M&C June Newsletter, MRO, Caveat Emptor and Latest on Leases.
We are still all waiting with baited breath on the final pronouncement of the Statutory Pubs Code that is now well past the specific date set by Parliament for publication, namely 26th May 2016. Whilst it is appreciated that Government have every desire to ensure that the wording is not capable of misinterpretation, it is greatly to be regretted that the stated deadline has not been achieved. We have a number of clients who have rent reviews during the month of June which would make it all the more emotional if the start date for MRO – Option was pushed forwards by, say an extra month.
It seems to us that the Pubcos have missed a huge opportunity for positive PR. They could so easily have confirmed that they would honour the start date being 26th May 2016, notwithstanding that the finalisation of the legislation has been delayed. Not that many properties are affected, but the positive PR of being seen to be the good guys, would have been tremendous.
We have undertaken a sample survey of our very many clients who are facing either rent reviews or lease renewals during 2016 or early 2017, to gauge their interest in taking up MRO. Whilst there is concern over the future rent levels free-of-supply tie, one of the strongest motives that were expressed was the ability to get rid of the ministrations of the BRM or Regional Manager and be able to get on with running their affairs without corporate interference. The law of unintended consequences is indeed coming full circle, with nobody that we contacted showing any enthusiasm for staying supply-tied. This seems to have been overlooked by the majority of financial analysts. Wonder why?
This final point is quite remarkable in that we have lost count of the number of times that it has been hinted that there are massive benefits for staying supply-tied (low cost entry, SCORFA, expert advice and help, etc.) – none of which seems to have been translated into a positive message to support the continuing supply-tie provisions of either the Pubcos or the major brewery companies with over 500 units in their estate.
- Industry Framework Code [“IFC”]
Although the fine print of the Statutory Pubs Code has not yet been issued, it is quite probable that the Industry Framework Code will still only be applicable to supply-tied leases/tenancies. That being the case, it seems a little curious that Sir Peter Luff of the PGB, recently declared that he was minded to draw up a version 7 of the IFC in order that brewers and Pubcos with under 500 units, could voluntarily support the new Code. Whilst it is accepted that smaller Pubcos are not necessarily members of the BBPA who automatically support the IFC, making the Code voluntary is almost meaningless on the grounds that if you are going to paddle your own canoe in a manner that is not compliant with the IFC, then you are hardly going to pay voluntary lip service to that very Code.
- Consumer Protection
Not many people have woken up to a recent practice guide by the Law Society that has firmly suggested that consumer protection laws should apply to a substantial number of property transactions by imposing on the solicitors concerned, a direct requirement to disclose defects with a property. The old rule of ‘buyer beware’ or ‘caveat emptor’ which was used time and again to overlook defects, now seems to be open to serious question. Previously, it was up to the buyer to make proper enquiries and inspect as they have always been deemed to take the property as seen. The law concerned is the ‘Consumer Protection (Amendment) Regulations 2014’. This created a number of private law remedies where there are specific breaches of the Consumer Protection from Unfair Trading Regulations 2008
The new Law Society Practice Guide, amongst other things, focuses on incorrect replies to enquiries that could lead to a claim. This representation concerns not only an out-and-out incorrect answer, but also the shading of a reply to give an overly positive impression of the circumstances of a property
For example, if the brewery company or Pubco does not confirm that it has full knowledge of serious, latent structural concerns and did not declare them, the fact that the new lessee did not undertake their own schedule of condition (incidentally always recommended), and the fact that the latent structural error was not declared, is now not a caveat emptor defence.
The other area of key concern of the 2008/2014 regulations, was in respect of commercial practice. Any act or omission by a trader (in this instance either a Pubco or brewery company), which is directly connected with a promotion, sale or supply of a product, whether occurring before or after a commercial transaction which is set out in the 2008 Regulation 2(1) would now not rely on the doctrine of caveat emptor. For example, if a small pubco, not directly concerned with the Industry Framework Code ‘forgets’ to confirm the recent unsuccessful trading history of the pub concerned, then the solicitors involved in the transaction for the freeholder, cannot now neatly bat away an enquiry concerning trading history as ‘private to the previous lessee’ if there is barrelage supply knowledge that all was not well.
The Law Society’s new Practice Guide, links a solicitor to the ‘trader’ to include not only a person acting for the purposes of the person’s business, but someone “acting in the name or on behalf of” such a party. A solicitor certainly will act ‘on behalf of’ a client freeholder and will be dealing with a consumer and the consumer’s legal representative on the other side. Thus a trader-consumer relationship is caught by the regulations and the vendor’s solicitor will be caught by owing a direct obligation to the consumer
The Law Society’s latest regulations are a timely reminder to solicitors that it is just not safe to issue rose-tinted replies to enquiries where the facts are known to the freeholder or their solicitors. The guidance carries the specific implication that the solicitor’s professional standing on fair dealing and good practice, certainly require the disclosure of all material information, however damaging to their clients. Beyond doubt, the vendor’s reliance on caveat emptor is now dead in the water.
