Supplementary written evidence submitted
by Enterprise Inns plc
ORAL EVIDENCE
SESSION—PUB
COMPANIES, 7 JULY
2011
Further to my attendance at the Committee hearing
on 7 July, and my follow-up letters of 8 July and 11 July which
provided additional information, I have now had the opportunity
to review other information submissions provided to the Committee
and find it necessary to make a number of additional observations.
You will not be surprised that I disagree with many
of the assertions and opinions expressed by such parties as the
Independent Pubs Confederation (IPC), the All Party Parliamentary
Save the Pub Group (APPSTPG), the Campaign for Real Ale (CAMRA),
the Fair Pint Campaign (FP), the Federation of Small Businesses
(FSB), Justice for Licensees (JFL), Unite the Union, the Association
of Licensed Multiple Retailers (ALMR) and certain individuals
Simon Clarke (SC), Garry Mallen (GM), David Morgan (DM) and Nigel
Wakefield (NW).
On a general note I am disappointed, but not altogether
surprised, at the relative paucity of facts and evidence provided
to support many of the allegations and claims made by these parties,
and would hope that you are able to confirm that all information
on which the Committee intends to base its conclusions has been
verified as correct and is supported by factual evidence.
I have however restricted my detailed observations
to those submissions which contain patently untrue or materially
inaccurate statements which I believe have the potential to specifically
mislead the Committee.
1. A number of the submissions, including ALMR
(item 18), SC (item 5.5), FP (items 50, 51 and 52), GM (item 8)
make reference to, and draw erroneous conclusions from, a survey
purportedly carried out by Enterprise Inns (ETI) amongst 701 tenants.
Such information was also referred to in the oral evidence sessions
by Garry Mallen and Brian Binley MP.
As I indicated in my letter
of 8 July, ETI has never carried out nor commissioned such a survey.
The facts are that the information was supplied by Milestone Accountants
to a number of companies whose tenants and lessees were utilising
the services of Milestone during 2010. We do not dispute that
the information included data from 137 ETI pubs, the majority
of which were receiving discretionary financial assistance from
the company at the time in the form of extra non-contractual discounts
and rent concessions, on account of the financial difficulties
they were experiencing. In our experience, such difficulties frequently
arise as a consequence of pub operating costs which are too high,
or unsustainable, and therefore this financial support was provided
by ETI on the condition that the tenants and lessees concerned
utilised the services from Milestone (or some other trade accountant)
to provide monthly accounts and stocktakes with which to manage
and control the costs of their businesses.
It is a fact therefore that
the information referred to is in no way representative of the
ETI estate, and the conclusions drawn by the parties referred
to above are erroneous, if not manifestly incorrect.
2. A number of the submissions make reference
to information supplied by the British Institute of Innkeeping
(BII) relating to Code of Practice complaints and rent disputes
referred to the Pub Independent Rent Review Scheme (PIRRS), inferring
or directly alleging that the majority of such complaints and
disputes are with ETI.
As I stated in my oral evidence
to the Committee, ETI actively promotes the availability of PIRRS
in order to ensure that all ETI tenants and lessees are aware
of the low cost options available to them at rent review. It is
an unfortunate fact that certain individual trade valuers seek
to dissuade tenants and lessees from using PIRRS. It is no coincidence
that such individuals are invariably not nominated valuers to
the PIRRS panel and may therefore be taking such a stance in pursuit
of the generation of fees, and that such fees are at considerably
greater cost to tenants and lessees than would be the case via
PIRRS.
Given ETI's proactive stance
on PIRRS, it is not surprising that some ETI tenants and lessees
consider using PIRRS at rent review. This does not mean, however,
that a PIRRS determination is ultimately required, as is evidenced
by the nature and status of the cases referred to. BII have confirmed
that there are 21 ETI houses in total on the PIRRS database. Of
these 21 cases:
— Five
rent reviews have been successfully concluded via a PIRRS determination.
— Five
rent reviews were settled without any further involvement of PIRRS.
— Four
enquiries were instigated by tenants but progressed no further.
One of these had elected to use PIRRS, but was persuaded against
the idea by David Morgan, and elected to go to arbitration instead.
Two of the remaining three cases were settled without further
involvement of PIRRS.
— Sevenenquiries
are "open" and may, or may not, progress to determination
of the rent review via PIRRS. We continue to seek resolution of
these rent reviews by negotiation, but accept that there may come
a point, which is entirely at the discretion of the tenant, where
a PIRRS determination is required. One case has now been settled
without further involvement of PIRRS and 3 of the remaining 6
cases are now progressing to a PIRRS determination.
