FMT and REO (Fair Maintainable Trade, Reasonably Efficient Operator)
(From the Archives)
An interesting article in the Morning Advertiser from my old colleague Phil Dixon about FMT (Fair Maintainable Trade) and REO (Reasonably Efficient Operator) or still used by some though undefined, Competent Operator.
FMT that obscenely used title for making wildly speculative estimations of a businesses future business, to ensure that the rental levels confirm the freehold investment values to satisfy bank borrowings, disregarding viability.
REO another totally misinterpreted title, Phil quotes the dictionary explanation or Reasonably Efficient as a moderate operator, not a Retail Genius or 3 star Michelin Chef, which the majority of pub owning companies seem to demand these days as an REO, if they fail to meet this criteria they are listed as a Retailer Failure.
It didn’t used to be like this, the old brewers knew exactly what their market share in an area was, if one pubs business went down another would go up, their FMT’s collectively throughout their estate would possibly estimate 6-7% increase in brewed products.
Now some of my old friends breweries have been taken over by hard nosed money men, where people count for nothing, FMT’s are guessed at doubling the capacity of the brewery, a physical impossibility.
The world has gone mad, the Government has finally bowed to pressure to bringing in compulsory legislation and hopefully stop the abuses of honest people and the greed for their money by these soul less people, they are not interested in sales, the BDM’s, BRM’s are the hatchet men, grab the deposits and slap the dilapidations on and get them out, they pay the minimum ingoings, thinking that they have a good deal, no chance these sharks have the legal back up to win every way.
A very apt quote:-
‘To pass a law and not to have it enforced is to authorize the very thing you wish to prohibit.’ Cardinal Richelieu (1585-1642)
By originally failing to accept the BISC’s findings, the Government gave free licence to the unsavoury companies to do whatever they want.
The RICS have been equally complicit in allowing the abuse of their Valuation Guidelines by their senior members, who are above rebuke or forfeiture of membership, the corrupt system continued, the new legislation has not stopped these companies antics backed by very costly lawyers, but limited some of their activities, all totally legal but morally unacceptable.
The BII are worse than useless, having elected to align themselves with the some of the less than desirable Pub Co’s, members count for nothing, they are sadly expendable as I and others found to our cost.
One story on Facebook of a tenant walking out of his pub, he had been gone for three months, the lunacy in Brulines were alleged to have sent a missive stating that he had bough 60 gallons out, during the period after he left, there must have been hundreds of drunken rats in the beer store, and so it goes on.
My comments on Phils Article
Has the worm finally turned in his hole, with a total commitment to the reality of the drum that I have been beating for years, welcome back Phil. The RICS Valuation Committee under Rob Mays Chairmanship removed the old Red Books guideline that existing business should be taken into consideration in calculating FMT, this allowed any surveyor working for a pub co and his followers to put any figure they liked on FMT without any justification, hence the massive over valuing of freeholds to raise further funding to buy more pubs, totally ignoring the pubs viability. Surveyors do not run pubs, they have little or no idea of a pubs potential or true viability, tied into local knowledge, they use Cherry Picked Comparables, ignoring the closed pubs which should be factored into their calculations, unfortunately these incompetent surveyors are in a majority and very influential in RICS decisions. In my meeting with the senior beings in RICS, I pointed out that a pubs existing business is its market share at that time in an area, any growth is at the expense of another pub or pubs and are they going to reduce the rent on the other pubs if the first pub meets the FMT decreed, not on your life, that’s retailer failure according to their paymasters, the Pub Co’s. The market is shrinking, in fact it is nudging towards freefall for many pubs, training is inadequate, the trading conditions that many naive people sign up to are pure fantasy land. I have said for many years if all the FMT’s were added together we would need treble the brewing capacity. If rents came down, rates also, discounts were sensible or even minimal or non existent as they used to be, we might bring prices down and bring customers back, smoking however distasteful it is killed many pubs core businesses, every pub needs a core business, people make people.
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Please Note:- We are not trying to discourage buying and selling of leases, we just want to discourage the legal Rip-Offs that go on, we firmly believe that those taking up a fair Market Rent Option, as it stands at present, could have leases worth serious money, though a number of Pub Co’s will fight tooth and nail to stop this improvement.
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.