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Derbyshire pub facing 40% rent increase

Friday, December 20, 2013

GMB TELLS BUSINESS DEPARTMENT ABOUT ENTERPRISE SEEKING 40% RENT INCREASE RENT FOR STRUGGLING TIED DERBYSHIRE VILLAGE PUB

On basis of higher rent Enterprise Inns would stand to generates £52,920 from the Patternmakers Arms compared to £4,280 for the tenant per year says GMB

GMB, the union for tied pub tenants, has corresponded with BIS ministers over attempts by pub property company Enterprise to increase by 40% the rent for Claire Muldoon a tied tenant in the Patternmakers Arms, Duffield in Derbyshire. See notes to editors for copies of letters to and pdf reply from BIS.

Dave Mountford in his letter said “Claire has been in severe financial difficulties as a result of this business venture, even at the current rent level, despite increasing sales at the Pub year on year, very much against the national trend……

Claire has been on a 5 year agreement ending in April 2014. She has no automatic right to renewal and her Regional Manager, Ashley Lovett has offered her a new tenancy with an increased rent, from £16,470 to £23,450, an increase of 40%.

…..this offer, far from resulting in a £26,000 annual profit as she was told for a prospective tenant, will in fact result in a figure much closer to £5,000 and this on the basis that any tenant would have to be operating at an assumed optimal efficiency throughout their 5 year agreement.

……..that Mr Ashley Lovett has knowingly arrived at this rental figure with scant regard to the Royal Institute of Chartered Surveyors guidelines, therefore breaching Enterprise Inns own Code of Practice, at a time they are under the upmost scrutiny.

So to summarise using figures that I believe favour Enterprise rather than their tenant, Enterprise Inns generates £52,920 from the Patternmakers Arms compared to £4,280 for the tenant.”

End

Contact: Dave Mountford or Claire Muldoon on 07792 198954

Notes to editors

Copy of GMB email to Vince Cable 3rd December and reply from Jo Swinton 17th December

Dear Dr Cable

Up until the summer of this year I had been involved in your consultation regarding Pub Company’s and their relationships with their tenants.

I decided to take something of a back seat in the consultation process and concentrate on my wife’s busy free of tie Pub. This decision was prompted by the launch of the Fair Deal for Your Local Campaign (FDFYL) but also one of my other reasons was my abject frustration at the apparent continual tactics employed by large Pub Companies who put every barrier available in the place of tenants with the goal of ignoring, delaying and ultimately wearing down those who dare raise their grievances with their landlords. This often resulting in tenants running out of energy, money or both – something I have witnessed too often to be described as anything other than a deliberate tactic. I have a simple view of this industry having witnessed it at close hand and feel that I have yet to see a reasoned response by anyone at any level as to the logic behind the tied model and the way it is practiced.

However I was recently contacted by an Enterprise Inns tenant and felt, whilst her situation was far from unique I would give you one further example of how this business model is practised, even whilst Enterprise are under the upmost scrutiny and as she was local to me and willing to provide her case as evidence, I felt I should write to you.

Claire Muldoon currently runs the Patternmakers Arms in Duffield, a Village very close to my wife’s Pub in Cromford. Her pub is one of three in this small village, the other two being on the main A6 and both being free houses.

Claire ran the Patternmakers for 2 years on a TAW and then from  2008 she has been on a 5 year agreement ending in April 2014. She has no automatic right to renewal and her Regional Manager, Ashley Lovett has offered her a new tenancy with an increased rent, from £16,470 to £23,450, an increase of 40 %.

Claire has been in severe financial difficulties as a result of this business venture, even at the current rent level, despite increasing sales at the Pub year on year, very much against the national trend. In 2010 her previous Regional Manager suggested that Claire speak to Bridgewood Financial solutions who put Claire on an Individual Voluntary Agreement (IVA), despite their being a clause in Enterprise leases which allows them to seek forfeiture should such an arrangement be in place. Despite this, Enterprise  have decided that Claire should be given first offer on the Patternmakers Arms and have given her 7 days to decide before the same terms are placed on your company’s website.

I will attempt to explain to you how this offer, far from resulting in a £26,000 annual profit as she was told for a prospective tenant, will in fact result in a figure much closer to £5,000 and this on the basis that any tenant would have to be operating at an assumed optimal efficiency throughout their 5 year agreement.

I will also attempt to demonstrate that Mr Ashley Lovett has knowingly arrived at this rental figure with scant regard to the Royal Institute of Chartered Surveyors guidelines, therefore breaching Enterprise Inns own  Code of Practice, at a time when  is under the they are under the upmost scrutiny.

