20th July 2009
Commenting on the launch of a new tenancy scheme by Marston’s which offers beer at ‘free of tie prices’ in return for rent increases for some of their tenants, the Fair Pint Campaign have expressed concern that the offer doesn’t include a reform of the way in which rents are calculated and that the scheme will still leave tenants worse off than if they were fully free of tie.
Steve Corbett of Fair Pint said:
“Marston’s recognition that the prices they are currently charging are unsustainable is a step in the right direction. However lowering prices for beer but then putting up rents for tied tenants, most of whom are already paying rents which are higher than many free of tie pubs, is hardly a fair deal.
“The Business and Enterprise Select Committee made it clear that a fairer balance or risk and reward between tied tenants and their landlords was needed, Maston’s offer seems to be simply giving with one hand but taking away with the other.
“In 2004 the Trade and Industry Select Committee recommend that there needed to be greater transparency and fairness in the rent review process. This year, the Business and Enterprise Select Committee reemphasised the imbalance in bargaining power between landlords and tenants in the pub sector. The Committee called for reforms which would ensure that rents were set at a fair level and that the profit assessment meant that rents could fall when trading was difficult.
“A fair rent calculation would lead to many Marston’s tenants seeing their rents fall, even if they were free of tie. Marson’s offer will only be a fair one if tenants are able to buy beer at genuine free of tie prices, rather than an artificial discount set by the company, and it is accompanied by reforms which ensure that their tenants’[ rents are calculated in a transparent way and set at a level which allow a fair share of income from the pub.”
Notes for Editors
In 2004 the Trade and Industry Select Committee recommended;
144. The industry could and should establish clear guidelines for the valuation process. Where they do not already exist, new national guidance for rent calculation should be compiled, and disclosure rules clarified. The profit assessment method of calculating rent should be carried out in accordance with national accounting standards and with knowledge, prudence and due diligence.
145. Pubcos should provide their tenants with a comprehensive breakdown of how their rent was calculated. This should reveal the whole detail of the profit assessment and how the specific requirements of the lease conditions had been interpreted by valuers. The profit assessment should form an addendum to leases, with any subsequent review, to ensure transparency.
148. The majority of pubcos’ agreements provide for the rent to increase each year in line with the rate of inflation. Pubcos told us these clauses were included so that when a full review of the rent took place the increase did not create a sudden unexpected burden on their tenant. However, many tenants said when their rent reviews took place proposed
increases were still unexpectedly high. Many believed that their rents should be reduced because of falling trade, but as their agreements contained UORR clauses this was not possible.
This year’s Business and Enterprise Select Committee report stated:
The rental valuation method for pubs appears to be the product of history and tradition. If it is to be fair, there must be far greater transparency about how rents are calculated to ensure equality between the parties to the negotiations.
Over 50% of the lessees whose pubs had turnover of more than £500,000 a
year earned less than £15,000. The pubcos may share the risks with their lessees but they do not share the benefits equitably.