ACVs – from an operator’s viewpoint and Business Rates, Friday Opinion

By | October 1, 2016

ACVs – from an operator’s viewpoint by Mark Brown

“Assets of Community Value (ACVs) are, without any exaggeration, one of the major causes of pub closure” was the reaction of the managing director of a family brewer and pub company, on the effects of the Localism Bill. This is of course the very opposite of what was intended by the legislation, which was expected to protect assets which were of real value to the local community. However, like much government interference affecting the licensed trade, it raises unforeseen consequences. Just as the Beer Orders were supposed to widen beer selection in pubs, the legislation only spawned property owning pub companies instead of brewery ownership, which further restricted beer choice for commercial reasons.

In the same way, nominating the local pub as an Asset of Community Value, thus preventing it from being developed or the use being changed, ironically can further increase the ultimate risk of closure. These scenarios will be familiar to many operators:

In the freehold sale of a site in Sussex, the pub was saved because the date of sale preceded the ACV by just one day, meaning the decline in its value hadn’t compromised the sale. There was never a question of change of use. It is now a very thriving gastro-pub, but it would have been closed had the ACV been registered sooner.

A pub was rescued when a pub company bought the freehold, following a disastrous period under community consortium ownership. This involved a very lengthy experience to re-establish it, which the company said it would not try to repeat today.

A common opening question today when it comes to buying a pub freehold is “Is it free of an ACV?” If the answer is “no” then discussion over the possible purchase is likely to come rapidly to a halt. No serious pub buyer is going to wait months for a moratorium to consider a local bid, which nine times out of ten is not forthcoming. There are dozens of examples of pubs that have not been acquired by family brewers and pub operators because of an ACV status. The consequence of a delay in sale (due to uncertainty) is an increasingly depressed pub due to an increasingly depressed operator/freeholder. The ongoing value will also be suppressed, and the future liability of a marginal pub that risks being run at a loss or boarded up.

An operator comments on how remarkable the frequency is at which he has been contacted by genuine pub patrons offering the opportunity to acquire their local pub, enthusiastically citing the fact that: “You will be pleased to know that it has been registered as an ACV” – as if this demonstrates the amount of local customer interest (when in fact it illustrates the opposite). People in the community rarely understand the issues. Most tend to think registering an ACV is like endorsing a council amenity; “of course we want our pub to remain, even though we don’t use it, just as we want our bins to be emptied”.

A director of a national pub company is of the view that: “ACVs are being used as a brute tool to obstruct otherwise genuine and acceptable redevelopment, particularly when the units in question are not economically viable. I have personally interacted with over a dozen communities in the past six months (including local community groups and parish councils), where the sole aim was to obstruct development rather than retain a community facility for the benefit of the local community. In each case the local community did not bother submitting their intention to bid nor did they engage in exploring the potential for raising funds to finance a potential community led acquisition.”

More examples include some very distressing stories from free trade customers of family brewers, describing slow death by ACV. A rundown pub 20 years ago, with no customers, was bought by the current owner, who spent years and no small investment building up the business to become an award-winning Campaign for Real Ale pub for his retirement. Then came an ACV nomination. Now there is no community bid and no question of a change of use.

Sadly the routine death throes process goes as follows:

A successful pub – that could be sold to an enthusiastic pub operator – sees an ACV granted
The ACV listing drives away the operator buyers who will not wait to invest
This in turn undermines the opportunity for freehold sale and the pub’s future
A lack of operator interest brings about a slump in quality, which leads to fewer customers.
As the value of the pub declines, so does operator interest in the venture – leading ultimately to insolvency
As a result the pub is boarded up
Years may pass, during which time pub customers are potentially obliged to drink uncontrolled at home
Finally, a development site is the only option for the local authority and planning change of use is granted

How has a listing of the pub as a community asset helped in this scenario?

Mark Brown is a partner at Freeths and handles property disputes for hospitality businesses and has been heavily involved in challenging nominations of pubs as assets of community value

Business rates – are the storm clouds gathering? by Ben Peers

We read a lot in the press concerning the government’s commitment to creating a fair tax system, but is the treasury missing the point when we look into the issue of reforming the business rates system? With the 2017 draft rating list due for publication today (Friday, 30 September), operators will be looking into the implications of their new rateable value and how they might appeal.
In simple terms, business rates are a tax on business occupancy, with periodic valuation (typically every five years) to reflect changes in commercial property values. Business rates and the current 2010 rating list have been particularly sore issues amongst operators. There was firstly the unpopular postponement of the revaluation, which should have been implemented in 2015. Then there was the 31 March 2015 appeal deadline restricting the ratepayer’s ability to claim backdated business rates refunds to April 2010. The outcome of this has led to the embarrassing situation whereby the Valuation Office is now swamped with a backlog of 300,000 unsettled appeals. The spring budget gave a few soun bites, which may have provided a glimmer of hope for some, namely the increase in the small business rates threshold being doubled from £6,000 to £12,000 from 1st April 2017.
This is possibly great news if you run a small business ie a village pub, as you may be one of the lucky few exempt from paying rates altogether. However, there will be limited enthusiasm particularly from multiple operators with combined rateable values of hundreds of thousands of pounds. Last month, a consultation on the statutory process began and the government is proposing an even more draconian minefield consisting of a “three stage” process as follows:
1. Check: Whereby facts concerning a property must be agreed between the Valuation Office and the ratepayer
2. Challenge: The period during which the majority of appeals will be resolved, according to the government
3. Appeal: Whereupon any involved parties will focus on outstanding material issues
The most concerning point in these proposals is the Valuation Office being potentially granted a “margin of error”. These proposals state that, when considering an appeal, the Valuation Tribunal for England should only order a change in the rateable value where the valuation is “outside the bounds of reasonable professional judgment”. The impact this will have on the number of successful appeals is still unknown and will all depend on how much leeway the Valuation Office is granted.
The government would seem to be unaware of the real implications of these measures, particularly for businesses with sites in prime central London or indeed prime regional centres already feeling the pressure from high rents. Commercial rents leading up to 1 April 2015 should theoretically mirror the 2017 rateable values. These increases will be more severe in those areas where there has been fierce competition by corporate operators willing to pay eye-watering rents to secure the best sites.
However, we are hopeful of some respite for those occupiers exposed to large increases, this is known as “transitional rate relief” which limits the impact on changes in rates bills between the business rates revaluations. A consultation on the scheme is due to take place shortly, this will determine the maximum increases and decreases in the rates payable which will be phased in over the duration of the 2017 rating list.
Ben Peers is a surveyor at Fleurets. The article is taken from the company’s latest On Market issue, which can be accessed here

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