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Abstract
This paper concerns some recent important arbitration decisions. In essence, two of these backed the profits-method valuation fon-
(a) an out of town purpose-built food pub.
(b) a fully fitted city centre unit, built as a public house and with a user clause restricted to public house or wine bar.
The third arbitration case concerned a town centre A3 unit, where the Arbitrator favoured an approach based upon an analysis on a gross internal area (GIA) basis but said he could have been persuaded to consider profits if better evidence of fair maintainable trade had been produced.
Keywords:
public houses, rent review, profits method, fair maintainable trade, open A3 user
INTRODUCTION
With the proliferation of high-street A3 over the past ten years a lot more retail surveyors have become involved with the rental valuation of public houses. The vast majority of these are agreed by reference to an analysis of gross internal area (GIA) (usually excluding stairs and sometimes, where bank vaults etc are involved, excluding structural walls). This has led retail surveyors to consider that profitsmethod valuations are a thing of the past. But this is not always so.
Licensed retailers still make their calculation as to how much they can afford for a site by reference to expected profits and the total cost of creating a business unit compared to its ultimate value to a retailer. It therefore follows that when rent review negotiations are debated the relevant strengths of a unit to be valued, by reference to known comparables, should be ascertained. An understanding of the licensed retailer's decision-making process is paramount.
There have been three recent cases which have gone to arbitration, essentially on the basis of valuation. In two of the cases the arbitrators have favoured the profits-method valuation whilst in the third the arbitrator laid down a position whereby he might have been tempted to adopt a profits-method valuation. It can therefore be categorically stated that the profits-method valuation refuses to lie down and die. It must, of course, not be overlooked that in something like 30,000-40,000 pubs which are leased by breweries and pubcos to retailers on a tied basis, rent reviews and lease renewals are agreed using the profits method. There are an increasing...