The lease that broke the mould

Two decades on, it may be hard for relative newcomers to understand just how much of a revolution was begun by Grand Met when it introduced its long lease agreements. Graham Holter reports on the 20th anniversary of Inntrepreneur

Inntrepreneur. Is there a more divisive, controversial or emotive word in the pub trade lexicon? The lease that changed the landscape of the industry for ever is 20 years old this month — two decades in which it helped create millionaires and left others penniless and suicidal.

Retracing the steps of the Inntrepreneur journey risks opening old wounds — for some, it was the worst thing that ever happened to them personally, or to the pub trade generally. Yet it's a story that bears re-telling, if only to make sense of how licensees' lives have changed almost beyond recognition. Forget the smoking ban, the collapse of beer sales and the rise of supermarkets. Inntrepreneur was, according to licensees' champion Tony Payne, "the biggest thing that's ever happened to the industry".

In March 1988, Grand Met surprised everyone with the launch of 20-year leases, giving licensees benefits they had long demanded: long-term security of tenure, the ability to make money out of trade they built up, and profits from machine income. But there were some catches: they also had to take responsibility for internal and external upkeep of the property, and rents were way in excess of what short-term tenants had been used to.

"It was moving from being a pubco to a property company," says Ken Newton, now a consultant and part of the team that launched Inntrepreneur. "It was giving tenants freedom, which in return tied them for beer, and it wanted commercial rents. And of course, rents were soaring."

Colin Wellstead, formerly of Christie+Co, adds: "Historically, tenants never could get any equity in their businesses. Whenever a tenant was really good at running a pub, the brewer took the first opportunity to take it back to management. This was giving people what they wanted — secure tenure rather than a three-year tenancy, and something they could sell after a period of time."

FLVA chief executive Tony Payne was among the first to spot problems. "I saw a lot of flaws in the agreement so I did a paper, giving the low-down on parts of it that weren't a good thing. There was a minimum purchase obligation, the full repairing lease — a lot of buildings at the time were in disrepair — and quite high rents.

"The minimum purchase obligation was tied for 20 years and it agreed to reduce that. If it had put 10% of the estate on long leases I could have supported it, but not the full 100%. Some pubs were next door to each other and very small, and the ones I was dealing with personally were in very bad condition."

Inntrepreneur impressed City investors with its innovation and soon wanted all its tenants to switch to leases, and the tactics it used to persuade them were controversial to say the least. Manchester licensee Alan Newnes was among those who resisted. "My rent when I started was £18,000," he says. "It wanted a 25-year lease for £50,000. I said, show us how we can afford to pay £32,000 a year more without putting up the price of beer and we'll sign here and now.

"We obtained an internal company document called 'White Knight' which pointed out how it would get licensees out of its pubs. Under the Landlord & Tenant Act it had to give a reason to evict you. If there was a cracked tile in the toilet, that was the reason. I was told there was shortfall on my cider provision. The idea was to wear you down — the only way to challenge it was in court.

"It was absolutely the worst company. I could afford to fight it, but it was a very scary time and I had a wife and child. But I had a good solicitor who kept me on the right road. It was very easy to lose your temper with these people. They didn't care that they were putting people out on the street who had put their life savings into pubs."

Those who did sign up frequently found themselves faced with massive repair bills, upwards-

only rent reviews and onerous minimum purchase orders, all against the background of an economic recession.

Licensed trade consultant Phil Dixon says: "The biggest mistake it made was to say one size fits all. That was a nonsense and the market made it a nonsense within a couple of years. It allowed the ethics of the second-hand car dealer to come into pubs. In cases where the rent should have been £25,000, it went for an offer around £30,000, and when an offer came in for £40,000 it accepted that. It was real short-termism."

According to Ken Newton: "Tenants were keen to acquire these leasehold opportunities, and this showed in the rents they were prepared to pay. Unfortunately they were not always sustainable and many failed. Many tenants saw this as an opportunity to print money. Those inexperienced in the trade didn't take professional advice and many had no structural surveys carried out, but simply entered into a full-repairing lease obligation."

Alan Temple was Inntrepreneur's biggest multiple operator, with 16 leases. "Unfortunately the terms of the lease, rent and tie, and some bad choices of pubs meant I put the company into liquidation," he says. "I had my pubs valued at £1.6m — which was great, until I tried to sell them.

"We set up the Courage Leaseholders Association because the guys were on five-plus-five leases and didn't want 20 or 25-year deals. Inntrepreneur ac-quired Courage just as the five-plus-fives were coming up for renewal, and was not offering the second five years that was part of the agreement. Inntrepreneur was not prepared to fight the renewal in court because it knew it would lose that legal argument. So it did everything within its power to persuade people. Those who stuck it out won the argument."

Tony Payne adds: "We fought these leases as long as we could, but we had to accept them and look after the interests of licensees, make them aware of their responsibilities and negotiate the best terms.

Former Courage boss Mike Foster was asked to sort out Inntrepreneur — and negotiate a quick and profitable sale — after the business came into the ownership of Scottish & Newcastle. "Some of the tenants got together and took group action to say we were in breach of the Treaty of Rome [arguing that the tie was anti-competitive]. There were endless court cases, which were only resolved quite recently. We had 1,000 pieces of legislation, so to fulfil that brief was slightly difficult."

Phil Dixon recalls: "You were 10 times more likely to fail in an Inntrepreneur lease than in the average small business at that time. There were suicides and people ended up penniless, broke. Inntrepreneur didn't allow you to leave. As you

were going bust it would say 'you signed'."

Alan Newnes never signed a lease, and fought Inntrepreneur for nine years. "It used every trick under the sun," he says, "and we fought it very aggressively indeed. It didn't like us at all because we had the money to do it. The job is hard enough, but it's even harder when you have people coming in and threatening you, literally telling you if you don't sign the lease you'll be out on your backside.

"People committed suicide; it sent so many people bankrupt it was untrue. Luckily I had a very good business and could afford to spend £25,000 in legal fees fighting it.

"I had nine years of hell. I didn't know if I was going to be in or out of a business. I was a lucky one, but a number of people were put out of business and lost all their money with absolutely ridiculous rents.

"I feel very sorry for Bernard

Crehan [whose victory against Inn-trepreneur was overturned by the Law Lords in 2006], who lost everything. People had nervous breakdowns, wrecked their marriages."

The Inntrepreneur lease was soon mimicked by Whitbread, Bass and Allied. According to Phil Dixon: "The City turned round to other pub operators and said 'Inntrepreneur has doubled its rent book — why can't you?'." Tensions flared up wherever tenan