- PIRRS v Arbitration
We continue to use and promote the PIRRS’ system, more than anything on a cost-efficient basis. Following an appointment by the Dispute Resolution Service of the RICS, the nominated Independent Expert who is also one of the PIRRS’ valuers (who has recently acted on a case instigated by this office and who is based in Central London), has a minimum hourly fee charge rate of £350 plus VAT. This should be compared with the fixed fees for PIRRS which, in general equated time, works out as less than £175 an hour. We rest our case!
A recent PIRRS’ decision in South Devon, once again justified our continuing involvement in PIRRS. No names, of course, but the figures speak for themselves. Current rent nearly £43,000, pubco wanted £53,450, PIRRS result £38,000 and to quote from our client:
“thank you for giving us the good news. An excellent result. Some vindication in view of *** *** smugness. Once again, thank you for the help and support through this trying time, if any of your future clients need a word of encouragement not to give in, do not hesitate to contact me. Thanks again”.
- Cask Ale
We have always liked Nicholson’s Pubs which are a branch of Mitchells & Butlers Pub Company with generally traditional outlets dotted in and around London. A recent survey by Nicholson’s found that cask ales were seriously on the rise, with a new growing category of cask ale drinkers being female with a sizeable proportion of ale drinkers looking for a more interesting tipple. Traditional amber beers accounted for half of the cask sales, with bitters and darker ales showing a marked rise in popularity. Not that it seems to be specifically happening in Nicholson’s pubs (of which we think there are about 80), but some Central London pubs are almost on the verge of ‘killing the goose that lays the golden egg’, charging well over a fiver a pint for so-called super premium beers. OK, so they may be ‘reassuring expensive’ as you may remember from the original Stella Artois strapline, but at some stage, volume throughput through price resistance, will mean that the beer is not as fresh as it should be and the popularity will suddenly decline. The old adage of ‘the quicker it sells, the better the beer’, still holds true
- Enterprise Inns’ Managed Estate
It was noted that Enterprise Inns has now added a fourth ‘managed expert’ partnership to its portfolio in the shape of Oakman Inns & Restaurants under the joint partnership name of ‘Hunky Dory Pubs’. It would seem that Oakman have 15x pubs across the Midlands and South East, with the strong likelihood that the managed expert portfolio under their control, will be between the Midlands and London. As noted in previous Newsletters, the Enterprise Inns’ managed expert estate, now has 4x pubs, all operated under the ‘Hippo Inns’ brand which was its first managed partnership agreement with Rupert Cleverly who you may remember was the founder of Geronimo Inns.
The ease with which the managed expert format will be rolled out nationwide, is quite another matter and gives rise for concern in the geographical extremities of their estate. We are still hearing reports of ‘well, we can always take it back as a managed house’ which effectively is what was confirmed in a recent hostile Section 25 Notice in quite a remarkably small and low-trading pub.
- Alterations without Consent
If you are a tenant, the last thing you generally do is to keep referring to the wording of your lease. We have had several examples recently where the non-estate, management trained retail staff have actively encouraged quite substantial structural alterations which have then gained planning consent and have been seen through to successful fruition at the expense of the tenant. Rent review time comes around and it is only when the standard rent review disregards are pointed out to the tenant, that the realisation hits like a hammer blow, that there is no formal consent. Whilst it is agreed this is an error of the tenant, the landlord’s lack of proper estate management is also just as much to blame. The retail field staff must surely know that every single lease carries the obligation for formal consent in advance for works of a structural nature being undertaken by the tenant at the tenant’s expense. Time and time again, however, the retail field staff forget to remind the tenant of this simple but specific obligation.
Yes, you are quite entitled to seek a retrospective Licence of Alteration, but the application for same can seriously gum up the works if a rent review or lease renewal is firmly in sight and even being contested. The point is that if you have undertaken structural works at your expense with full and tacit knowledge and consent from you pubco or brewery retail field staff, but do not have the requisite formal consent – start to put matters right well before rent review or lease renewal. You have been politely warned.
- And Finally
- Bumper sticker seen on the back of a tow truck in Texas – “Drink and drive! We need the business!”.
- Man goes into a bar where a border terrier is sitting in a chair playing poker. He asks “is that dog really playing poker?” and the barman says: “Yeah, but he’s not very good. Whenever he has a good hand, he starts wagging hi
Best Wishes from the Team at M & C
Email: info@morganandclarke.co.uk
Phone: 01285 719292