Wellington Pub Company, the free-of-tie leased pub operator, has criticised Government proposals to ban the use of upward-only rent review clauses by pub companies, saying that such a move risks distorting the market for commercial landlords.
The company warned of the “unintended consequences” of prohibiting the clauses, and said that if a ban is introduced it should apply to all landlords of commercial properties and not just pub owners. Wellington also warned that it could lead to less investment in, and support for, its pubs.
In its submission to the consultation on the proposed statutory code for pub companies, Wellington said the clause banning upward-only rent assessments (UORAs) is “not justified”.
“This is because, as a commercial property owning company, we should be permitted to operate like all other commercial property owning companies.
“UORAs are standard practice across the property industry and, in absence of a tie or other connection with a brewer/pubco, a commercial property company should be permitted to include UORAs in its leases no matter for what purpose the premises is used.
“If the code were to apply to commercial property companies, the provision is likely to be an important reason why they would be likely to seek to let the premises for other purposes over the medium to longer term.”
Wellington that if applied to commercial property companies, a ban on UORAs would “distort the market and lead to unintended consequence whereby companies alter their behaviour”.
“There is no basis on which to discriminate against property companies that have portfolios that happen to include a relatively large number of properties that happen to be let and operated as pubs. If the Government believes UORAs should be prohibited then a level playing field should apply and it should seek to prohibit them from all lessees (of whatever type of property).”
The company said that as a consequences of the code, “there will inevitably be instances when it will not be commercially viable to support pubs within our portfolio as the code will not only increase our costs but will give rise to a significant degree of uncertainty as to our long term income streams on which investment decisions are based”.
“Consequently, we believe there is a material risk that the consultation will be self-defeating as the current proposals are likely to lead to less investment in, and support for, pubs in the UK.”
