Statutory code plans 'will increase risk for landlords', says McMullen MD

By John Harrington

- Last updated on GMT

Related tags Statutory code Landlord

Peter Furness-Smith has criticised the Government's statutory code plans
Peter Furness-Smith has criticised the Government's statutory code plans
The managing director of McMullen’s has criticised the Government’s statutory code plans for “interfering” in the pubco/tenant relationship and heaping further burden on landlords.

Peter Furness-Smith was speaking on the back of a successful set of results for the Hertfordshire-based company, which saw like-for-like managed sales growth accelerate to 6.7% in the six months to the end of March 2014 after growing by 4.2% in the year to 28 September 2013.

The company has reported a 15% rise in profit before tax and exceptionals to £7.6m in the full year on turnover up 5.9% to £67.5m. Operating profit increased by 16.7% to £7.7m. Growth in the year was driven by pub acquisitions and like-for-like sales growth in the retail estate, the firm said.

It opened three new managed sites in the year: the Britannia and Baroosh both in Marlow and the Coach & Horses in Bishop’s Stortford.

The tenanted division had a “challenging year”, the company said, although barrelage was improved by the acquisition of the Kings Arms and Old Crown in central London.

Furness-Smith said the Government’s plans to introduce a statutory code into the tenanted model would add further complications.

Liability

He said: “We are disappointed that the Government has decided to press ahead and legislate to interfere with agreements made willingly between landlords and their tenants. The new statutory code is remarkable in that it is proposing to make landlords liable for business risks normally the responsibility of a tenant.

“For example in the event that the Government decides to increase business rates, regulatory costs, employment costs and general taxation such as duty and VAT (both have increased materially over the past decade) these operational trading risks will become the Landlords burden as these events are ‘outside the tenants’ control’.

“Likewise if there is a spike in the wholesale gas market and the tenants costs go up the tenant will be able to negotiate his rent downwards and landlords will have to pay for these through the rent review mechanism. If that is not a big enough disincentive to invest in tenanted pubs, a future Secretary of State could easily introduce even more draconian measures without further legislation.

Investment question

“It raises the question as to why anyone would want to own and more importantly invest in tenanted pubs when operational risks are left with the Landlord and an ‘agreement’ can be overridden at the whim of a politician. Sadly those supporting interference into this market are missing the critical point that if they want more pubs to thrive they should focus their efforts on trying to reduce both the obscene levels of taxation and bureaucracy.

“We know in our own small community pubs that total rent (cash rent and tied wholesale profit) is almost insignificant compared with the cost of Government, including taxation which amounts to over 40% of gross sales! For this Government therefore to legislate so as to be able to override commercial agreements rather than reduce their pernicious levels of taxation simply demonstrates their failure to understand the real issues or the positive benefits of the tied pub model.

“Despite the reduction in duty a small community pub is still contributing to Government coffers around five times the pub’s profit! This is unsustainable and combined with this latest interference is a recipe for starving tenanted pubs of investment; investment that is needed to make them more relevant to consumers and thereby to give a lot of them a chance of becoming sustainable businesses.”

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