MyShout

A lesson to be learned from two tragedies: always ask an expert before you invest, says

Barry Gilham

So Provence has gone the same way as London & Edinburgh Swallow Group. What is to be learnt from these two tragedies? For tragedies they are, to the people who have lost their life savings either as lessees or landlords to these two companies. The answer is: "if a deal looks too good to be true, it almost certainly is!"

Much has been written about London & Edinburgh. The MA's The PMA Team has written about Provence for a year or more. My firm has warned banks for over two years about the prices paid for Provence investments.

I wrote an article on the subject a year ago, in a publication for those involved in the investment market.

Essentially, the problems of those who have lost money as landlords or tenants of pubs operated by the two companies are down to those parties not taking appropriate professional advice. The BII (British Institute of Innkeepers), British Beer & Pub Association and responsible pubcos have long advised prospective tenants to take advice from solicitors and/or surveyors before they commit to running a pub on lease.

Most of us have watched the re-runs of Lovejoy on Sky TV. Every week he exposes an antiques auction scam. In a property auction, a buyer may pay £300,000 to £400,000, not for a property, but for the right to receive a rental income of £20,000 to £30,000 a year for as long as they hold the investment. Most investors borrow 75% of that investment from a bank. If they pay 33% over the odds for it, their personal stake will be wiped out.

Such investors often buy from a photo without ever visiting the property in which they've invested. They don't know if the tenant who's supposed to pay the rent even exists, let alone if they're running a business that allows them a living plus the ability to pay rent.

Fleurets has often been involved in selling a pub with vacant possession. Say the "purchaser" sets up a lease deal - whether this is on paper or in reality is sometimes a close call. He immediately puts the pub into auction as an investment, at a price of perhaps 50% more than he is paying. A simple back-to-back deal that simply cannot lose money. Often, the auction occurs before he is required to pay the actual owner.

Fleurets has often had to tell our client, the true owner of the premises, of the "turn" that the "purchaser" is making. Often, such a turn can only be made if the investor is promised a rent that we believe to be unsustainable, for many years into the future.

At other times we tell a bank that several people are willing to buy the "investment" for £350,000, but that its vacant possession value is closer to £250,000. Or that if the pubco fails, the true rent may be only 60% of that promised. Often our advice comes too late. The "investor" is already the proud owner of an over-rented pub, and only then asks the bank to assist his venture.

It is probably too late for the majority of those involved with London & Edinburgh or Provence to take advice, but they probably still need help to dig themselves out of a hole. It is not too late for everyone else reading this column to think, and think again, and take professional advice before parting with their hard-earned cash.