BII's call to tied tenants over machine income

The BII (British Institute of Innkeeping) has urged tied tenants to be aware of how pubcos are treating machine income in regard to rental negotiations.

Previously, many pubcos had taken 50% of the machine income and then 50% of the remaining profit as part of the divisible balance for rent. The Business, Innovation & Skills Committee had labelled this practice "totally unacceptable".

Under the new codes of practice, pubcos have removed machine income from the rental calculation, and instead list amusement with prizes (AWP) income as a separate income stream.

But the BII has written to licensee members urging them to clarify with their pubco if machine income is instead included as part of the rental negotiations.

BII chief executive Neil Robertson said: "All landlords have completely removed shared machine income from their rental calculation.

"However, some may still take into consideration the tenant's share of machine income when making their rental bid.

"We advise you to ensure you understand how the landlord has arrived at their rental bid and whether it has been materially influenced by the tenant's share of income."

Enterprise Inns has already held talks with the BII on the subject.

"It is our contention that an applicant making rental bids on two identical pubs, with two identical divisible balances, would offer more for a pub that has additional machine income of £10,000 a year than they would for one which has none," said Enterprise chief operating officer Simon Townsend.

In contrast, Fuller's has removed machine income from the divisible balance and rental bids.

Robertson added: "As landlords are taking different approaches, it is important to understand your landlord or prospective landlord's methodology in arriving at a rental bid."

The BII is to produce best practice guidelines as evidence of the different approaches emerges, he said.