While concentrating on freeing “Tied” pubs from some of their obligations, the government’s new “Pub Code” could have some unexpected consequences, say business rates experts at The Beattie Partnership.
It could impact how much pubs pay in business rates. The question is: Will business rates go up or down?
“Business rates are charged on a rateable value,” explains Paul Giness, one of Beattie’s partners. “That value is based on a hypothetical rental value and that, in turn, is calculated by either the floor space of the building or, more commonly for pubs, based on the income of the business.
With the new Pub Code, rents and income could change drastically, especially if the pub landlord gets a favourable rent review and develops more independently, free of tie”.
The Pub Code is a new piece of legislation that is designed to offer more flexibility to Tied landlords – i.e. pub landlords who run pubs that are owned by a brewery or Pub chain. For the first time, these landlords will have an opportunity to question their rents and buy consumables, such as beer, from competing suppliers.
“This changes the finances of these pubs considerably,” continues Paul. “And that has an impact on their rateable value. By arguing for an open market rent, the method of valuation for these pubs could also change; this could be upwards or down – it’s just too early to tell at the moment”.
Will Valuation Offices maintain that these pubs and bars rateable values should be valued on income or potentially on the new rental value of the property?
Although too early to confirm, some experts believe the effect, profit-wise, by opting for market rent will make between 2-5% increase in net profit depending on the proportion of wet trade. The market rent, if assessed properly based on viability, however, could come down on a number of pubs, because many are over rented.
“This is where things get complicated. There are a lot of variables involved with calculating the rental and rateable value of a pub. If you’re a landlord looking to challenge your Brewery-imposed rent, it’s worth having a talk to an expert to see what this will do to your rates.”
For more help regarding The Pub Code contact The Beattie Partnership on 0161 228 2224.