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


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






 
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