Why try to justify the 'unhappy status quo'?

Wetherspoon founder Tim Martin challenges the claim of Davis Coffer Lyons' Tim Munden (Tenants are key to pub rent levels​ that it is tenants who have set rental tone in the high street.

Those philosophers interested in the issue of ethics and the property industry will have read with incredulity the response from Tim Munden, of Davis Coffer Lyons, to my contention that rent review comparables for high-street pubs had been heavily influenced by fraud and were, therefore, unreliable.

I had contended, in addition, that these fraudulent transactions had led to unsustainable rents across the sector, contributing to the collapse or restructuring of a large number of high-street pub companies.

Indeed, no sooner was the ink dry on Mr Munden's response than Regent Inns, for a long time a toe-to-toe competitor of Wetherspoon (JDW), went into administration, jettisoning in the process a clutch of over-rented pubs, including one in central London at the absurd rent of just under £1m per annum.

The moral and legal abyss in which some practitioners operate is implicit in the following paragraph from Mr Munden: "The diversion of freeholds to third parties (whether fraudulent or not) does not necessarily lead to high rents because it is ultimately tenants who determine market levels."

In other words, according to Mr Munden, even if Wetherspoon was fraudulently advised by its retained agents Van de Berg to pay over the odds for a property, the subsequent rental is still a valid "comparable" for rent-review purposes because "it is ultimately tenants who determine market levels".

This is a farcical and ludicrous assertion that has no legal basis. For example, in the Van de Berg (VdB) case, a property in Folkestone was widely offered by the receivers at a freehold price of £150,000. The VdB directors fraudulently diverted the property to a third party, who sold it to JDW for £400,000 on the same day they bought it, making a risk-free profit of £250,000.

It cannot possibly be asserted, as Mr Munden tries to do, that the correct market value of the Folkestone property was £400,000 just because JDW was duped into paying this amount by VdB. The true market value, as any rational observer would realise, was £150,000.

The second and equally startling proposition from Mr Munden is that sale and leaseback transactions, rather than the fraudulent diversion of freeholds, which occurred in the VdB case, are the root cause of the high-street pub malaise.

Since Mr Munden's partners, Davis Coffer and Anthony Lyons, were the biggest individual players in the sale and leaseback market through their company St James Capital, it seems bizarre, to say the least, for Mr Munden to adopt this line.

St James Capital, after all, was the company that agreed the rents, which, according to Mr Munden, wrought so much damage.

As a consolation, there is some agreement on one important issue: Mr Munden says he has "no quibble" on my point about the rules and ethics surrounding estate agents who also act as principals in property transactions. In this area, I propose that "agents acting as principals should be formally required to disclose their interests to all parties... and a publicly visible property register should be established to record the property interests of estate agents". It will indeed be an important step forward if the partners of Davis Coffer Lyons, an influential firm in the leisure market, support this initiative.

Finally, Mr Munden states that he has been "at the vanguard of this emerging sector since the beginning", but this is not a proud boast, since virtually the entire sector has gone down the pan.

Regent Inns, SFI, Laurel, Brannigans and Yates's are just a few of the companies that have been caught up in the maelstrom.

In addition, all the major pubcos, including Wetherspoon, Mitchells & Butlers, Whitbread and a host of regional brewers, are unwilling to take on new leases with open-market rent reviews, having had their fingers burnt in the past.

Instead of justifying the unhappy status quo, and adopting the morally and legally unjustifiable argument of stating that fraudulently induced rents are valid comparables for rent reviews, Mr Munden should be asking why the high-street rented pub market has caused so many disasters for so many people.