The simple truth therefore
is that eight ETI tenants and lessees have elected to utilise
PIRRS at rent review. A further four cases have been settled at
arbitration. In the eight months to the end of May 2011, ETI had
settled 497 rent reviews in total.
3. The APPSTPG (item 2.2) and CAMRA (item 6.2)
both highlight a statement made by Simon Townsend at a meeting
organised by the APPSTBG on 7 June 2011 that "…we (ETI)
have not included the availability of a completely free-of-tie
option (FOT) within our Code of Practice."
Both parties have omitted
the fact that Simon Townsend, at that meeting, went on to explain
"… however as we (ETI) have said and have already done
on a number of occasions we will negotiate almost anything with
almost anyone and this includes a FOT option. We have and
will consider proposals from any publican who wishes to exchange
their current agreement for an entirely new agreement on a FOT
basis."
4. Simon Clarke (item 1.4) states that "…my
own rent review demonstrates non-compliance with the RICS guidance
and therefore potential Company code breaches." Whilst this
may be Mr Clarke's opinion, it is not supported by the facts.
As noted above, ETI has conducted
497 rent reviews in the 8 months to May 2011, and in addition
many hundreds of rent assessments for new lettings. Other than
the matter raised by Mr Clarke, there have been no other complaints
over valuation methodology made by any party. It is therefore
disappointing to further note the comments made by Garry Mallen
and David Morgan, seeking to suggest that the information they
have provided to the Committee is indicative of the wholesale
disregard of RICS guidance in valuations conducted by pub companies,
when no such issues have been raised with ETI previously by either
Mr Mallen or Mr Morgan. In this regard, in the event that any
such "examples" provided by either GM or DM seek to
demonstrate that ETI is disregarding RICS guidance, I would ask
that these are forwarded to me in order that I may ensure that
these are reviewed, in complete confidence, and I may respond
to the Committee accordingly.
5. SC (item 5.2), in seeking to support his opinion
that ETI do not follow our own Code of Practice at rent review,
states that "…(ETI) have offered a proposed rent assessment
based on the information I provided." This statement is simply
untrue and therefore materially misleading. Furthermore, SC (item
6), in support of his opinion that ETI is seeking to circumvent
RICS guidance, makes a number of statements which are either completely
untrue or materially misleading. In particular, contrary to SC's
assertions (item 6.5), whilst ETI does require some, or all, of
a range of mandatory service packages (including health and safety
compliance, accounting, stocktaking) to be utilised by new tenants
and lessees, I can confirm that ETI derives NO additional revenue
from the provision of these services which are outsourced, at
cost, to third party specialist providers.
FP (item 65) also seeks to
suggest that new ETI agreements are "… significantly
more onerous than existing agreements …". This statement
is manifestly untrue.
6. A number of parties, including CAMRA (item
5.2) seek to imply that pub companies have set out to circumvent
RICS guidance having "… replaced provision for periodic
rent reviews with annual inflation increases …". There
is no evidence whatsoever that ETI has sought to circumvent or
disregard RICS guidance. Furthermore, RPI indexation has featured
in the vast majority of industry lease and tenancy agreements
for as long as records exist, and to suggest that RPI indexation
has only recently been installed is both incorrect and misleading.
Finally, I can confirm that whilst a lease containing no rent
review provisions whatsoever has been an available option to tenants
and lessees since October 2010, just 16 ETI lessees have elected
to take up this option.
7. FP (item 39) have selectively and deliberately
misinterpreted ETI's Code of Practice in order to suggest that
ETI's use of flowmonitoring equipment is inappropriate. Despite
frequent attempts by FP to distort and mislead on matters relating
to flowmonitoring equipment, no evidence has ever been produced
to support FP's contentions in this regard.
8. A number of parties repeatedly contend that
rent bids are formulaically assessed at 50% of the divisible balance.
This is further referred to by DM (item 7.1) in relation to the
apportionment of the tenant's share of machine income.
I can confirm that, as far
as ETI is concerned, both contentions are simply untrue. Having
analysed some 4,000 rent assessments conducted over the last three
years, comprising cyclical rent review, new lets and out-of-cycle
reviews, I can confirm the following:
(a) Rent payable, as a proportion of total licensee
income (divisible balance plus tenant's share of machine
income), ranges from <25% to >60%. The rent payable proportion
is at 50% in only one-in-five of all assessments.
(b) Furthermore, rent payable, as a proportion
divisible balance excluding machine income ranges from
<25% to >70%. The rent payable proportion is assessed at
50% in only one-in-twenty of all assessments.
I trust that this letter will be seen in a positive
light, seeking only to highlight those areas where I believe the
submissions of other parties may be misleading. If you require
further information or consider that a meeting might be useful
to help clarify any areas of concern, please do not hesitate to
contact me.
1 August 2011
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