Written evidence submitted by the Brighton
& Hove Licensees Association (B&HLA)|
1.1 Brighton & Hove Licensees Association
is an Association (B&HLA) of responsible publicans all of
whom operate in the City of Brighton & Hove. We represent
over 150 venues, many of which are tied houses with a turnover
in excess of £60 million and employing over 1,200 people
within the city.
1.2 This report has been circulated to the membership
of B&HLA and has their unanimous support.
1.3 The concerns we raise with regard to the
model operated by Pubcos is not an exhaustive one. We have, however,
attempted to highlight what we consider to be our main concerns
and have chosen to offer some solutions where we feel it is most
1.4 The report is based upon the position as
we find if as of the time of writing, May 2011, all Pubco conduct
referred to will be based upon evidence after the previous report
of the select committee into Pubcos.
2. PRICING &
2.1 As an association we remain concerned that
the wholesale price upon which most tied lessees prices are based
remains an arbitrary figure paid for only by tied leaseholders.
The tied tenant has no input into the wholesale price and has
no opportunity to negotiate it or to avoid it by purchasing from
an alternative source.
2.2 The tied tenant relies upon the wholesale
price being negotiated on their behalf by their landlord the Pubco.
The Pubco is disadvantaged by negotiating the wholesale price
downwards, indeed by ensuring an inflated wholesale price the
Pubco will improve their own margin when compared to the price
they pay a brewer, a price that will be negotiated.
2.3 In February 2011 both the two major pubcos
have raised their prices to their tenants. Enterprise Inns by
an average of 3.8% and Punch Taverns by an Average of 3.3%. Simon
Townsend of Enterprise Inns noted "As in previous years,
we have sought to keep the number and variety of percentage increases
as low as possible" however this would appear to be at odds
with the price rises of some brewers announced at the same time,
one example being Coors who raised their prices by 2.3%.
If the Pubco price rises were as low as possible why are they
increasing their prices by more than that raised by the brewer
2.4 Where discounts are available to Pubco tenants
these are often not subject to rises in line with that of the
wholesale price. Many tenants complain that the discount level
is frozen and so becomes increasingly less valuable over a period
of time Indeed even where discounts are given the value of these
when increased by a similar margin as that applied to the cost
price still become increasingly less valuable over time because
of the nature of the increased discount producing lower margins
over time as the difference between cost price and discount increasingly
3. MACHINE INCOME
3.1 Whilst the BBPA code of practice, the benchmark
for all BiiBAS approved codes has stated that where there is a
machine tie income from machines will show below the line and
not form part of the divisible balance there is clear evidence
some Pubcos are circumventing this in a variety of ways to ensure
they maintain the revenue of the machine that they previously
3.2 Enterprise Inns have simply changed the percentage
of the divisible balance that they would previously have taken
to compensate for their loss by showing the tenants machine income
below the line. We have site of one regional manager's email on
the subject where they state "the divisible balance and machine
income are considered together for the purposes of the rent review
as machine performance is part of the pubs income and logically
must have some bearing on rental bids. Machine performance is
displayed below the line as according to the BBPA's code of practice."
In essence where a rental bid of 50% would have been made of the
divisible balance a rental bid is now made of 50% of the divisible
balance plus the machine income to the tenant, or in other words
a higher percentage of the divisible balance is taken by the Pubco
to compensate them for their loss. Moving it below the line is
therefore purely a cosmetic exercise and makes no difference to
the income of the tenant. It is our opinion that this is how any
Code of Practice accredited by BiiBAS expected a Pubco to deal
with machine Income and is at best an example of sharp practice
and creative accounting.
4. RENTS &
4.1 Whilst it is to be applauded that upward
only rent reviews are now considered a thing of the past for the
majority of tied tenants we would have liked this confirmed by
a deed of variation to the tenants contracts rather than through
side letters and commitments in codes of practice. It is our opinion
that only then can the tenant be convinced that upward only rent
reviews could not be enforced at some future date. We fail to
see why this has not been done to date. If the pubco is genuine
in their commitment to end upward only rent reviews for the tied
tenant than there should be nothing stopping them from issuing
a deed of variation to the lease confirming this. Why has this
not happened? What is the motivation of the Pubco for not ensuring
tenants have peace of mind on this issue?
4.2 It has come to our attention that many pubcos
are circumventing the end of upward only rent reviews by producing
new leases with only a five year term and subject to an annual
increase by RPI and no rent review. Having no rent review removes
the ability of the tenant to have a revised rent downwards.
