Let's open books'

Peter Linacre, managing director of Massive, argues that the pubco rent review process still brings an implicit penalty for success'.

He maintains a fairer lease would have rent based on a percentage of turnover

There is almost nothing like a rent review to get the juices of a lessee really flowing hot. Lessees, in between rent review periods, either hear nothing at all from commercial landlords or nothing but platitudes about partnership from pubcos.

However, when it comes to the rent review a demand is made ­ and the lessee then has to justify why the final rent should be less than that demanded. There is no doubt in my mind that the pubcos have made great progress in recent years in attempting to improve communication, transparency and fairness with lessees before and during the rent review process. But commercial landlords are, in my view, totally uninterested in whether the lessee can pay the rent ­ if you can't pay their demand someone else will.

The process that exists with pubcos remains connected to the historically-integrated brewing industry and continues to use the concept of Fair Maintainable Trade (FMT). Is this a "fair" methodology? There might have been progress ­ which is excellent ­ but in my view this still forms an area of potentially great difficulty that arises from the implicit penalty associated with success.

For example ­ a lessee takes a run-down closed pub (the Phoenix) at an attractive rent ­ sometimes a rent that is given as an inducement to attract a lessee. The Phoenix has not performed well for many years. The pubco has the historic trading information for the past 20 years. Over a five-year period the lessee builds the business into a success.

Trade soars. On the back of this success the pubco decides what the FMT level should be. In my experience this figure is never an average of the previous 20 years of failure, but always an average of the past five years of success. At arbitration at least one pubco has now had confirmation that FMT is the average of the most recent five-year period. This will always seem like a penalty for success.

What sticks in the craw is who decides what the FMT should be. There is nothing more irri-tating than receiving a letter from a pubco that says: "We have decided that for the following year and we have assessed the FMT for your premises at £***. Thanks guys, it's great being in partnership with you!"

There's no level playing field in this process. The pubcos want to have as much information from the lessee as possible; accounts, prices ­ they already have the barrelage and will happily make assessments of food and non-tied items. If the lessee asks for some relevant information ­ like how much profit does the lessee make from each barrel of beer sold ­ we tend to be told that information is irrelevant or can't be given because of the commercial arrangements with the brewers.

We do know that the pubcos are wary to disclose this specific information ­ and were it not for the pressure that has come from the likes of the Trade & Industry Select Committee then they would not disclose the general "average" information at all. Disclosure has been forced on them, primarily since they became publicly-quoted companies.

MA|11/11/04 |14 |Payne to quit in wake of failed Laurel bid |by The PMA Team

Laurel Pub Company chief executive Ian Payne is to leave the company after it is sold in a few weeks' time.

Payne, who withdrew from the bidding after his management team tabled the lowest bid for the company's 160-pub estate, has confirmed he plans to move on when the sale is complete.

The auction for Laurel's 160-strong estate is a three-way battle between GI Partners, which owns Yates, property tycoon Robert Tchenguiz, who is working with former Wizard boss Chris Hutt, and St James Place Capital working with Peter Linacre's Massive Pub Company.

Sources close to the Yates bid are claiming to be much more confident of success in bidding for Laurel after identifying £8m in head-office synergies.

"We're confident that we're in pole position," a Yates source said. Second-round bids for Laurel are expected to be tabled on 22 November. However, the sale process has been a slow one because of the many legacy issues surrounding Laurel.

One source said: "It is very complicated ­ this is a company that has shrunk from 3,000 pubs to 160 and there have been pension and corporation tax issues.

"If it was simply an assets deal it would have been done and dusted by now."

Another issue vexing bidders is the wage bill at Laurel. All head-office staff will be paid a 30% bonus to salary if they stay in post after the sale.

One source expressed surprise with a number of large salary increases at Laurel this year. "Laurel salaries do seem out-of-line with the size of the business," the source said.

"Ian Payne, for example, is paid £400,000-a-year, which is quite a bit more than John Hutson at JD Wetherspoon. Staff at Laurel head office are on higher salaries than at similarly sized companies ­ and there seem to have been quite high increases this year.

"Growth in sales at Laurel also slowed dramatically during July, August and September while the labour line continued to inflate." The hog's head chain of bars is the largest part of Laurel's estate, which is expected to sell for between £150 and £160m.