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

Examination of Witness (Question Numbers 20-39)



  Q20  Chairman: Perhaps you can correspond with the Committee on that point.

  Mr Rusholme: I will.

  Q21  Chairman: I have seen some very different presentations of rentals from pubcos certainly to their tenants or lessees: some are exemplary and others are, frankly, shocking.

  Mr Rusholme: Would you mind if I draw a distinction here? There is a distinction to be made between rental proposals by chartered surveyors who have been engaged to carry out this work and business development managers or representatives of landlords who are doing this without any reference to chartered surveyors. As to the latter category I agree that there is much concern about what information has been provided.

  Q22  Chairman: That is also my view. Without going into the details of it, how important is the Brooker case for rent review purposes in dealing with the issue of divisible balance?

  Mr Rusholme: I believe that from time to time in all areas commercial valuation cases come along which have particular significance and the Brooker case is one of those.

  Q23  Chairman: Therefore, is the figure of 35% a new benchmark?

  Mr Rusholme: What I like about the Brooker case is that it has helped to dispel the myth that RICS or any other body sets in stone that there should be any particular split of divisible balance, be it 50-50 or whatever. Within Brooker there is a lot of discussion about risk and how one encapsulates it ultimately in the amount of money the tenant will pay. That is a very healthy discussion to have and an area where our guidance will provide a lot more support in terms of exactly where risks and rewards are taken into account.

  Q24  Miss Kirkbride: One of the recommendations in the report of the Select Committee on Trade and Industry in 2004 was the establishment of a national register of rents to make things much more transparent. It appears you have suggested a national database of trading information as a better alternative. Can you explain how that would work and why you think it is a better proposal than our original one?

  Mr Rusholme: We recognise that for a long time there have been calls for a national register of rents. Various groups including ourselves have looked at the practicalities of achieving that. There are lots of difficulties related to data protection issues and gaining the co-operation of the industry to make that happen. We came up with a better idea in the forum report. We looked at a number of other industries which had a trading element, for example hotels. There is a good deal of benchmarking information provided in that industry which is very helpful in getting the parties to come together in negotiations. That is one part of it. The other part is that chartered surveyors who act in that sector have their own databases of information and it is part of their skill and job to put together that information. One needs a whole range of information sources to make the process easier. We believe that benchmarking will do that job and that is achievable because there is an averaging of data from different sources; it is not just identifiable to one particular public house, for example. By averaging and making trading information slightly more discrete one is better able to get the whole industry to start to make more of that data available. We believe there is a lot of mileage in pursuing a benchmarking scheme and at the moment our efforts are devoted to trying to make that happen.

  Q25  Miss Kirkbride: Are you getting both landlords and tenants to co-operate on this idea?

  Mr Rusholme: At the moment there is a very good basis in that the ALMR runs a benchmarking scheme which takes information from a lot of tenants and lessees in this sector. We are looking at that and have a very healthy dialogue with that organisation on whether or not that is the place on which we should build. We are talking to a number of commercial providers of such databases in the marketplace. In addition our working group will be conducting a lot of work on the type of variables in a benchmarking system which will be useful to the industry and in the course of the next few months we will be able to pull the whole thing together and recommend the right direction in which it should go.

  Q26  Miss Kirkbride: You said you were obtaining information from tenants and lessees. Did you mention landlords?

  Mr Rusholme: Most of the existing information provided to the ALMR system comes from tenants. What we would like to see is the development of a benchmarking system which works on the basis of all the industry including the operators and pubcos being able to feed into that as well. That is vitally important.

  Q27  Miss Kirkbride: Have the pubcos and landlords refused to co-operate so far?

  Mr Rusholme: We have not reached that stage in our investigations.

  Q28  Miss Kirkbride: Is that because you have not asked them or they have just ignored you?

  Mr Rusholme: We have not asked them directly. What we want to demonstrate first is that there is a system which will comply with data protection and give comfort to all sides that if they provide information to the benchmarking system it will be secure and useful. We would encourage all pubcos and owners to co-operate on that.

  Q29  Miss Kirkbride: Who will maintain and update it?

  Mr Rusholme: It is still to be decided whether it is the ALMR, an outside commercial body or whether the RICS has the capacity to take that on.

  Q30  Miss Kirkbride: Who would be allowed to access it?

  Mr Rusholme: It should be open to both lessors and lessees in the sector. The one in the hotel industry works on the basis of subscription; the one currently run by the ALMR does not work on the basis of a charge so it is pretty much open to all involved.

  Q31  Miss Kirkbride: The Independent Pub Confederation has put forward the argument that in the cost basis of a rental calculation allowance should be made for time spent on pub business by the lessee. Is that something you are thinking of including in the database?

  Mr Rusholme: Certainly, it is a variable that can be captured in a database. Yes, one can identify those costs by running a database or benchmarking system.

  Q32  Miss Kirkbride: Are you going to include it or are you thinking of doing so?

  Mr Rusholme: 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.

  Q33  Mr Clapham: Obviously, the code of practice will be enormously important. You referred earlier to the rent analysis statement being a very important aspect of the code. Are we likely to see in the code a reference to the types of variables that will be in the rent analysis statement?

  Mr Rusholme: Very simply, yes; that is very much the direction we are looking to take with this.

  Q34  Mr Clapham: In developing the code have you had discussions with the BBPA? Are you working together to avoid the possibility of two codes? If there were two valuation codes operated in the industry they would present a challenge.

  Mr Rusholme: I agree with the comment that this seems to be an industry with quite a lot of codes.

  Q35  Chairman: It would help if they followed them occasionally.

  Mr Rusholme: As to a RICS and BBPA code I am aware of the latter which is being developed. It has not been published but we have had some sight of the direction that it is taking and we are very encouraged that it seeks to cover quite a number of issues we have recommended in our pubco report. As to whether we should join with that code or provide our own, our thinking is that we should provide a free-standing RICS code covering the issues that pertain purely to property and rent setting. It is stronger if it is free standing. I recognise that perhaps there are issues of enforceability of the code. If it is free standing it is clear that for our members it is mandatory and they should follow it.

  Q36  Mr Clapham: That is an important statement. If there are too many codes it just makes for difficulties. If we have a RICS code it will be one that is acceptable throughout the industry; it will make things much easier when it comes to working out rent issues. Will you be pressing for that to happen rather than that there should be two or three codes? We now have the BBPA talking in terms of a code which you say is encouraging. Is it not possible for the two of you to come together and introduce one code that will be important for valuation?

  Mr Rusholme: It is our intention to develop a free-standing RICS code.

  Q37  Chairman: The important objective must be that nothing in the BBPA code, which deals with issues much wider than valuation, should conflict with the RICS code.

  Mr Rusholme: I think so. If ours is only part of that code which deals with a wider range of issues there is a risk that it may become somewhat diluted and there will be confusion as to where authority and enforceability lie.

  Q38  Mr Clapham: When are we likely to see the code? When will it be implemented?

  Mr Rusholme: Our thinking is that it should be in place by the spring of next year.

  Q39  Chairman: For politicians spring can be a rather flexible feast. What do you mean by "spring"?

  Mr Rusholme: Our working group is to have its first session in January and perhaps it can come to its conclusions in six or seven weeks. I am mindful that there must be proper process; it must be got right, and to rush into something would be the worst kind of advice. Like this Committee, we consult on guidance that we publish. A consultation period would be built into that, hence it will probably be April or early May before it is published.

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