2020/NO.12 - Every new business start up needs detailed background research. It is essential to prove to yourself that all possible angles and options have been looked at and considered carefully before taking the plunge. Paramount are the strengths and weaknesses of the business you are taking over. Or maybe you are looking at a new venture from scratch. Very important. All good trade landlords, Pubcos, Brewers but not always private landlords will provide you with a template of a sample Business Plan to work from and assist you in the process. An independent carefully produced Business Plan is both an essential and vital business tool towards trading success. So far so good!
But these noble intentions can be both (a) manipulated and (b) at times rendered a complete joke. Let’s look at (a) first. This has reared its head in the past and more than likely will again in the near future. We have direct first hand experience of several different cases (no names of course). All strikinglysimilar. It goes something like this.
Potential tenant in the process of buying an existing tied lease. Application made for a formal License of Assignment which requires amongst other things, a detailed Business Plan. The purchase is in mid rent review cycle with the next formal review (not annual RPI) in about two years. A look at the profit and loss account reveals, after advice taken, that the rent is excessive. A rent reduction is factored into the Business Plan which aligns with the current total sales. Plan goes in but is rejected . Along comes the Pub Owning Business (POB) retail field staff member to have “a quiet word”. The Business Plan under no circumstances can have the current rent going down, If you want the pub you will have to manipulate the total sales up to a level to justify the current rent. Our man initially refuses but is told point blank that he will not get the pub on the rent downwards Business Plan. The prospective tenant with reluctance fiddles the new total sales and Hey Presto validates the current rent. He gets the pub.
As expected he then struggles to make a profit because the rent was and still is, far too high. Then comes the formal five yearly rent review and being tied, he asks for and justifies a solid drop in the current rent. Denied but why ? Because the Business Plan, which he submitted as a projection of trading success fully justified the current rent. Nearly a slam dunk until we came on the scene and successfully had the rent reduced. This is by no means an isolated incident and is still hovering in the background as the market falls away in the pandemic.
The second option is a sorry joke. Pubs Code Regulation 10 links to an MRO situation and requires a Business Plan on “entering into a new agreement”. Makes no odds that the MRO applicant has been operating a highly successful business. The requirement is that a Business Plan must be prepared in all of its glory.. The existing tenant of many years standing must knuckle down and reiterate his own success story. Also, despite having a hefty rent deposit, a new Credit Check must be undertaken. Until we stepped in together with other tenant’s representatives, the POBs had insisted that the charade must be honoured because the Pubs Code says so !
Chris Wright, our valued Pubs Code Consultant here at M&C, has had many successes in recent months securing the mode of delivery of MRO by Deed of Variation. This implies that there is no “New Agreement”. In our view a Deed of Variation is just what it says, a variation of the current agreement NOT a new agreement as would be the case if a new lease was the only game in town. Some POBs have still insisted that the Deed of Variation was a new agreement thereby further gumming up progress to being free of tie. Not exactly unexpected. This crazy Regulation 10 requirement has been repeatedly put to the PCA both by us and other pub tenant representatives. When previously the POBs insisted on a new lease this definitely made the tenant worse off by insisting on Regulation 10. The majority of the POBs when formally challenged by us in recent months have dropped the requirement for a new Business Plan and the associated credit checks. But the requirement is still contained in the ‘Full Response’ MRO offers issued by the POBs to catch out the unwary. The PCA never wanted to rule on this silly regulation in the Code and have never raised the matter with the Secretary of State. Regulation 10 still stays in the Pubs Code.