The rentman cometh
Rent reviews are a time of angst and confusion for many licensees. Ewan Turney reports the top tips from the BII's recent rent-review seminar
Pubco: Clarity is key
Britain's largest pubco, Punch Taverns conducts 650 rent reviews and 350 lease renewals a year. It is one of only four pubcos so far to have its code of practice accredited by the BII (British Institute of Innkeeping) benchmarking committee. Property and strategy director Neil Griffiths gives his tips for a smooth process:
1. Begin as early as possible: We recognise rent reviews can be unsettling for our retailers. We want to avoid reviews being long and drawn out as this can very easily distract both parties from focusing on business growth. We believe it's important to start the process as early as possible and this begins a whole 12 months before the due date, when a reminder letter goes out to the retailer.
2. Process: Business relationship managers (BRMs) will meet the retailer with six months to go and present the new proposed rent. If an agreement cannot be reached, the retailer can refer it to the regional operations director or, as a last resort, the case can go to arbitration.
3. Calculation: We will take time to explain how a retailer's rent has been calculated. The figure is based on the fair maintainable trade achievable at that particular pub. We look at the overheads facing the business, such as utilities, rates and insurance, and build a hypothetical profit-and-loss model from all current and potential income streams. It is all about open discussion and understanding each party's position.
4. Transparency: The rent review is a two-way process. Retailers need to demonstrate their commitment to getting the most out of a business and in return we are ready to provide support, advice and assistance.
Trade guru: Be professional
Industry expert Phil Dixon has a wealth of experience in conducting rent reviews, which dates back to his time as an officer with the National Licensed Victuallers Associations. He was also a key figure in establishing the BII's code of practice accreditation scheme.
1. Be professional: Above all else remember to be professional. It all starts and finishes with a handshake.
2. Calculation: Get a copy of the profit-and-loss calculation and study it. Think about overheads - pubcos won't necessarily include holiday entitlement and costs for holiday relief staff, for example. What will the pubco think my gross profit margin is? Before beer flow-monitoring equipment and open-book accounting there was an assumption that you were buying out of the tie and showing self inflicted repressed margins. Now they cannot do that. Mistakes can be made on the calculation - so don't let anyone tell you they can't produce it. Remember it is a two-way process. If you say something is not right, you will need to prove it. Transparency works both ways.
3. Future: Think about what will happen in the next three to five years. All pubcos are predicting a continuous decline. Think about attracting families and doing food but accept beer will decline in the on-trade. The average consumer has changed and will continue to do so with the advent of home entertainment systems.
4. Above average performer: Marston's code of practice says, "Our rent will not punish you for your success or make up for your under-performance." How do you measure up and demonstrate you are above the average tenant? You can invite the BDM to assess retail standards and note how you compare to other pubs in the estate. Entering and winning awards also demonstrates you are above the average operator.
5. Arbitration: Can you afford to push it to a form of arbitration? Probably not, but can the pubco? Experience and history has taught me that the final figure eventually reached at either independent expert determination or arbitration will be more than the licensee wanted to pay, but less than the pubco demanded. Investors are sometimes wary about a company that can't deal with individual cases effectively. Pubco chief executives don't want to have to explain away articles splashed across the MA about rents being too high and needing to be reduced to the City. So push it professionally, but you must know when to stop.
Licensee: Preparation is vital
Former BII licensee of the year Richard Macey has been through two rent reviews at the Fountain Inn, Clent, West Midlands. He admits he "got his arse kicked" in the first because he was not prepared.
1. Preparation: Who sets rent? I don't believe it is totally down to the landlords. Rents are set when we accept those given to us because we have not prepared properly. The less we prepare, the higher the rent is.
2. Accept a rise: The quicker you get into your mind that the rent is going to go up the better - we just have to limit the amount by which we let them put it up. Be prepared to fight but you also need to know when to stop.
3. Information: Gather as much information as possible by engaging in honest conversation with fellow licensees about lease terms, rent levels, beer tie and discounts. Pubcos love it when we don't talk to each other. Sign up to mailing lists from licensed trade agents to study what is available on the market.
4. Awards: I have won a whole host of awards and it really helps in proving you are above the hypothetical average tenant used in rent calculations.
5. Rent insurance: We insure our cars, homes and health but why don't we insure against rent reviews? If you need to take professional advice every three to five years that means saving roughly £5 a week.
l For more rent review tips visit
www.morningadvertiser.co.uk/rentreview
Rent-review glossary
Hypothetical tenant: The rent level is set on what a good average tenant would achieve from the pub. If you are trading well and can prove that this is down to your personality, good will, business skill and acumen then you should not accept a large increase in rent.
Fair maintainable trade: It is a projection of the fair level of trade a competent hypothetical tenant could achieve taking into account wet sales, food sales, room rentals, AWP machines and deducting overheads. The rent value is then typically 50% of the divisible profit.
Independent expert determination: Expert determination is a process in which an independent third party, acting as an expert rather than judge or arbitrator, is appointed to decide the dispute. There is no right of appeal and the expert's determination is final and binding on all parties.
Arbitration: If negotiations have completely broken down, an arbitrator can be appointed to act as judge. Both sides make submissions and have the chance to comment on each other's views before the arbitrator makes a final ruling.
Pubco do's and dont's
Do...
l Keep things professional, remove emotion.
l Avoid abortive discussions. If you're using an agent, bring them in early in the process.
l Use a professional company to manage your finances, for example Milestone accountants.
l Carefully consider the costs involved with arbitration (it isn't cheap).
l The review will assume the retailer is attempting to maximise their business.
l Put money aside for arrears as we will be asking for it when a rent is agreed.
Don't...
l Ignore advice from the pubco on growing your business between reviews.
l Let retail standards slip or once loyal customers drift away.
l Let a review drag on - it's unsettling and distracting.
l Close your eyes and hope it goes away. An agreement does have to be reached in the end.
l Sit on information that is financially supporting. If you have higher labour costs than we think, show us.
trade guru Quick tips
l Understand the procedure.
l Read the code of practice.
l Prepare your case.
l Get in early.
l Know you rights under the beer and especially non-beer ties.
l Keep a record of all discussions you have with the BDM.|
