A world of difference
Scrutinising PIRRS is worthwhile, if only to uncover the extent of the gulf between the new system and RICS regulations.
Sadly, the local cricket club groundsman left last month. Like all good groundsmen, he was totally dedicated to preparing as fine a wicket as possible. He just objected to anyone playing on it. But he was always one for conspiracy theories; a "9/11 never happened" sticker adorned his car bumper. Now I have met a few similar conspiracy theorists in our sector — strangely, almost all of them worked for Whitbread at some stage!
Is it me, or has anyone else noticed that since the introduction of the Pub Independent Rent Review Scheme (PIRRS), nearly all major companies are introducing new agreements, where — guess what? — rent reviews no longer take place.
PIRRS appears to be working well. Many enquiries are being resolved as licensees find their company's "final offer" was not that final once they talked about using PIRRS to set the rent. As one Essex host confirmed this week, she did not really want to go all the way with PIRSS and appoint an independent valuer, but by using PIRRS she felt she'd get the very best offer from her landlord, which indeed she feels was the case.
I also recall an interview with David Rusholme of the Royal Institution of Chartered Surveyors (RICS) in the Morning Advertiser (18 February 2010), who said PIRRS was similar to what RICS had offered all along.
Really? You pay RICS to appoint a valuer; no fees are paid to the BII, which administers the PIRRS scheme. With PIRRS, the licensee chooses the valuer from an agreed list, rather than having one appointed to them by RICS. Whilst RICS obviously checks on potential conflicts of interest, a full disclosure of the valuer's previous clients is detailed on the PIRRS website.
PIRRS procedures limit the length of submissions to prevent a pub landlord swamping a valuer with evidence, unlike RICS. Licensees get a guaranteed period to add oral evidence, unlike RICS. And finally, PIRRS ensures the valuer's fee is fixed to the licensee — £1,000, £1,500, or £2,000, depending on current rent and geography (inside the M25), unlike RICS. But apart from the above, it's pretty much the same!
The removal of rent reviews and substituting an RPI annual increase causes me concern. As Paul Wigham recently pointed out, RPI has gone up in 46 of the past 48 years. Now, I don't like RPI and never have, with one exception: dealing with top-performing gastropub entrepreneurs. But for the vast majority of operators it establishes a relationship that has one inevitable result: an annual, onerous and unwelcome burden.
Okay, so for one year it went down and may do so again in 2031. Pubco bosses should ask themselves one simple question: do licensees facing a 6% to 8% decline in beer volumes need a 5.1% rise in rent right now?
Traditionally, rents were fixed for three years, with hosts paying 35% to 45% of their divisible balance. The first year was tight, but by year three it got slightly better — a good thing as monies were needed to invest in decorations and renewals. Then, during the "gun to the head, take it or leave it" period, otherwise known as the Beer Orders, large breweries/pubcos managed to move the share of the divisible balance to 50% and subsequently add RPI annual increases. Life simply got tougher each year, so by review the pub owner was enjoying 65% to 70% of the profits.
Decline
As Geof Collyer from Deutsche Bank points out, on-trade beer volumes have declined for 49 consecutive quarters. To link a wet-led pub's rent to RPI's unknown rises when the beer market will inevitably fall is folly.
I accept that many pubco directors dismiss this as negative thinking. I often wonder if they were once advisers to King Cnut the Great (AD 985-1035)? They would have been critical of him for only trying to turn the tide back once. He should have had another go! How can you persuade someone that setting terms on unsustainable volumes, then linking them to an irrelevant index will only lead to pain and suffering? Upton Sinclair's words come to mind: "It is difficult to get a man to understand something when his salary depends upon his not understanding it."
Some pubcos should perhaps consider a tie for Kleenex, for there are more tears ahead.
• Phil Dixon is a licensed trade consultant
