Supplementary written evidence submitted
by the Royal Institution of Chartered Surveyors
I write on behalf of the Royal Institution of Chartered
Surveyors (RICS) having reviewed the transcript of the Hearing
on 30 June 2011 when Mr David Rusholme, appeared before the Committee.
RICS believes that greater transparency in the rent
review process arising from the introduction of formal Codes of
Practice is facilitating a better understanding between landlord
and tenant in individual circumstances and there is no doubt our
own revised guidance is proving to be of help to the industry.
However, it is important that we clarify the position
with regard to the creation of a national database of pub rents.
A simple database of public house rents is something upon which
we advise extreme caution.
The reasons are primarily historic, in that many
pub companies have grown through acquisition of other pub owning
companies, who had their own forms of agreement. The pubs are
run on many different bases e.g. wet led, food led, with differing
repairing obligations, tie/supply agreement etc. A register of
rents will have little meaning unless the user has a detailed
understanding of the physical attributes, style of trade and trading
potential of each property. To put this fully in context we believe
it is common knowledge that Enterprise Inns, for example, have
over 70 different combinations of lease and/or supply/tie agreement.
Any information produced as a result of a national register would
need to be viewed by an experienced practitioner in this sector,
in order to properly interpret the results, as no two pubs are
the same. The other issue that has been discussed is a database
of financial variables relating to operating costs, in order that
some form of benchmarking can take place. RICS Research and BCIS
produce a number of surveys and indices in the property and construction
industry, and RICS also works with a number of commercial entities
who produce statistics for varying purposes.
RICS believes that many market participants within
the public house sector are working hard to understand the true
costs of operating a traditional public house. RICS is a professional
body and is neither a market participant nor a commercial entity
in the pub industry. It only has power and influence over its
membership. Although RICS willingly offered its experience with
data management for other property classes in support of establishing
a database of information to help assess pub rents, it is simply
not in a position, on its own, to create, maintain or market such
a database without the cooperation of both landlords and tenants
within the industry.
Following the earlier Committee's hearing and recommendations,
RICS actively encouraged an initiative of a leading international
real estate consultancy to create and operate a commercial database
of pub industry indices. Senior representatives of the major pub
companies were present at most of those meetings. As reported
by Mr Rusholme at the recent hearing, those efforts have been
unsuccessful.
The primary reason for the failure of the initiative
was that the appropriate costs of operating individual public
houses are confidential to the actual operators or tenants of
the public houses. Whilst occasionally, lease/tenancy agreements
may state that the landlord has the right to see tenant's accounts,
this is by no means universal and the landlord receiving such
data is expected not to pass it on further.
Even where a tenant trades as a limited company,
the cost information (usually contained with the profit and loss
statement) is not necessarily provided in sufficient detail to
allow proper analysis when accounts are lodged at Companies House.
Any database would need to be populated by a significant
number of inputs for it to have any meaningful data for benchmarking
purposes. It would rely on access to a critical mass of confidential
trading information in a reliably audited form in respect of businesses
scattered across the whole of the UK. Generally, individual tenants
are not willing or able to provide such details on a voluntary
basis and there is a general reticence by tenants or their appointed
accountants to provide detailed trading information, for reasons
of confidentiality and/or commercial sensitivity.
Recent initiatives by the major pub companies on
new lettings under their new Codes of Practice require tenants
to disclose a properly constructed business plan in support of
their bid for new pub leases, including operating costs and the
split of the profit between landlord for rent and tenant for business
reward. This is undoubtedly helpful to both parties.
RICS Research has had initial discussions with several
of the leading pub companies who have undertaken to provide as
much information as they legally can to help set something up.
This is an initiative under review. It will be sometime before
we know whether the quality and quantity of inputs will be sufficient
to create a formal database.
I hope this letter helps the members of the Committee
to fully understand that the issue of collation, ownership and
disclosure of trading details is not straight forward and is a
practical, logistical and legal minefield.
We have indicated willingness to continue working
with the industry to enable it to benefit from our knowledge and
expertise. We cannot, however, be the driving force behind initiatives
within the industry.
By way of further information Mr David Rusholme has
now left RICS, and has been replaced by Ben Elder FRICS as Global
Valuation Director.
19 August 2011
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