Publicans 'misled' on costs of running business says MP
Publicans have been "misled" over the costs involved in running their businesses, an MP has claimed.
Tory MP Brian Binley said he had been contacted by many "distraught" tenants unhappy over lease details provided by firms such as Enterprise Inns.
People who put their life savings into a business had not been fully informed about the financial risks, he said.
Enterprise boss Ted Tuppen said he "completely disagreed" and his firm entered negotiations in "good faith".
The Commons Business Select Committee, which is conducting an inquiry into the difficulties facing the pub industry, heard there had been more than 20 unresolved breaches of an industry code of conduct setting out the information that pub firms must provide to tenants and lessees.
Tenanted and leased pubs are owned by brewers or pub companies and let out to people who wish to run their own pub business.
The voluntary code, which outlines the level of detail to be provided over rent agreements and subsequent revaluations, is designed to ensure prospective tenants and lessees have the necessary skills and knowledge to take on a pub business and to put together a detailed business plan.
Mr Binley told a hearing he had evidence the actual costs of taking on tenancies and leases were "sizeably higher" than those cited in negotiations and tenants had been "misled for a very long time".
Addressing Mr Tuppen, he said: "The truth is that on every occasion tenants went in on a promise of a return that never ever materialised and nor, as adjudged by experts, could it ever have materialised because your middle management gave the wrong information."
Mr Binley suggested the problem was exacerbated by the firm's business model which he said was "difficult to handle, particularly in a recession".
"You were over-leveraged, you are applying enormous pressure on your tenants and you are misleading them when they go into pubs," he added.
"Is that not the case? We have evidence that it is."
In response, Mr Tuppen said his firm entered negotiations about lease arrangements in "good faith" and that he urged MPs to provide any evidence to the contrary which he would investigate.
"I disagree completely that we have misled tenants," he said. "I reserve the right to fundamentally disagree with you, which I do."
All rent agreements were conducted in accordance with guidance from the Royal Institution of Chartered Surveyors, he said, and all rent approvals and tenants' prospective profit and loss accounts had to be signed off by several managers before being agreed.
Mr Tuppen said average rents levels had fallen 10% since 2009 and his firm had given rent discounts worth more than £50m over the past four years to reflect the "exceedingly difficult" trading climate.
"That was not something we had to do. It is not done out of the generosity of our hearts. It is a sensible, pragmatic approach to supporting good quality tenants."
Since October, he said only nine out of 497 rent reviews had either gone to legal arbitration or mediation by an industry dispute resolution scheme.
Brewer and pub operator Marston's said it was totally upfront with its tied tenants - who are expected to buy and sell their beer - about the financial risks they were taking on.
"Every single rent proposal we put to a tenants lay out absolute details of every single option that is available to them," said Alistair Darby, managing director of Marston's Pub Company.
"We are absolutely transparent about the combination between the rent on each agreement and the price you provide for beer as laid out in the code."
Pub firm Punch Taverns said the average rent it charged had fallen by 17% over the last four years.
Trade body, the British Beer and Pub Association, said the voluntary code of practice was still a "work in progress" and it took reports of breaches by pub firms very seriously.
However, it said enshrining the code in law should not be a priority as the industry should be focused on wider economic challenges which were resulting in up to 25 pubs a week closing.