GMB Demo At Chequers Inn Witney Over Tied Enterprise Tenant’s Eviction Over Inability To Pay Sky High Rent
GMB will campaign for Parliament to go for option 3 in the statutory code which offers tied tenants the ability to buy products from the open market and pay a fair market rent for the building.
GMB, the union for tied pub tenants, held a protest demonstration outside the Chequers Inn in Witney on Wednesday May 8th as Enterprise tied tenant Simon Moore faced eviction over his inability to meet sky high rent on the pub.
The protesters with flags and placards were joined by a character dressed as Dick Turpin with his black horse and a slogan saying “Stop Enterprise extortion”. See picture on GMB website.
The eviction was scheduled for 12.30pm on May 8th has now been put back to June 4th to allow Simon and his two young children, one aged 8 years and another aged nine months, and his partner to find housing.
Simon was being charged a “dry” rent of £35,000 per year. On top he had to pay a “wet” rent of at least £40,000 per year. This was because he was fully tied with no discounts and was required to buy product from Enterprise at well above free markets prices. Simon an ex forces person, ran the pub for 12 years. It has now cost him everything leaving him homeless and destitute. The turnover in the pub is £230,000 per year. The rent demanded by Enterprise is almost 40% of net turnover.
GMB members are overwhelmingly coming out in favour of option 3 in draft statutory code for tied pubs published last month by BIS to stop pubcos overcharging tied tenants for rents and driving them out of business. Option 3 is for a free of tie option to be offered to all tied tenants and for them to pay open market rents. See notes to editors for option 3.
Dave Mountford, GMB representative for tied pubs, said “Enterprise charge sky high rents to pubs like the Chequers Inn to pay interest on financially engineered debts which are held mainly by bondholders in offshore tax havens. This is pricing pubs out of the market and they have closed in droves.
This GMB protest, as another tied tenant loses his livelihood, was to say loud and clear that the time has come to end this rigged market and replace it with an open free market. This rigged market has now cost Simon everything. He has till June 4th to find accommodation.
There is no way he could afford to pay rent amounting to 40% of his net turnover. Enterprise set for Simon a contemporary version of the labours of King Sisyphus. This Greek king was made to roll a huge boulder up a steep hill, but before he could reach the summit, the rock always rolled back down, and he had to begin again.
GMB will campaign for Parliament to legislate option 3 which offers tied tenants the ability to buy products from the open market and pay a fair market rent for the building.
The other two options will allow pubcos to put up rents by the backdoor by overcharging for products tenants are tied to buy from them.
GMB will write to all 21,500 elected politicians including local councillors in England, Wales and Scotland to explain why they should support option 3 to stop local pubs closing. GMB will also seek a figure lower than 500 which we consider is based on sloppy analysis.
GMB will also assess how the union should gear up to represent members at hearings with the Adjudicator.”
Contact Simon Moore 07795 466614 or Steve Kemp GMB political department on 07730 898 102 Dave Mountford 07794 021 212 or 01629 258 083 or GMB press office 07921 289880
Notes to editors
Option 3: Mandatory free of tie option with open market rent review
All pub owning companies with over 500 pubs would have to offer a free of tie option with open market rent review. This would apply at the next rent review point for current leases and for all new leases. Each licensee would be able to choose to be either tied or free of tie. This is in addition to the statutory code and adjudicator from option 2.
The rent in the free of tie offer would have to be based on RICS guidance. This would ensure that there was a genuine free of tie option rather than one involving an unrealistically high free of tie rent.
How many would choose free of tie?
Even if given a choice, many tied publicans would choose to remain tied. The latest independent annual survey – conducted by CGA strategy – showed 7 out of 10 licensees would sign up again with their pub owning company. This suggests that around 30% of tenants under current arrangements would choose to go free of tie. However, with the improved arrangements for licensees in the statutory code the number going free of tie is likely to be less. As such, our best estimate is that 15% of pubs if offered the choice would go free of tie.
This is, nevertheless, subject to a high level of uncertainty due to the fact that it would be fundamentally changing the predominant business model that currently prevails in the industry. For example, it may be that licensees are content with their pub owning company because they see it as offering a fair deal under the current paradigm of the tie, but would still go free of tie if given the option. One pub owning company indicated that they thought very few licensees would go free of tie, as their tied arrangements are so beneficial; conversely, a licensee considered that almost 100% of licensees would choose a free of tie option if given the choice. Reflecting this uncertainty, our high estimate is 50% and our low estimate is 5% (on the basis that at least some would go free of tie).
Which pubs would choose free of tie?
