Guidance to valuers over beer-tie tenants ensures that an unfair situation is perpetuated says Brian Jacobs, accountant and co-founder, Freedom For Pubs Association.
The Trade & Industry Select Committee held its inquiry last year to confirm its understanding that tied trade tenants were not financially worse off than if those tenants had been free of tie.
Its findings, issued in December 2004 and March this year, concluded this inquiry. It found there was a substantial lack of transparency in profit assessment and rental calculation coupled with "double taking" with regard to AWP machines.
The committee concluded that tied trade tenants should not be worse off than if those tenants were free of tie. It stated that in future all profit assessments and rent computation should contain comprehensive detail, forming an addendum to the lease, thus ensuring transparency.
Given that both the accounts of two of the main pubcos, and reports from two main pubco investment analysts, show that the tied trade tenants will be financially worse off than if those tenants had been free of tie, there is clearly a major conflict between what should happen and what does happen.
So why do the tied tenants suffer? After all there are professional valuers governed by the Royal Institute of Chartered Surveyors (RICS) whom one would assume ensures the fairness to tied tenants?
The flaw is that RICS, in its guidance notes to surveyors and valuers, indicates that the tied tenants should be worse off. Its view is that rent based on half of lower profits (which are caused by higher prices for tied products such as beer) is less than half of the higher profits accruing after paying lower prices for products.
But this masks the issue because there is no transparency.
A GCSE maths student would recognise that by following its procedure it ensures a tied tenant is worse off. Unfortunately valuers in their practices follow their profession's guidance and tenants are therefore worse off. Should valuers follow their profession's guidance when they know that it is contrary to good practice?
As a result of the RICS stance, many of the country's 30,000 tied tenants are paying an excessive rent, thousands of consumers are paying too much for their pint, and I believe the pubcos are filling their pockets with income they should not receive.
At the same time it may be assumed that valuers are making commission and/or fees out of the misery of tenants, particularly through churn. Concurrently the excessive income is exaggerating property values and the share price for the pubcos.
The solution is simple. RICS should put its guidance in order to ensure tied tenants are not financially worse off.