Pubcos behaving badly

By Robert Sayles

- Last updated on GMT

Related tags: Pubco, Dave, Landlord, Tenant

Discontent: Robert Sayles
Discontent: Robert Sayles
Like many of you, I was dismayed by the failure of government to endorse a statutory code of practice. Experiences in other sectors, most notably banking and the press, have shown that self regulation is wholly ineffective.

In fact in many cases it merely exacerbates the problem by allowing existing abuses to continue unchecked. The tied pub sector is no different. Let me give you a couple of examples.

Simon

Simon recently had an interesting experience with his retail partner.

His pub trades under a pubco lease, one which recently came up for renewal. When the new agreement arrived through the post Simon was sensible enough to study the document carefully. As it happens, it’s just as well he did.

Close inspection revealed that his pubco had inserted an additional clause into the agreement, one allowing them to install Brulines equipment in his cellar.

Simon thought this a little odd as the BDM hadn’t mentioned this when they’d spoken the previous week. Clearly someone had made a mistake.

Ringing the pubco he was informed that the clause had been added as part of the “enhanced support package” being offered to tenants.

Simon wasted no time in seeing his solicitor. He was assured that the pubco had no legal grounds to make any changes to the original lease.

Needless to say, Simon contacted his BDM; giving him some suggestions as to what he could do with his enhanced support. He also made it clear that if the clause wasn’t removed from the lease he would take legal action.

A couple of weeks later the new agreement was returned with the necessary amendments made.
So much for the new era of integrity and trust!

Dave

Then there’s Dave. He had a similar misunderstanding with his pubco.

Like many tenants, Dave’s pub was badly hit by the downturn. With turnover plummeting, he found it increasingly difficult to keep his nostrils above the waterline.

He contacted his pubco. They carried out a P&L assessment and advised him to sell the lease on.

Desperate to assign before going under, he eventually managed to find a buyer; no small feat given the market. A nominal fee was agreed and Dave passed on the contact details of the prospective purchaser to his BDM.

Dave waited patiently for the pubco to provide a survey and for things to progress; however the weeks passed but nothing happened. Eventually in desperation, Dave contacted the buyer to be told that he’d lost interest and wouldn’t be pursuing the matter any further.

This struck Dave as a little odd. After all, when they’d met he’d seemed very enthusiastic; making it abundantly clear he wished to proceed with the purchase. Several months later with the pub hemorrhaging money, Dave had no option but to surrender his lease.
Needless to say he paid a heavy price; the pubco retaining both his fixtures and fittings and deposit, citing loss of earnings.
Not content with that, they placed a £25,000 injunction on his house.

A week after moving out of the pub Dave returned, to find the ‘buyer’ standing on the other side of the bar. He’d moved in the day after Dave left.

The new tenant revealed that the pubco had advised him not to pursue his interest; suggesting he wait until they’d repossessed the outlet, thereby enabling him to get it “premium free”.

He went on to explain that the BDM had offered him a “take it or leave it” deal; one which obliged him to purchase fixtures and fittings as well as cover all “reasonable costs” incurred by the pubco.

On the face of it, the deal seemed reasonable as no premium for goodwill was paid. It appeared mutually beneficial to both parties; of course it wasn’t.

Drafting a new agreement enabled the pubco to remove those irksome little clauses, such as guest ale provision and guaranteed barrelage discounts. It also allowed them to raise the rental premium to a level which more adequately reflected the trading potential of the outlet.

Just as importantly, they were not required to undertake a survey or carry out repairs. The arrangement also absolved them of all the legal costs associated with a lease transfer.

Of course they weren’t required to market the property either; saving themselves a tidy sum in agent’s fees. After all, Dave had already found a tenant for them.

Dave’s experience illustrates one rather unpalatable fact. There is often little incentive for pubcos to adopt a proactive stance when it comes to lease assignments.

In fact it is often in their interest to obstruct and delay; knowing full well that time is of the essence for many struggling tenants.
Like some predatory beast, they are content to merely sit back and wait for the tenant to go under, secure in the knowledge that rich pickings await.

And what of Dave?

He’s lost everything and is due to appear in court shortly, unsure as to whether or not he will be able to keep his house.

Now I’d like to say that the experiences of Simon and Dave are isolated incidents; unfortunately all the evidence is to the contrary.

A number of tenants have contacted me citing similar experiences. One commentator I spoke to lamented that such unsavoury practices are now “rife in the trade”. What does this say about an industry that appears powerless to prevent pubcos treating their tenants so appallingly?

It is clear that such companies have no interest in restoring trust and integrity into the pubco /tenant relationship. How can they when such ideals are so incompatible with the need to service debt?

This is why government intervention was so important. Implementing a statutory code of practice would have reined in the abuses of certain pubcos and empowered tenants, offering then a mechanism to counter such shameful malpractice.

We have heard much from politicians about their vision of a utopia, the ‘Big Society’. Their decision to ignore the recommendations of the Select Committee illustrate the extent such proclamations amount to nothing more than meaningless, empty gestures.
Simon, Dave and countless others like them have every reason to feel betrayed.

Related topics: Legislation

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