Free-of-tie choice would stop rent assessment abuse

02-Oct-2013 - Last updated on 03-Oct-2013 at 16:16 GMT

Related tags Government

Simon Clarke: "When the statutory code is in place with a provision that a tied tenant should be no worse-off, this review outcome will be sent to the adjudicator for consideration"

At last, the rent review for the Eagle (my pub in Battersea, south-west London) is finally over. From an individual business perspective, the thrust was to seek to establish a fair rent that ‘effectively’ compensated for the over-inflated tied product prices.

From a campaign perspective, I sought to show that Enterprise Inns, and the RICS (Royal Institution of Chartered Surveyors) gave no consideration to the principle ‘that a tied tenant should be no worse off than if they were free-of-tie’. The review also offered a chance to try the Government’s proposed formulaic approach, outlined in the public consultation, and to prove that the voluntary regime doesn’t work.

Before, Enterprise was taking c.83% (c.£100,000) of the pub’s profitability (in wet and dry rent). After review it is taking around 73% (c.£90,000). Our earnings have improved from £24,000 to £34,000 and remain less than 28% of the pub’s total profitability.

If the rent assessment had been conducted taking into account the ‘no worse off than free-of-tie’ principle, then faced with a market rent only (free-of-tie) option we would struggle to decide whether to go free-of-tie or stay tied.

With free-of-tie we should earn c.£60,000 and pay a rent of the same. Tied, we are paying a rent of £34,000, and earning the same. As tied licensees we are £28,500 worse off than if we were free-of-tie, despite the apparent ‘win’.

It’s a no-brainer that, if offered the choice, tenants would go free-of-tie tomorrow, which shows the system under voluntary regulation is still not working.

Confusion

In my view, neither Enterprise, Fleurets nor the independent expert have considered the ‘no-worse-off’ principle and paid no notice to the Government’s formulaic approach to rebalance risk and reward. Why would they?

The voluntary and company codes are, unsurprisingly, lacking on the issue of rebalancing risk and reward and the RICS has not clarified the confusion of interpretation of its guidance, despite it being identified by the Government.

When the statutory code is in place with a provision that a tied tenant should be no worse-off, this review outcome will be sent to the adjudicator for consideration. If a market rent-only option was available, there would be no need. Enterprise would have had to offer a fair rent that truly reflected the disadvantages of being tied, or we would have taken up the option.

Our review shows a statutory provision offering hosts the chance to consider being tied or free-of-tie could stop abuse of the tied rental assessment system.

Simon Clarke is licensee at the Eagle in Battersea and a Fair Pint campaigner