Pub Companies - Business, Innovation and Skills Committee Contents


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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Prepared 20 September 2011