Written evidence submitted by Nigel Wakefield
The RICS have, after considerable deliberations,
produced a very workable set of Guidelines in respect of rental
valuations.
I was invited to the RICS to discuss my views and
thoughts over the failure of the last set of Guidelines to control
the Industry.
It would now appear from my information that certain
companies are trying to circumvent the latest Guidelines, which
if successful, will encourage other companies to follow suit.
A number of us have always pushed for one Code of
Practice enforceable by legislation and law, the BII were asked
to Police the Industry and took the path of asking all companies
to submit their individual COP's, leading to a hotchpotch of variations,
the decent operators a single COP will not affect them, the ones
that all the complaints are being made about will have problems.
These companies are now trying to avoid using the
new RICS Guidelines because the loopholes that they used to continually
ratchet rents higher to achieve enhanced estate valuations have
been blocked in the main.
The points that I raised to the RICS are common sense
business points in respect of Rental Valuation.
The use of FMT (Fair Maintainable Trade) has been
consistently used as a reason for Pub Co's to raise rents on the
basis that the lessee/tenant was underperforming, regardless of
whether they were or not, the theoretical FMT demands have always
been far in excess of the true economics of the available business.
Business is finite and the use of overestimated FMT
assumes that business is infinite, the latest projections show
that growth is minimal and in other sectors falling, if the total
national over estimation was collectively added up we would find
that the industry would require a considerable number of new breweries
to satisfy the overall demand, a number of senior people in the
industry agree with this thought.
Previously the RICS Guidelines ensured that a pubs
existing business was factored in to the calculations for FMT,
the existing business is its market share at that time and any
growth is in the majority of cases, even more so in a recession,
will be taken from a neighbouring business, no attempt is made
to reduce the rent or rates when this occurs. The use of the details
of the existing business was dropped some years ago supposedly
under the RICS TRVG Chairmanship by Rob May (Chief Rent Negotiator
for Enterprise Inns), he described himself on all paperwork as
Pub Expert rather than a senior member of Enterprise Inns, causing
an a large part to the problems that the industry has been forced
to deal with.
The use of FMT without reference to existing business,
does however, effectively ratchet rents and rates higher at every
turn.
The use of Comparables does exactly the same, where
so called similar pubs within a ten mile radius are quoted for
their rental levels, normally cherry picked. If Comparables are
used every leased pub, possibly up to a five mile radius should
be factored into the equation, whether closed, open or under management,
this will reflect the economic situation of the area.
Because of this massive over estimation of FMT by
certain companies, not only are the rents unsustainable but there
is no chance for the majority of licensees being able to achieve
this fictitious level of business.
The RICS have reinstated the need for existing business
to be factored into the equation.
Pretty well all leases and Codes of Practice are
subject to using the RICS Guidelines, however certain companies
would appear to be stepping back from using RICS members and are
insisting that their BDM's and Area Managers conduct negotiations,
relying on the naivety of the lessee to accept their findings
rather that use the RICS Guidelines, in certain instances the
BDM's had no knowledge of these Guidelines.
The BII have had many complaints about breaches of
the COP's, one company is alleged to account for 70%, but because
of so called confidentiality this information is not accessible,
it would be very useful if the Committee asked a for details of
all complaints regarding breaches of COP's from the BII before
the Committee convene, whether correct or not, because a number
of complaints do in fact fall outside the COP's, this would give
a clear insight as to the extent of the problem, with the names
of the companies involved and numbers of complaints.
When I met the Director of Valuations and his colleagues
at the RICS, I suggested that rents should fall within the range
of 6-8% of Turnover, at a recent Arbitration, after due consideration
by the Arbitrator of all the facts the rent was set at 8% of T/O.
The Pub Co's supposedly work on a 50/50 Divisible
Split on profits, sadly they do not include the discount that
they receive from the suppliers/brewers within this divisible
split, if this figure, less a 5% of the discount handling charge
for the paperwork side, 95% of the brewers discount would bring
many pubs back to solvency, the rent would then fall between my
suggested figures.
Should the tie be removed, except for brewers selling
their own beers within their tenanted outlets, rents should be
at normal commercial levels within my suggested figures.
Unfortunately the Inland Revenue have benefitted
by these excessive rents in many cases, again with scant consideration
to viability, since rates are linked to rents.
I had an in depth discussion with a Senior Inland
Revenue Rating Valuer, he agreed after consideration, that my
points were totally correct.
The 70% of complaints to the BII are supposedly from
Enterprise Inns, but this is unconfirmed, the BII should be able
to clarify exactly and would assist the committee greatly in their
discussions.
19 May 2011
| 
