How do I take on pubco over 67% rent rise?

I have run a country pub in a village for nearly four years on a fully-tied lease with a pubco.

I paid £75,000 for the 25-year lease and the rent is £22,156.

I have increased the

weekly turnover from just under £3,000 to £6,000, helped massively by the growth in food.

I invested about £80,000 in redecorating the building, upgrading the kitchen and installing new furniture, a terrace in the beer garden and children's play equipment.

As a former chef, my focus was to grow the food side which previously had offered nothing more than the occasional sandwich and microwave meal.

I was relatively happy

with the support from my pubco until now - rent-review time.

The pubco wants me to pay £37,000 in rent - a 67% increase. How can it justify such a rent rise?

I invested my own money in the premises, and my skills got the food side going.

Why should the pub company take a slice of that?

I am prepared to take this challenge as far as I can, but I fear that the pubco is too powerful and has far more resources than I have.

1 How can I fight this review and get my case across in the best way?

2 What are my options?

3 What are my chances of success?

David Morgan Chartered surveyor, Cookseys DMP

The original rent represented 14.8% of total sales excluding VAT, indicating that the pub was either under-trading or over-rented. It is essential that fair maintainable trade (FMT) is agreed in writing at the outset of a lease assignment.

On a standard pubco lease, no account should be taken of the tenant in occupation or the goodwill attached to the property due to the expertise of the tenant. Any structural alteration works undertaken at the tenant's expense with the landlord's approval should be disregarded.

The new terrace and the play equipment might be regarded as structural changes. In the recent case of the Six Bells at Kidlington, Oxfordshire (Dunne v Punch Taverns), the large wood and steel fortress-style play equipment cemented into the ground with metal supports was considered to be of a structural nature. However, if play equipment is easily moveable, it would not necessarily be structural.

If a formal Licence of Alterations has not been obtained from your landlord, you can seek a retrospective licence which should never be refused if your landlord company had full knowledge of your work and personal expenditure.

The existing turnover is £312,000. From the brief details of the case, it would appear that the new rent, representing 13.9% of turnover, might be considered artificially high. Interest on working capital and interest and capital repayments on development finance should also be considered in the calculations as valid expenditure items.

I am sure, however, the pubco would argue that your £80,000 investment should be amply rewarded in a substantial uplift in premium value when you decide to assign.

Regular experts

Alison Carter, licensee, Bayview Inn

Anthony Mears, licensee, Ivy House

Ann Elliott, marketing consultant, Elliott Independent

Martin Roslyn, accountant, Roslyn Group

Richard Miles, accountant, Milestone

David Morgan, chartered surveyor, DMP

Paul Davey, business sales agent, Davey & Co

Nigel Martyn, business banking, Lloyds TSB

Chris Heard, finance broker, Marlborough Leisure

Paul Davey Business sales agent, Davey & Co

The problem you face is not uncommon, mainly because pubcos tend to work on the basis of perceived affordability when it comes to rent increases rather than on sound

comparable evidence of rental values in your area, which is how commercial rents are usually reviewed.

I urge you to take professional advice from a recognised firm of specialist business valuers which can act on your

behalf in your rent negotiations. Having said that, the answer to your problem lies in the following three areas:

1. Does your lease provide for arbitration in the event of rent-review disputes? Most pubco leases stand outside the 1954 Landlord & Tenants Act which provides protection by permitting an independent arbitrator to determine rents. Leases vary tremendously from pubco to pubco as well as within pubcos themselves, so your lease needs to be checked specifically for any provisions on arbitration.

2. Does your lease exclude a tenant's improvements from rent-review assessments? It should - and if so, this can be used to reduce the rent proposed.

3. Check your lease to ensure there are no clauses

regarding performance-related rent reviews. If there are, although grossly unfair, you really can be made a victim of your own success. If not, you can exclude your improved trading position from the review process.

Rents are usually reviewed every three or five years, so I assume your rent was set five years ago. This means the proposed figure represents a 14%-per-annum increase in your rent - excessive by anyone's standard. I believe 8% per annum is more than fair, resulting in a rent of £31,000.

Steve's response

The experts' advice has given me a lot to think about and I feel quite positive. I am pleased to hear that I have a good case.

There is no chance that I will

back down as I really believe that

it is my hard work and good

business practices that have helped

increase the trade here - I am not "Mr Average".

I am considering hiring an independent expert to help me.

The pub takes up much of my time and I don't have the resources to go knocking on doors to find out rent levels in this area.

Even if I have to spend £1,000 on professional advice, it will be worth

it to reduce the rent from the figure

the pub company is proposing to charge for the next five years. I need to get all the intricacies of my lease looked at too.

It's a difficult situation and I just hope my pubco sees sense rather than dragging the process out.

Do you have a question for our panel of experts? Contact Ewan Turney on 01293 610388 or email ewan.turney@william-reed.co.uk

Ali Carter Bayview Inn, Widemouth Bay, Bude, Cornwall

This is the sort of case that makes my blood boil. When will the pub companies wake up to the facts and appreciate that their best asset is an entrepreneurial, competent and hard-working lessee such as you? No wonder so many good operators are forced out by the prospect of working harder for less return: this industry still has a churn rate of around 30%, losing more and more of the skills that should be encouraged to stay.

The proposed increase works out at 14% of turnover, which as an industry norm is a fair, maintainable rent for an average operator. When arguing your corner you must stress that you are not an average operator, but an

exceptional operator.

Clearly, your business has only grown because of your skills as a chef - do you have any awards or qualifications to emphasise your experience? Gastropubs on the open

market are valued far below the figure their turnover would demand, because they depend so heavily on chefs' skills.

In any negotiations with the pubco it is important that

you stress this fact. Back it up with figures, of course, and do some projections showing how such a rent increase would

affect your bottom line. The pubco is getting the value of the additional wet sales generated by a thriving business - if you are removed from the equation and replaced by

Mr Average, these sales would drop, so there should be some room for negotiation.

Calculate the figure you feel would be fair for the pubco to charge as a rent increase and stick to your guns.

You sound to me like a highly exceptional operator.