Finally I will demonstrate that Enterprise is in fact making 3 times the profit that Claire could ever hope to achieve from this Pub.

1.         Rental Offer – Fair Maintainable Trade (FMT)

I have enclosed the “pub business fact” sheet provided to Claire by Mr Lovett, and you will see that the Fair Maintainable Trade figure is 229 barrels, which appears to be an average of the last 3 years actual trading barrelage. You will also note that the draught barrelage figures for the last 6 years are as follows (below)  You will be aware that, RICS guidance outlines that FMT is supposed to be established having regard to comparable evidence not simply a reflection of what is being achieved.

Year to April 2013                   243

Year to September 2012         236

Year to September 2011         213

Year to September 2010         177

Year to September 2009         196

Year to September 2008         167

Therefore Mr Lovett is effectively saying that any reasonably efficient operator of a small community local in a small village with 2 much larger free houses in close proximity should have increased her volume by 62 barrels on 2008 levels after which we have seen the worst financial depression since 1929 and beer volumes are down by 12 % in the same period.

Mr Lovett is clearly in my opinion using Claire’s own trading figures, and by definition of Claire’s year on year growth and consistent inclusion in the Good Beer Guide, cannot be seen as being an “average operator”.

Actual Trading Profit

I have carefully looked at the trading figures on Claire’s actual situation and arrived at the following figures. I have made assumptions based on information available through Enterprise Inns website and ALMR benchmarking and will explain those as follows:

Turnover

Current 2013 levels gross figures £4,500 per week

Profit Margins

48% Margin- 80 % real ale and lager, selling price based on current discount    (£50.00 per barrel selling prices at current levels – e.g. £3.20 Pedigree). Assumes 100% yield – no wastage.

Costs

Costs   33%: Using normal Enterprise 37 % cost of sales and deducting 4 % for contractual costs and using ALMR/BBPA benchmarking figures.

Current Turnover (net)                                                £195,000

Net Profit before costs x 48 %                          £93,600

Costs x 33%                                                                  £64,350

Contractual Costs                                                          £8,500

Rent                                                                               £16,470

Net Profit                                                                     £4,280         

So to summarise even using extremely generous figures which favour Enterprise tremendously the Patternmakers will generate a profit of £4,280. If we then look at the rental figures Mr Lovett has proposed (£23,400) this will reduce this profit to a loss of £2,650.

Enterprise discounts

It has been widely publicised, and I believe generally accepted that the average discount achieved by large companies such as Enterprise in excess of £250 per barrel. However for the sake of argument I will use a much more generous figure of £200. In this instance Claire has been granted a discount figure of £50 per barrel which equates to £150 per barrel Enterprise profit.

Simplistically then using what I would consider to be generous figures your earnings from the Patternmakers are as follows:

243 Barrels      x    £150          =          £36,450

Rent                                                    £16,470

Total EI earnings                     =          £52,920

So to summarise using figures that I believe favour Enterprise rather than their tenant, Enterprise Inns generates £52,920 from the Patternmakers Arms compared to £4,280 for the tenant.

I would also like to point out that Mr Lovett has provided figures with no shadow Profit and Loss and no comparable data which is directly in contravention of the Enterprise Code of Practice. It is also worth noting that I would ask the question, is this trend for short term 5 year agreements, really an opportunity  to avoid Landlord and Tenant renewal rights which circumvent the normal procedures for renewing tenancies?

Finally I would just like to make reference to the seemingly new “contractual costs”. All of these costs are higher than the same costs at my wife’s free of tie Pub, costs which have been sourced by herself. I would have expected that with the tremendous purchasing power afforded to Enterprise Inns, these costs would be lower and therefore could possibly have been a part of the “countervailing benefit”, we hear so much about, but see such little evidence off. However as they are in fact higher than that achieved by a sole trader in the same geographical area, I can only assume this is a further example of a source of profit for this Company.

I recognise that this letter may arrive too late to make any difference to decisions already made following on from your consultation, but hope it provides further evidence, if it is needed of the desperate need for legislative reform

Yours sincerely

Dave Mountford Branch Secretary GMB Matlock

Reply from BIS of 17th December attached as pdf

 

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Additional Resources

Reply from BIS of 17th December as pdf

download pdf61Kb (pdf) - 20 December 2013

Reply sent to Mr Dave Mountford by BIS