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

Memorandum submitted by Nigel Wakefield

  I act as a Consultant for the BII inspecting pubs, recruiting members and in addition I run a website which is an information site with links to the BII on books that I have written and other useful information from all aspects of the industry.

  In my opinion there has been very little change in the approach by the major Pub Co's and some of the others following the results of your last inquiry.

  A certain amount of window dressing has taken place, where reductions in rent have taken place and discounts given, but only for specific limited periods in exchange for a Full Tie to all products, where no time limit has been declared the Pub Co has refused to grant a Deed of Variation, which means that in the event of a sale the normal lease conditions will be enforced, so effectively nothing has changed apart from the Full Tie.

  In addition the lessee is often bound to a confidentiality agreement any comments and the agreement is breached and the existing lease conditions enforced again.

  I was invited to the first discussion with the RICS on their investigation into the abuses and misuse of their Valuation System, I took Neil Robertson, CEO of the BII, with me and between us we raised the following points.

  Firstly the term Competent Operator which relates to all rental valuations. We quoted the same classification of three years profitable trading with BII Advanced qualifications or five years profitable trading with minimal qualifications, that I quoted in my submission to your Committee, which has been defined as equating to full membership of the BII.

  The training by the majority of Pub Cos consists of the basic one day course or at the maximum of ten days in exceptional circumstances, in no way does it meet the Criteria of Competent Operator. The BII are now committed to ensuring that far more information is made available to newcomers before commencing work in the industry and getting Pub Cos to provide extended training whilst the lessees are running their pubs. The Pub Cos are not happy about the additional cost, but it should be part of any business development in a reputable company.

  Secondly business is not infinite, but finite any rental assessment made assumes that there is an immediate growth, this is pure fantasy and opportunism to raise a rent, any growth is at the expense of a neighboring business or businesses and they should actually have a corresponding rent reduction.

  The use of Cherry Picking Comparables without consideration of the existing turnover, which is the pubs exact market share at the time, results in ratcheting rents higher and higher with no consideration of viability.

  The failure to include any share of the Pub Co discount received from the suppliers into the divisible profit distorts the rental level.

  The discount achieved varies roughly between 61p-87p per pint at this moment of time depending on the suppliers. The non brewers purely operate a paper exercise, the suppliers deal with all the individual deliveries.

  The Pub Co gives the lessee fourteen days credit or insist on cash with order, yet receives in excess of three months credit in some cases, this is purely a ploy to generate cash flow and credit and could be disastrous if a major company fails, bringing down a vast number of other companies.

  With the preliminary findings of the RICS being published there has been a lot of activity with Pub Cos trying to force through a vast number of rent increases, it would appear, to pre-empt any changes in the valuation system in the short term, any decision by the RICS may well come into effect at the next rent review.

  I have had several phone calls and a number of emails. The levels of rent increase are around 20%, yet business has been static or falling over the last two years.

  One lady last week, the company refused to budge on 18.5%, yet they had a dozens of closed, boarded up pubs, going for next to nothing.

  This lady's business had fallen with the effect of the Smoking Legislation and was now static, being a community pub.

  There have been some very inventive attempts by one of your companies that appeared at the inquiry to claim that the divisible profit split should be on the investment level between the company and the lessee, which is outrageous.

  Another issue has come to light the valuers refuse to allow a basic wage for the lessee and his wife in the so called 50/50 divisible split, which effectively means that the Pub Co is entitled to half of a lessees and his wife's very basic earnings, yet they fail to factor in the discounts that they get for a paper transaction.

  The 50/50 divisible split has been thrown into confusion following the Brooker Case and certain information regarding the original divisible split being described as 30-35% to the landlord when these guidelines first came into being, prior to the Pub Cos emergence.

  If the Pub Cos had really made any progress in taking note of the BEC and RICS comments, then we would not be putting this information together.

  The abuses of the individual companies Codes of Practice accredited to the BII continue and the people seeking my advice or ringing the BII Advice Line does not stop.

  The BII will pursue all of these abuses and will in future be publishing summary outcomes.

  Nothing will be done in the long term without effective legislation, these companies view themselves to be to big to have to be bound by voluntary codes, because they are not legally enforceable, the RICS Valuation Guidelines could be considered by certain companies to be not legally enforceable, unless stated clearly in the leases.

  My views are not, of course, the BII's formal position but a significant number of members concur with my comments.

  I trust that these comments will be of assistance in your Committee's deliberations.

  Many thanks to the Committee for their hard work, it is appreciated.

4 November 2009

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