Nothing going on but the rent

Related tags Rent Leasehold estate Marston Whitbread

Rent levels don't always get good press, but it doesn't pay to generalise Are Punch and Enterprise really the tyrants many licensees make them out to...

Rent levels don't always get good press, but it doesn't pay to generalise

Are Punch and Enterprise really the tyrants many licensees make them out to be? Well, not if you look at the rents for pubs featured in the

Morning Advertiser "Properties of the week" section (1 May 2008).

The rents stated are well below the levels I have noted some tenants are claiming to be charged in recent trade press articles. This also makes a mockery of the general claim that "pubcos charge sky-high rents".

Quite frankly, I would expect higher rents from pubs of the quality advertised in this article. I am assuming that the turnover figures given are net of VAT. And the pubcos involved? Yes — whisper it: Punch and Enterprise!

Admittedly, the four pubs listed were effectively food-led, so nearer the top end of the market. As such, there may be an argument from the pubco to keep rents on the low side as a proportion of turnover.

So what should the rent be for this type of pub? Of course, a pubco would take many factors into account while agreeing a rent with a tenant. But the average rent:turnover for the four pubs in question was less than 10%, with one pub at less than 8%. The highest ratio was 13.7%.

For pubs of this type, I would normally expect a rent:turnover ratio (excluding VAT) of around 14% to 16%, allowing for the fact that the pubs are tied for wet products — although it's worth pointing out that rents would not be set solely on a percentage-of-turnover basis.

This is just one of the key ratios that would be looked at by pubco bosses to get a "feel" for the realism of the rent. I would also underline that this is the ratio at the time the rent is agreed. If trade slips, refer to my previous article, published earlier this month!

In real terms, the rent should be agreed on a Fair Maintainable Trade/Average Maintainable Trade basis, taking into account projected profit and loss for the period in question, and the profit- share before rent the pubco would expect.

This would normally be a 50:50 split. It is the resulting calculation that should fall within the area of circa 14% to 16% of turnover.

Let me underline the fact that I

am not flying the flag for pubcos — simply observing that on the basis

of the pubs featured, the rents charged by our two largest pubcos are realistic — and, importantly, act as an incentive for their business partner, the lessee, to work on developing the business.

Of course, I fully accept that the rent levels described here are not

the norm, but they do show that

the rents described are fair — even overly fair.

But why do we only hear about those deals between pubcos and licensees that appear on the surface to be weighed in favour of the pubco? I would love to hear from tenants who are happy with their lot and with their BDM. The majority, I would argue, fall into this latter category.

I do accept that many licensees are unhappy with the rent they are paying, whether the rent was incorrect at the time of signing the agreement or has subsequently become unviable as a result of currently poor trading conditions.

I believe the latter should be handled sympathetically by the landlord — whether they be a pubco or regional brewer. But I do not have a lot of sympathy with a tenant who complains about the rent soon after signing the agreement. If the rent was unacceptable, why agree to it at that level? This smacks of poor business skills on the part of the tenant.

The bottom line for existing and prospective tenants is — as I have said previously — never sign a new lease or tenancy agreement, or agree a new rent without seeking advice from someone experienced in dealing with these matters, whether they be professional advisors, former licensees or retired BDMs.

Clive Williams was brought up in the trade and is a former distribution, freetrade and tenanted director at Whitbread. After leaving Whitbread, he co-founded three pubcos, the last

of which — Celtic Inns — was sold to Marston's in 2006. He is a judge of the Association of Licensed Multiple Retailers Operations Manager of the Year competition.

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