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The Rent and Rates screw up and the people who achieved this
for all small businesses.
Worth Reading and understanding.
Another from the Archives, updated.
This article was written many years ago and sadly is still relevant. The problems of vacant over rented and over rated shops in town centres, whilst big Supermarkets dominate the bulk of the available trade and these buffoons of Valuers still fail to accept that business is finite and falling in most areas, yet their system fails to realise that any growth is at the cost of another business and will they reduce the rates or rent in that business, not on your life. The pub industry hit this wall some years ago and very little was done about it, the major Pub Co’s were guilty of screwing rents to crazy levels through a cock-eyed system, the Valuation Office put up rates accordingly and the failure rate in pubs is well recorded, now it’s hit the Town Centres with Supermarkets selling everything in out of town centres, enjoying cheap rates and rents in relation to their turnovers and enormous profitability, by comparison to small businesses.
The original article with updates:-
A funny Old World, you have an image of a national company as being totally honest, correct, above reproach, then something happens and you wonder what actually goes on behind the façade.
I have always owned freehouses and the odd bit of commercial property, which did not qualify me to be an authority on the leased and tenanted pub industry.
My dealings with the two of the major commercial agents in the pub industry has never ever been satisfactory, Fleurets and Christies, they normally told me that whatever I was interested in was beyond my price range and whatever I wanted to sell was not their sort of property.
They may well have been right, I did make an offer at the asking price for a pub Christies were selling some years ago, and the offer was accepted and solicitors instructed, to be told after a few weeks, that I had to submit a sealed bid, which I did increasing my offer by a third, to be told that my offer was by far the highest and it was mine again.
Only to be told a few days later that they had sold it to a lower bidder and the then Chairman of Christies sent me a derisory cheque for £100 for my inconvenience.
Needless to say I have never ever done business with Christies again.
Fleurets probably may have thought of me as a bargain hunter, which I certainly was and their distaste for my sort was probably justified.
Fleurets lapsed into a memory in my past life, until I went to BII Rent Roadshow some considerable years ago.
Where the Chairman of Fleurets, Barry Gillham was giving a presentation on Rent Assessment, bearing in mind that I had no idea of the basis that pub rents were calculated on, owning free houses.
The whole experience was mind boggling, the learned Mr. Gillham expounded his theories on the use of Comparables over a ten mile radius, which to anyone who has seriously run pubs is laughable, every pub is different and the expectation of generating some enormous boost of business based on something ten miles away is pure fantasy, plus the fact that any growth is seriously at the cost of another business, since available business is finite and not infinite.
The use of Comparables was brought in by the old long established Family Brewers, who knew very precisely how much available business there was within their estate and could predict, reasonably precisely, what each pubs market share would be, the only variable would be the ability of the licensee. With Pub Co’s, their estates do not contain themselves to specific areas, since they cover the UK to a greater or lesser degree and the use of Comparables would be totally erratic, as any surveyor should know, but doesn’t because very few have ever run pubs.
He failed to answer any questions on straight forward business logic and it was patently obvious that he had never run or understood the individual vagaries of pubs or small businesses.
His premise was that all pubs were the same or similar and it was a lucrative numbers game, which he had a massive bag full of numbers provided by his clients, that brooked no argument.
He made the mistake of sitting next to me at lunch, possibly thinking that I was a Pub Co surveyor, after priming him on a number of issues he admitted that his fees some years ago were in excess of £300.00 per hour, which he ensured that I knew the Pub Co’s were and are his clients, the lessees are dealt with by the more junior members of his staff, who charge lesser fees, would they argue a point with the Chairman or MD of a major surveyors company, very questionable.
The experience level in the pecking order of the RICS, could make junior surveyors back down in deference to a senior surveyor, which is unacceptable and would certainly be unprofessional, having been a very brief member of the RICS in pre history.
However I have one thing to be grateful to Mr. Gillham for, his failure to provide sensible answers to a number of practices that I and others raised to the RICS and have been modified up to a point, and some are possibly under discussion again, it has made me determined with others to bring a totally fair method of rent calculation to the industry for both sides, though there shouldn’t be sides.
My next run in with Fleurets, again was a BII Rating Road Show with very learned Mr. Yaz, Fleurets Rating Expert, and a top Inland Revenue Valuation Officer.
The Road Show was proceeding well until Comparables and FMT was mentioned, I had just been to the RICS and raised my usual points about Comparables Ratcheting Rents higher at every turn and that business was finite etc, if they raise the rateable value based on this concept are they going to reduce the rateable value of the business that has lost the business.
The audience loved it and the questions came thick and fast the learned Mr. Yaz stood there with his mouth open and eventually the BII tried to change the topic, since it was patently obvious Mr. Yaz like Mr. Gillham could not find a suitable response.
Mr. Yaz declined to talk to me but the Inland Revenue Officer sought me out and said “You are absolutely right, would you write to Inland Revenue Valuation Dept. and raise these points”. I did and got a very bland response to my letter and the system carried on, now the rating and rental system in towns has hit the wall of reality.
He had never thought about it from that view point, the reason being that none of these people have ever run pubs or small businesses and the vagaries of individual pubs and communities and the multitude of reasons affecting individual businesses.
The RICS guidelines would appear to be flexible on valuations, but the most costly surveyors work for corporates or major Pub Co’s and the influential senior members, as said before, have more sway as to corporate policy.
