Experts query pub rents

Two of the industry's most senior valuers have called into question whether the current rent-setting methods are sustainable in bottom-end pubs.

Barry Gillham, chairman of Fleurets and Rodger Vickers, partner at Brownill Bateman, have also claimed that the split in machine income between pubcos and tenants is perceived to be unfair, with tenants often receiving just 25% of the total machine profit.

They said: "[It's] surely contrary to the spirit of the various codes of practice and the principle of transparency.

The pair, who have each been involved in the industry for more than 40 years, also wonder whether the current shortage in quality tenants is as a result of a "perception that there is not enough left, after paying rent and other out-goings, to reward them for their investment and hard work".

Gillham and Vickers called on pubcos to make it much clearer to independent experts and arbitrators at rent review where pubco codes of practice decree that upward-only rent-review clauses in lease agreements should be ignored.

Gillham and Vickers, whose views have been aired at a series of BII rent-review roadshows in the past few weeks, say: "The industry is arguably at an all-time low as far as closed and boarded-up pubs and liquidations are concerned, and recruitment problems are approaching crisis proportions for bottom-end pubs in particular.

"Under circumstances where replacing a tenant is unofficially reported as costing pub companies £30,000 a time, there is surely the need to show more flexibility in terms for many of the letting deals on offer."

Divisible income​

Gillham and Vickers question whether it's always fair for pubcos to set rent at 50% of divisable income.

The pair claim that declining real sales and Retail Price Index (RPI) adjustments within many leases mean that pubcos can actually earn 60% of profit over a five yearly cycle.

They say: "Is a 50% bid now fair? This was set when inflation was around 15% per annum and represented perhaps less than 40% of profit on a full five-year cycle.

"With an annual RPI adjustment for rents under many of the leases and declining real sales, the 50% bid now possibly reflects 55% to 60% over five years."

The comments by such experienced and well-respected valuers as Gillham and Vickers will be seen as carrying particular weight, not least because the pair, who work for rival firms, have chosen to express them jointly.