As under option two, licensees would be protected by the principle of not being worse off than a free of tie operator. However, higher volume pubs and multiple operators (a single operator running multiple pubs) would benefit more from being free of tie. For these pubs the scale and experience of the pub owning companies would be less valuable. These pubs would be able to negotiate larger discounts than smaller pubs (although not as large as the pub owning companies. Some of the benefits included in the SCORFA will be less valuable to higher volume pubs and multiple operators. For example, costs such as marketing can already be spread over a higher turnover and business support may be less valuable to an experienced multiple operator. This suggests that higher volume pubs and multiple operators are more likely to go free of tie.
There will also be cases where the relationship between the pub owning company and licensee has become very bad and the licensee would choose to go free of tie.
Want would pub owning companies do?
Pub owning companies could maintain some of the benefits of the tie by converting more of their estate to managed pubs. This would involve a cost to business - shown by the fact they are not currently managed and so the current arrangements are preferable for business. However, during our engagement with stakeholders we were told this would not be a likely approach taken by pub owning companies. A more likely approach is to emphasize the benefits of the tie.
Another alternative is for pub owning companies to sell more pubs. This response may be limited because pub owning companies are already selling large numbers of pubs and will have very limited if any capacity to sell more. Conversely, one brewing pub company have said that they only own pubs in order to sell beer and so under this option one or more pub owning company may decide to sell off all their pubs. Regardless, the net impact is likely to be limited as it would merely be a change of ownership, provided the pubs remained viable and there was the finance available to run them as a pub. The possibility of pubs becoming unviable is considered below in paragraph 102.
As in option two, the main impact will be a transfer from pub owning companies to licensees. This will be the same as in option 2 with a best estimate of £102m and a maximum of £234m and a minimum of zero. As in option 2, these are transfer costs and so do not appear in the net present value figures of costs to business.
The large pub owning companies benefit from greater economies of scale than smaller independent wholesalers. In the short term these economies of scale would be reduced if licensees went free of tie. The impact would be higher costs. The size of the loss of economies of scale will depend on the numbers of pubs that go free of tie.
As it is higher volume pubs and multiple operators that are more likely to go free of tie (see paragraph 91), it is lower volume pubs that are likely to face higher costs.
In the longer term independent wholesalers may grow to replace the large pub owning companies. Alternatively, large international brewers may be able to replicate the distribution economies of scale of pub owning companies and expand their UK sales.
This option is likely to be significantly more disruptive than option 2 and so has greater potential for unforeseen consequences. The impacts could include higher costs for consumers, the exit of one of the major pub owning companies, the closure of one or more breweries and/or dominance of the market by large international brewers.
This option would still involve an adjudicator in order to address the problem of pub owning companies taking advantage of their greater information and resources. The cost of the adjudicator would be the same. Costs may be lower due to the reduction in the number of tied pubs, which attract more complaints.. Assuming the number of investigations reduces in line with the number of tied pubs, which probably overestimates the cost saving, reduces investigation costs in the best, low and high estimates by 45k (15% of 300), 30k (30% of 100) and 30k (5% of 600) respectively. This results in total costs in the best, low and high estimates of roughly £850k, £350k and £1450k respectively. The cost to business (removing half the appeal costs as in paragraph 60) gives best, low and high estimates of roughly £750k, £350k and £1250k respectively.
The cost to pub owning companies of complying with the code beyond the transfer of profits to licensees will be the same as in option 2 - a one-off cost of £1m and an ongoing cost of £1.2m per year.
In the short term there will be higher costs as a result of lost economies of scale (see paragraph 96). These are likely to fall disproportionately on lower volume pubs (see paragraph 97). This is likely to be a particular concern as protecting the most vulnerable licensees is one of the reasons for this policy. This may also lead to some pubs becoming unviable and closing.
In the longer term this cost will probably reduce as independent wholesalers or large international brewers are likely to replicate the economies of scale. If it were the large international brewers choice is likely to suffer as international brewers are unlikely to supply alternative brewers’ beers.
There is a chance that the loss of scale for some brewing pub owning companies leads them to close breweries in the UK. This would result in job and export losses.
Removing the surety of the tie would reduce pub owning companies’ incentive to invest in even the pubs that remain tied. This would particularly affect pub owning companies that are currently acting responsibly and investing in their pubs.
As in option two, the main benefit will be a transfer from pub owning companies to licensees. This will be the same as in option 2 with a best estimate of £102m and a maximum of £234m and a minimum of zero. As in option 2, these are transfer costs and so do not appear in the net present value figures of costs to business.
As discussed in paragraph 91, higher volume pubs and multiple operators may benefit from being free of tie beyond what would be guaranteed by the statutory code.
This option has similar risks to option 2 but with a significantly greater level of uncertainty as a result of the greater likely level of disruption.