I raised the other favourite issue which is FMT, if the over estimation of FMT was applied across the country we would need almost double the brewing capacity, yet these so called professional buffoons persist in their flawed methods, naively assuming that individual businesses will accept their guesstimations, which a lot do, and nobody will collectively add up the total discrepancy for all the FMT’s.
Most leases or tenanted commercial properties rents are based on FMT somewhere in the equation, when a new tenant takes possession of a licensed premises, they fail to realise that whatever turnover the vendor is taking, it is his market share at that time, it is foolhardy to predict an increase of more than a 5% increase, regardless of the landlords FMT prediction. Any business has to come from another similar business, who will fight to retain it, unless there is a major reconstruction or a retail genius in charge and that can take two years to make a substantial improvement.
These highly speculative guesstimations are based on an REO (Reasonably Efficient Operator), but looking at it logically, if everyone in the industry is an REO, they would all be under performing, because there is insufficient business to satisfy these FMT demands, we know that there is little or no growth, in fact a substantial drop in business in many areas, yet these companies that act for the Pub Co’s choose, for financial reasons to ignore the true reality of the industry and the effects of the economic slowdown, if they were truly committed professionals they would tell their clients the real truth about trying to maintain impossible FMT’s and unsustainable rents, but again they would be “Killing the Goose that lays the Golden Eggs.”
The abuse and misuse of Comparables, FMT and the REO have caused rents in both the tenanted and leased sectors to go far beyond true viability in far too many cases, the true failure rate goes undisclosed in the Major Pub Co’s, unfortunately many surveyors acting for these Pub Co’s, their zeal goes beyond the reality of an individual situation, winning for a client and extortionate fees are killing the industry along with many good operators careers.
Finally we come to the learned Mr. William Cuthbert of Fleurets, a man of extreme intellect and upstanding, possibly in this particular case suffering some sort of selective Corporate Amnesia of the real world as firmly underscored by Parliament.
Fleurets would appear to be retained by that outstanding company Enterprise Inns, whose shares if they go any lower will be tunnelling underground in the not too distant future, (At the time of this being written).
Sadly we cannot publish the learned Mr. Cuthberts exact words owing to the rules of the Arbitration, requiring both sides permissiom, which one side would never give.
Quote from an astonished observer.
“Fleurets have so deeply taken the orders of Pubcos that in a recent Arbitration, William Cuthbert of Fleurets chose to denigrate a Chartered Surveyor who acted for members of Fair Pint. He was in the firing line for standing up for the RICS Guidelines to the good of his Client who just happened to be a Pubco Tenant. More like the Pot calling the Kettle Black, I would say, as Fleurets are the idealogical opposition to Pub Co Lessees as they are so regularly enjoying their fee benevolance from Enterprise Inns.”
The learned Mr. Cuthbert would appear to have not read or noticed the substantial Press Coverage that there has been on the two BISC’s Inquiries into his clients activities with a resounding condemnation of their actions, with a recommendation of enforceable legislation.
The RICS have changed their Valuation Guide Lines, the Chief Rent Controller for Enterprise Inns is no longer the Chairman of the TRVG.
Fair Pint was a small organization that looked after the welfare of many lessees and tenants in trouble, it was committed to removing the tie, possibly for companies that do not brew beer and to improve the Industry, not to perpetuate a failed and flawed business model, which Fleurets would appear to be endorsing by acting for a Pub Co already under severe Government scrutiny.
Fair Pint’s evidence did not cause any condemnation or scathing comments from the BISC’s unlike Mr. Cuthberts clients, or maybe Mr. Cuthbert exists in a world of discreet exclusivity, where the trade press and the actions of Government Committees do not register.
With my experiences with Fleurets, the people that I have met would appear to think that they are untouchable, the world has changed and it will change considerably more, but their influence as senior members of the RICS do have considerable sway, to the frustration of more fair minded members.
Certainly the other Chartered Surveyor has far too much professional integrity to even consider writing a comment on the bottom of a submission to an Arbitrator stating something to the effect, “Fleurets Clients are under severe scrutiny and condemnation by the BISC’s Inquiries and subsequent Legislation, Mr. Cuthbert’s actions and involvement with their Client raises serious questions over his possible integrity in acting for them and should be treated with a degree of circumspection”.
If I was the other Surveyor and as a former brief member of the RICS many years ago, I would certainly write to the RICS with a justifiable complaint about Mr. Cuthbert’s lack of professional integrity or maybe integrity does not exist with companies acting for the larger Pub Co’s.
Barfly
Note:-Since writing this article New Legislation has been passed, sadly the major Pub Co’s are doing their best, legally, to run rings round it, which will tie up any improvement for Lessees for years.
The only way that Pub Co’s will comply with the Legislation, is if the constant stream of people taking Tied Pub Leases stopped and avoided all the major Pub Co Tied Leases, take a Tied Tenancy with a Family Brewer, who has not been infected with the Pub Co Model, also click on this LINK
A Commercial Agent’s client is the vendor and not the purchaser, this is often a get out by many companies to providing accurate or more precise information, they are technically correct, however in my case I avoided dealing with these companies, you want a fair comment without obligation for guidance.
One major Pub Co had 2,800 failures in two and a quarter years, details were sent to the Government Inquiry to ask questions, one CEO had to apologise, he and his successors have also very short memories.
The views expressed are not necessarily the editors and www.buyingapub.com accepts no responsibility for them, we do try to avoid offensive or litigious statements being made. They are written by concerned professionals in the industry who feel that these issues should be raised to ensure that all licensees are made fully aware of many hidden pitfalls.
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