Written evidence submitted by the Federation
of Licensed Victuallers Associations (FLVA)|
This submission is made on behalf of the Federation
of Licensed Victuallers Associations (FLVA) which is a members'
organisation that has since 1992 looked after the business interests
of self employed licensees and was a co signatory to the Framework
Code of Practice. (FCOP)
1. The FLVA accept the need for PubCo's to retain
the beer tie subject to the points made in this document. In particular
a more equitable split of the beer discounts available to the
PubCo's. (paragraphs 23-28)
2. The FLVA recommend a removal of the wine/spirit/mineral
tie from all existing agreements. We accept this may need to be
followed by an interim rent review reflecting the increased retail
margins. The review should also recognise the current changed
trading environment at the outlet in today's economic climate.
3. The FLVA require a formal and transparent
linkage between the wholesale prices enjoyed by the PubCo's and
those offered to their tenants, insomuch that supplier "price
increases" should only apply to the tenant at the same time
and at the same price as those increases are levied on the PubCo
concerned. Providing a true countervailing benefit.
4. We recommend the FCOP rental treatment of
tenants share of AWP income be implemented now across all existing
5. The FLVA recommend a minimum licensee's profit
return after rent of £20,000.
6. We recommend the establishment of PubCo/tenant
forums as a means of maintaining dialogue between business partners
and discussing new initiatives or tied pricing arrangements. (paragraphs
7. A strict timeframe (12 months) for the implementation
of 6 above.
8. All pub owning companies should be expected
to establish and hold their own discreet tenant forums at both
a national and regional level on a three monthly basis. There
should be no exemptions, all PubCo's who submitted a Code of Practice
should follow this process.
9. Within this submission we draw particular
attention to the position of existing tenants. PubCo initiatives
usually focus on new tenants and practices where such improvements
have been introduced. We require greater emphasis on the plight
of existing tenants. (paragraph 29)
Whether the PubCo's individual Codes of Practice
(COP's) are robust enough and whether the major PubCo's have built
upon the de-minimus requirements of the BBPA's FCOP
10. The PubCo's COP's are welcomed, and are in
the main being complied with, in particular the transparency brought
at rent review. We believe that much of the code should be enshrined
within the lease or via binding collateral deeds in existing leases
ensuring continued adherence by the PubCo and any successors in
the event of a sale, giving full opportunity of redress for the
tenant if breached. With regard to de minimus requirement, we
feel that this in general has not been built upon with minor exceptions.
Are AWP machines now being treated more fairly
and tenants being given a genuinely free of tie option
11. The removal of AWP income (where shared)
from the divisible balance in the rent calculations is being adhered
to and is a welcome move. However existing tenants are still penalised
until the next rent review date. We recommend an immediate across
the board adjustment to bring old calculations into line. We are
however not averse to the principle of tied machines, there is
an argument that large scale management of machine income can
be beneficial to both parties. What must become transparent is
that no "royalty" payment is received by PubCo's which
could potentially distort machine rental.
The treatment of flow monitoring equipment (FME)
12. We recognise the absolute right of the landlord
to have the terms of the tie contained within the lease adhered
to but the interpretation of FME results are still being used
as the sole source of evidence of transgression with a charge
first, validate later attitude. Unreliable registering of beer
line cleaning, or the purported lack of it, calls into doubt the
validity of the data used by which guilt is measured.
The effectiveness of the new RICS guidance on
pub rental valuations and whether it provides clarity on the principle
that a tied tenant should be no worse off than a free of tie tenant
by defining what constitutes a countervailing benefit
13. The RICS guidance clarifies the point that
the valuation process and procedure is the same for all sectors
and should not result in a different approach to rent setting
in one sector of the trade nor produce an "advantage or disadvantage"
to another sector of the trade. This differs to the often voiced
opinion that "a tied tenant should be no worse off than a
free of tie tenant". The guidelines state that the landlord's
share of the perceived divisible balance taken as rent is likely
to be between 35%-65% dependent upon several factors, including
supply and demand, terms of trading and quantum of profit. These
factors would mean that the same pub, offered on more beneficial
trading terms, would mathematically bring about a higher rent
on free of tie terms. We would welcome the opportunity to expand
upon the implication of this in relation to current tied non discounted
agreements in the market place today in oral evidence.
14. With regard to countervailing benefits, we
agree with the RICS in that support services offering special,
commercial or financial benefits are difficult to quantify as
they represent differing values for tenants of differing experience.
As such RICS guidance offers no help in this regard in rent calculation
15. The FLVA believe that as part of any rent
calculation the establishment of an overreaching minimum level
of retained tenant's income of £20k from the divisible balance
within all rental calculations. Potentially indexed to the UK
average wage statistics.
