Rave rent reviews

Greene King's new tenancy agreement includes a set rent increase. By Michelle Perrett.

One of the biggest complaints licensees have about taking on a lease is that the better they do the more money their pub company takes from them in rent. Licensees find themselves in a no-win situation that actually discourages them from doing well.

Now Greene King Pub Partners has launched a new five-year tenancy agreement that aims to get round this problem.

Under the terms of the agreement tenants are no longer subject to three-yearly rent reviews, instead they are subject to annual Retail Price Index (RPI) increases fixed at the outset. RPI is a government calculation, which takes into account the price changes on a variety of products and services. The percentage price change will then be applied annually to the rent.

Commercial director Paul Lloyd said: "This new agreement provides an attractive and fair alternative to the traditional rent review process. We want our tenants to benefit from the success of their pub and reap the rewards of their hard work - this new agreement does that.

"We are going against the industry trend and are hoping we can attract more entrepreneurs into the business."

Rent is worked out on the basis of 11 to 12 per cent of Fair Maintainable Trade (FMT). FMT takes into account the current situation and future trends and reflects the full tie and maintenance of the business. Greene King works out all rent levels based on the good/average licensee being able to develop the business. The agreement is a non-assignable, full-tie lease, which includes a volume discount scheme and certification of services. Income from machines is split 50/50 after VAT and rent.

The company has 100 of its 1,120-strong estate on the new lease and in the next two to three years expects between 70 to 80 per cent of its estate to be converted.

"Seventy per cent of businesses fail in the first year because people run out of cash and do not have the support," said Paul. "Most new businesses break even or lose money in the first year as you invest in the business.

"This is what drove our thinking to introduce RPI rent. Licensees will have five years to drive their business."

To coincide with the new agreement Greene King has launched a new support package targeted specifically at new tenants in their first year of running a pub business.

The package starts with a new recruitment process, which includes a structured interview. Once a potential licensee has made it through the interview they will have a full range of training offered to them. Greene King sales development managers (SDM) will be able to put a personal training scheme together for them.

Part of the agreement is that licensees must use one of Greene King's preferred accountancy firms. The service is designed to ensure their licensees get independent financial advice. The package provides licensees with the first three months' profit and loss accounts, VAT registration and returns and yearly accounts for submission to the Inland Revenue. The package also offers commentary on the progress of the business and two personal visits.

Throughout the first year contact between the SDM and licensee is an essential part of the scheme as well as regular reviews of the business plan and trading performance and a mystery visit programme.

More importantly new licensees will have a "mentor" assigned to them for the first year. This mentor will be an experienced licensee who can offer them support and advice.

Greene King agreement​

• Rent fixed for the term of the agreement
• RPI added each year - no performance reviews
• Higher level of support in year one
• Landlord and tenant protection after one year
• Machine income shared 50/50
• Greene King repair all exterior
• Tenant responsible for interior

Alan Hutchings, the George & Dragon, Tudeley, Kent​

Alan Hutchings (pictured)​, licensee of the George & Dragon in Tudeley, Kent, is an ex-head development chef for the Harvester pub chain. He was attracted to the Greene King lease because of its support package and the set rent.

He said: "Over five years the rent creeps up but after five years it won't be such a big jump. I think it is an incentive to do better. I know what the rent is and can budget."

He was also attracted by the support package offered by Greene King. "Running the business is not a problem but if I have a problem I can call and get an honest answer. All I have to worry about then is running my business and pushing the offer.

"I have taken on the total financial package and it takes all the worry away. So every week I know how much everything is costing me."

Greene King's perfect match​

Greene King Pub Partners estimates that the average number of days to let one of its pubs stands at 50 days - this is down by almost one-third on its previous average of 80 days.

The company says it has managed to streamline its recruitment and placing of new tenants through a new software package. This uses a range of management techniques to match the right licensees with the right type of pub.

The software matches applicant to four types of pubs:

• Established Successful:​ people good at sustaining an already successful business
• Hands on Entrepreneurial:​ business where licensees like to adopt a owner/manager approach
• Aspiration Management:​ ambitious people with good management skills who are adept at recruiting, developing and managing teams of people
• High Potential:​ growth entrepreneurs driven by financial returns.

Almost 80 per cent of potential licensees apply to Greene King through its website www.greenekingpubs.co.uk

The process:​

Once the initial application has been accepted licensees fill out a questionnaire, which will be used to make the "perfect match" with a vacant pub. Once the licensee is matched to a pub then an appointment will be made to visit.

When the potential licensee has identified the right pub for them a business plan detailing how they plan to take the business forward must be prepared. This will be discussed with the area manager at an interview. Assuming the interview is successful the licensee will have four to six weeks to appoint the right people and get systems in place. These include:

• Licensed property broker:​ They will organise the change of lease, apply for transfer of licenses, negotiate a price on fixtures and fittings, ensure meter readings are handled, settle deposits and training course fees.

Accountancy package:​ This will be organised by Greene King. As a tenant the licensee will be required to sign up to an accounts package for the probationary period.

Accountant:​ As a lessee the licensee will need an accountant to advise on annual accounts and audits, profitability/cost savings, personal taxation, VAT and cash control.

Stocktaker:​ Regular stocktaking will ensure a thorough and regular check on the stocks of the business.

Solicitor:​ To advise on legal documentation such as the Landlord and Tenant Act, licensing and advice on covenants.

Meet the outgoing licensee:​ This is important so that the ingoing licensee can get all details of staff, regular events, current trading and lease information on such items as TVs and vending machines.