Friday, June 06, 2008

Being Pushed Over a Barrel by a Pubco Rent Review

Martin. 'Agreed' is the point. A tenant is in the effective position of not being able to agree or disagree with a rent set by the PubCo; the stakes of review are so high that in effect, there is no bargaining position for the lessee with only one pub which is their home, job, pension plan, future, income and security. In each of the two rent reviews I’ve been through I’ve used representatives but also talked to the PubCo directly myself.

On first review they wanted around 130% increase - which would have bankrupted me. I was told this six months before due date. PubCo had no one available, in their whole organisation, for me begin to negotiate with until after the due date because their property manager was ‘too busy with acquisitions'. The first rent discussion was over a month past the due date by which time a back rent bill, if they succeeded in getting what they said they wanted and assured me they would get, was already stacking up alarmingly. By the time they appointed a third party to handle the review from their side the back rent bill was into the tens of thousands. By the time they reduced their expectation and made an offer of only a 68% increase - take it now or it will go to arbitration - a process I literally could not afford to fund anyway - I was in such fear of the consequences of not settling, I agreed to it, knowing that £22,500 back rent - I didn’t have - would be immediately due, on top of a £1,200 monthly increase. I hadn’t been able to put aside rent money because I'd been continually investing in the premises, doing work that absolutely needed to be done, out of cashflow.

While I tried to negotiate a year to pay the arrears the PubCo riposte was continually ‘you must pay immediately’, ‘we’ve listened to your sob story, it’s not our problem’ ‘you are in default and we could have kicked you out already’ ‘if you don’t pay within three weeks we’ll send in bailiffs’ – you know, that kind of mutual partnership working together we understand your position kind of thing. I still owed £4,000 six months after my capitulation having paid £18,500 out of cashflow. This was possible primarily because I had great relation with all my other suppliers and they let me extend credit, and, as promised, PubCo did send in the bailiffs to take an inventory. I borrowed the money from a friend. It took redundancies, a complete change in the way we operate the business, a total halt in investment and at least two years to recover financially.

The next review took rather a similar tack. Initially told six months before due date that they wanted a £28,500 increase. I considered myself lucky because this was only about 50% more than I was paying after their last success in taking all my profit away. Again, there was no one to negotiate with on their side because their property manager had emigrated to Canada (anyone reading this know who that was? He’s back now). Eventually I had a meeting with a new man thirteen months after getting the increase letter and seven months after due date when the total back rent I would owe if they won was already over £16,000 again, money I didn’t have. At this meeting we discussed the surrounding trading and competition issues, comparables, sales volumes and split and so on.

He did some maths to get a proper rental figure on a piece of scrap paper, pushed it toward me saying ‘there you are, we owe you money’. The figure was £7,000 less than I had been paying for the last five years. This, naturally, was just some weird PubCo mental mess with the tenant’s head technique which I’ve never been able to fathom but I’ve seen on too many occasions for it so be just chance, It’s part of the standard training manual on how to beat down the lessee.

It took another six months for PubCo to make any reduction on their initial offer, which was rejected, and another month or so for them to come back with another offer which was ‘only’ a 10% increase. That offer came as an email with ‘happy Christmas’ ending it (it was near Christmas). This time I was not going to be bullied into accepting a review that would only put more strain on the business when we were struggling to pay rent already – because it was already too high. The case then went to arbitration. Another long drawn out process which took another year (as I write I’m finding it hard to believe even myself) by which time the potential back rent bill was into the tens of thousands with the arbitrator’s fees, my own fees and PubCo fees combined amounting to well over 100K. Calderbank offers meant that if the arbitrator came in with a figure nearer their offer than my offer, I would be liable for ALL fees. Eventually Mr Arbitrator did come back with a figure closer to their side. I got a call from Mr PubCo rep who said ‘it is sad’ that I would have to pay for everything. Fortunately for his emotional stability, we found two things in the Arbitrator’s published awards that we believed we could take leave to appeal against and we did.

The Appeal went ahead and took another seven months to be heard. The hearing was almost three weeks ago now and, for the first time in four years, I have been able to reflect on how sometimes Justice is done in these situations and, for the first time in thirteen years, feel that something I have done with my business has turned into a real success instead of into another way for the PuBCo to charge me more and more for the privilege of their allowing me to spend 200K on their building in the first place.

All the awards The Sun and Doves has won or received, the accolades at times, the local standing I have in my community for being a 'pioneer' in south London business for opening up an unrecognised market south of the river - everything that any person should feel, and believe to be great achievement , have been overshadowed by my continually being financially pressured with the PubCo's actions essentially succeeding to make me feel like a total failure, personally and financially. With my PubCo there has been NO practial, tangible evidence of partnership working or any form of constructive support whatsoever. Just 'you seem to have a problem with having too many staff on rota' 'you should be looking at your margins more' 'your wages bill is too high' and little moments of encouragement like 'you should stack Holsten Pils in your bottle coolers in columns of three. It's called three and three display'. When we hadn;t been stocking Pils for maybe two years and he was looking at the fridges that were full and didn't have any Holsten Pils in them. That was a real help.

Ken, really glad to see that you're coming round to a Fair Pint.

"The tied tenant should be no worse off financially than if he were free of tie" is not a point of law but it is a principle that should be used at rent review.

I get a "generous" £42.20 a brewer's barrel discount from my PubCo. In the past week I have received five beer supplier quotes for supplying an identical pub to mine, in London SE5, same volume a year, which is free of tie but has exactly the same sales split as mine. It's called Sol Y Palomas. The worst, least competitive quote comes in at just over £100 a barrel discount. There is one at £140 a barrel discount (this from a company wholly owned by my particular PubCo (thanks for that Andy by the way)). And the best pitch comes in at £170 a barrel discount (36 gallons) from a brewer that owns no pubs.

Funny that isn't it? How the PubCo says their £42.20 is generous? I haven't noticed anything from their side that could be counted as countervailing benefits.

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