced to apply.
2.3 Their code, as revealed in the press,
claims to put into effect the following: [comments in italics]
2.3.1 A revised BBPA Framework Code of Practice
on the Granting of Tenancies and Leases is stated to be a mandatory
requirement for membership of the BBPA and will be provided to
all new and existing tenants or lessees. The revised Code will
take effect from 1 January 2010 and member companies
will have until 30 June 2010 to incorporate the revised
BBPA Code into their individual Codes of Practice and to seek
BII accreditation. This does not prevent any member from withdrawing
from the BBPA and ignoring in total. Nowhere within this document
has the BBPA or its members accepted the prime principle, in fact
some of the members have openly stated that, to which there is
no punishment.
2.3.2 In addition, in conjunction with other
industry bodies, BBPA has set up an Independent Pub Rent Review
Scheme (PIRRS), to be funded by BBPA, that will offer lessees
a low-cost alternative to arbitration in rent review disputes.
None of the persons nominated to carry out PIRRS will undertake
to transparently show that they will apply the prime principle.
No tenant should consider their rent being judged by" poachers2
2.3.3 The revised BBPA Code will include a range
of obligations on pub companies who, amongst other things, will
be required to:
— establish standards of competence for
BDMs and set out a procedure to deal with complaints and resolve
disputes This should always have been the case and the T&ISC
in 2004 reminded the pubcos of their responsibilities, since
ignored;
— describe the various rental and purchase
obligations offered by the company. Not new and has no real
value;
— demonstrate transparency with regard
to prices charged for beer, eligibility for discounts and whether
they will allow guest beers supplied outside the tie Not new
and should always have done so also see TISC2004;
— make clear the pub company's policy in
respect of rent setting and review including full transparency
in regard to how the Fair Maintainable Trade (FMT) has been calculated
with a breakdown of costs and detailed information on the assumptions
made on turnover. The BBPA Code will also incorporate a checklist
of information to be requested by the tenant or lessee from the
pub company. Not new and should always have done so, also see
TISC2004 recommendations para's 144 and 145;
— provide shadow P&Ls which must provide
sufficient detail to enable tenants to take proper professional
advice Not new and should always have done so. also see TISC2004;
— draw attention to the availability of
ALMR and other benchmarking reports Of no real value, there
is no substitute for detail and benchmarks whilst advisory do
not reflect accounting practice;
— ensure Upward Only Rent Review clauses
are not included in new leases and offer existing lessees the
opportunity to convert to new leases subject to agreement This
was supposed to happen after TISC2004, BBPA failed to secure Deed
of Variation for each lease;
— remove AWP machine income from the divisible
balance and make clear how machine income is considered TISC
2004 recommended total removal but ignored;
— supply lessees with full details about
insurance cover and excess payable and price-match where lessees….
should have always done so, there has been a failure to attach
details to lease are able to find a cheaper like-for-like
policy NEW!!!!;
— set out a clear policy for the operation
of flow monitoring equipment in accordance with minimum standards
be set out in the BBPA Code Dubious as to usage, and fails
to satisfy Weights & Measures, not required if tie removed;
and
— make clear the company policy with regard
to restrictive covenants There is no need to have restrictive
covenants.
The agreement also requires lessees to undertake
pre-entry training, produce a business plan and take qualified
professional advice prior to taking on a lease This has always
been so but not always applied.
On assignment the lessor must also give any
assignee the same financial information disclosed by the pub company.
Always been so
The BBPA is the UK's leading organisation representing
the brewing and pub sector. Its members account for 98% of the
beer brewed in the UK and own nearly two thirds of Britain's 56,000 pubs.
And wrongfully hold themselves out to represent some 30,000 tenants
2.4 The BII has failed to support the prime
principle and yet together with the BBPA are progressing PIRR's
which also fails to ensure the implementation of the prime principle.
None of the valuers listed on the BII webpage, as persons who
could be involved in PIRR's, have accepted the need to observe
the prime principle, in fact the majority at some time or another
have blatantly refused to implement the prime principle. The position
of the BII is tarnished by their refusal to ensure the application
of the prime principle.
2.5 The FLVA are funded to a substantial
degree by pubcos and therefore will naturally agree with whatever
they say, their position is thus tarnished.
12 November 2009
| 