4.3 We reject the pubco claims that RPI increases
are a fair measure of annually adjusting rent. It is our opinion
that this measure amounts to an annual upward rent review to the
disadvantage of the tenant. The tenants position made all the
more acute in a market place of declining beer sales year on year.
In essence the tenants rent rises whilst income goes down.
4.4 AS a society we are dismayed that Pubco's
continue to fabricate proposed profit and loss accounts to arrive
at a divisible balance in total ignorance, possibly deliberately,
of the world within which we trade. There is continued over expression
of sales and under estimation of costs, all designed to create
a larger divisible balance leading to a higher rent bid. Examples
include venues where sites have increased barrelages attached
to them at a second rent review where no major improvements to
a venue have been made and where the local trade has seen a double
digit drop in beer sales. Other examples include failure to account
for benchmarking of costs and a refusal to take account of the
ALMR benchmarking survey, currently the only one available leading
to a serious under estimation of costs, one example seen by the
association shows staff costs at over 5% below that benchmarked
for a venue of it's style. No evidence is provided by the pubco
to support their costs.
5.1 We remain unconvinced by the value of SCORFA
(Special Commercial or Financial Advantage) countervailing benefits.
For any tenant to understand the value of their lease and to know
whether they are paying an appropriate rent we feel a Pubco should
list and place a value on the SCORFA benefits they are providing.
Failure to do so leaves a tenant unable to negotiate their rents.
5.2 The RICS guidelines also note that they need
to take into consideration the countervailing benefits of SCORFA
of any particular lease. We would envisage this benefit needing
to have a value and envisage this value being made available to
the tenant to ensure they do not enter into any arbitration process
unarmed wit the full facts. Currently no such information is available.
5.3 We are unconvinced by some of the claims
of Pubcos with regard to SCORFA. The claim that Pubco employees
such as Business Development Managers help to promote and improve
the business of their tenants is questioned by our members, most
of whom see them as policeman of the tie and rent negotiators
and not business partners. They appear to add little value to
the business of our members in most if not all circumstances.
The claim that machine management must also be discounted where
there is a tie, they cannot claim SCORFA when they are already
charging for the service and they offer no such service where
a machine tie does not exist. Many other "services"
the pubco claims are actually services that the tenant can already
get for the same if not better cost, such example being ratings
appeals and insurance.
6. CODES OF
6.1 We have already noted the commitment of the
Pubcos with regard to machine income and how some pubcos are circumventing
this commitment. (see 3. Machine Income). This is an example of
how the Pubcos are viewing the codes of practice, not as a guide
to ensuring a fair and equitable relationship between landlord
and tenant, but a document to be circumvented where possible.
6.2 We have concern that some pubcos are exerting
pressure on their tenants to sign for their Codes and so run the
risk of obliging themselves to commitments outside the scope of
their existing leases. Indeed some codes we have had sight of
actually propose more onerous terms on the leaseholder to the
benefit of the Pubco.
6.3 Members have expressed concern that regional
managers and Business Development Managers continue to avoid or
ignore standards set out in the code of practices.
7.1 Our members remain unconvinced about the
accuracy of many of the systems utilised by Pubco's to monitor
7.2 Where not specified within a tenants lease
we believe that any equipment installed at a premises should be
done with the expressed permission of the tenant and that the
Pubco should reimburse the tenant for any wastage of calibration
and installation along with servicing and for any running costs
incurred by the tenant such as electricity to power the equipment.
8. OUR SOLUTION
8.1 The Pubco's continue to maintain that the
existence of a beer tie is beneficial to their tenants. We are
supportive of the IPC position that the Pubco's should offer open
market free of tie options to all tenants. In doing so they would
have to ensure that the benefits of their tie is one that the
tenant understands and considers advantageous. If, as the pubcos
argue, the tie is beneficial then they have little to be concerned
with, no tenant will take the open market rent review offer. We
believe this to be the acid test of the claimed benefits of the
8.2 The open market free of tie option should
be made available to all tenants where the landlord does not have
an estate of over 250 pubs, known as the de minimus option also
supported for by the IPC. This would ensure small brewers are
8.3 A statutory Code of Practice should be introduced.
6 Source Morning Advertiser - http://www.morningadvertiser.co.uk/news.ma/ViewArticle?R=89742 Back