The creation of an industry benchmarking survey
16. The introduction of benchmarking would be
a welcome and useful tool in order to validate many of the assumptions
made within FMT rent calculation models. However this will take
time to produce. In the short term (12 months) a national data
base of substantive rents could be assembled and made available
by PubCo's via the BBPA for use by all.
The availability and effectiveness of complaints
procedures and an independent disputes mechanism
17. The FLVA believe that there may be a need
for such a mechanism should the current COP's not be embodied
via the collateral deed mechanism (paragraph 10) Many disputes
could be resolved before the need of such a formal procedure by
the introduction of regional and national tenant forums. This
would establish "in house" dialogue between the PubCo
and a representative body of its tenants.
18. We believe that the business partnership
would be enhanced and mutual support given by the formation of
Tenant/PubCo forums. We have advocated this for many years, and
our officers have participated in, the formation of PubCo/tenants
forums as a vehicle for constructive dialogue between parties.
These have been at a national level where contentious issues have
been resolved which were impacting upon the PubCo/Tenants business.
A historic example of this was the Inntrepreneur Licensees forum
in 1995. These forums could discuss the recalibration of existing
rental/discount levels, repair obligations, operational issues,
and new agreements, all being discussed prior to implementation.
Current officers of the FLVA have undertaken such roles successfully
in the past which brought about significant benefits to tenants.
We would offer our support again to provide functional support
to these forums thereby ensuring consistency of approach and representation
across such forums. It would be perhaps for another body such
as the BII (the industry's training & education body) to ensure
these forums are representative.
19. Improved beer tie arrangements can only be
brought about on a PubCo by PubCo basis through the tenant forum
20. The avoidance of disputes and the commercial
and tangible benefits achieved through forum discussion would
assist in bringing about a fair and sustainable level of profitability
to the tenant. This would allow tenants a better chance of remaining
competitive against the managed and free trade sectors within
the industry, whilst also establishing respectful lines of dialogue
between business partners which are long overdue.
21. It is in light of these points that we support
the principal of a fair beer tie, whilst recognising that the
terms of many current agreements have become imbalanced and distorted
in favour of the PubCo's.
The availability of genuine free of tie options
i.e. an open market rent review under RICS new guidelines, ability
to buy beer from any source
22. We are not aware of any genuine fully free
of tie options being made available. Some packages we have seen
are offering discount levels approximating to current free of
tie discounts whilst the tenant remains tied for supply.
23. We do not support the oft touted solution
of a fully free of tie lease because of the following.
24. The buying power of the pub companies is
undeniable and there should not be an assumption that the current
free of tie market discounts will remain to a solus operator.
They will be replaced by discounts from the brewers in relation
to the potential volumes of the individual tenants concerned,
thereby putting them in an inferior negotiating position.
25. Optimising his commercial terms with a brewer
with regard to loan/discount arrangement may preclude a tenant
from stocking other brewers products thereby limiting consumer
choice and inhibiting market availability for smaller brands/guest
26. This flowback of profitability from the PubCo
to the brewer, many of whom are non UK based, would be without
any guarantee that this increased profitability would in any substantive
way flow back into the pub. At present the potential exists for
PubCo's to invest in tied pubs by way of capital schemes, share
of repairing obligations and to fund business recovery programmes.
Perversely this profit flowback to the brewers could further support
other brewers customers through enhanced discounts i.e. supermarkets,
thus bringing about further pressure to the community pub, with
subsequently more pub closures.
27. Any potential PubCo/tenant relationship would
be commercially impracticable as the PubCo's would essentially
become property companies with little shared interest in the trading
entity of the pub. This would manifest itself in reduced investments
in pubs, and a total emphasis by the emergent property company
on rental return. Property companies operating free of tie leases
would not be bound by the FCOP.
28. PubCo's should offer supply contracts with
a fair division of their discounts which consolidate prices, for
say a three year period, with increases only in line with the
PubCo's suppliers increases in cash terms.
The guidance on the types of pub leases available
and what the options mean in reality to prospective lessees
29. There are many new and varied options available
to prospective tenants in today's market. Critically there are
also a very large number of historic agreements where tenants
are locked into leases with rental levels and profit margins at
anticipated levels of trade/costs, which bear little resemblance
to current day trading conditions. This is often due to circumstances
outside their control ie the smoking ban and predatory supermarket
pricing. These historic agreements and those tenants locked into
them urgently need a similar level of focus as new entrants to
the trade. This position has been exacerbated by the introduction
of the new PubCo agreements on more advantageous rent/discount
terms. PubCo's should not just be reactive to calls from tenants
in distress but positively address their plight.
30. Under no circumstances should any improvement
of trading terms be fully negated by a subsequent rental increase.
This would put the business risk wholly at the door of the tenant
by transferring the benefit of improved beer purchase terms into
that of a fixed overhead of rent.
31. It is recognised that the freeing of the
tie on wines/spirits/minerals would assist the partnership by
delivering a better benefit to the licensee with little consequential
loss to the pub companies.