How much is a pub worth? The Lib Dems don’t know

I don’t like people telling me what to do: very probably you are the same. I don’t just get angry at people telling me what to do: I also get angry when people try to tell other people what to do, arrogantly and without cause, people like James Watson, who holds the position of East London Pubs Preservation Officer for the Campaign for Real Ale.

I live in a nice Edwardian house that has a covenant in the original deeds which declares that it can never be used as licensed premises. Do you think that’s wrong? I think that’s wrong – it’s my house, and within the limits of the law, I should be able to do what I like with my own property. If I want to turn it into a freehouse called the Duck and Dive, then – provided I don’t inconvenience my neighbours more than is reasonable – that should be my right.

Turn that covenant on its head, and any major restriction on my right to do what I like with my property within the bounds of the law applies just as much – that is to say, if there were a covenant on this dwelling saying it could only ever be used as a pub, that it must be a pub for all time, that would be just as wrong. It’s mine, I own it – don’t tell me what to do with it.

James Watson, however, disagrees. A gentleman called Sandeep Johal has bought an old Victorian pub called the Prince Edward, in Wick Road, Hackney. I’ve never been in it, but from the outside it looks like a pretty typical East End boozer. Mr Johal wants to knock it down, and build a five-storey block of nine flats in its place. He owns it – it’s his property, and within the law, surely he should be permitted to do with it what he likes. Nine flats in Hackney – sit down now if you’re reading this outside London, but flats in E9 can go for anywhere between £500,000 and £750,000 each. I’d guess that even after the cost of acquisition and building, Mr Johal would be looking at a profit of £3 million or more, minimum. Is anyone going to pay him £3 million more than it cost him to acquire the Prince Edward, just to keep it open as a pub? Is he going to make £3 million in rent in any time under 30 years if it continues to run as a pub? (Clue – no, twice.)

Hackney in the days when there were more sheep about than hipsters

Hackney in the days when there were more sheep about than hipsters

Mr Watson says otherwise. He told the Hackney Citizen “The only reason [Mr Johal] wants to bulldoze this pub and build flats is for short term financial gain for himself” – James, you’re saying that as if it’s a bad thing – “at the expense of this community, and as a representative of a consumer rights organisation that champions responsible drinking, I think that stinks.” As a member of that same consumer rights organisation, and as a strong supporter of responsible drinking, I can’t see what either consumer rights or responsible drinking have to do with someone’s right to do with their own property what they want to.

According to the Hackney Citizen, Mr Watson then went off on a rant against hipsters, apparently based on the fact that the Prince Edward’s customers are largely working class and, in considerable part, of West Indian origin. The Citizen quotes Mr Watson as saying: “The problem with gentrified hipster Hackney is that you leave other people behind. You leave behind working class, dare I say poor, downtrodden people. [You may dare say, James, but I fear you sound like a pretentious, patronising prat for so daring] These are salt of the earth people who are not going to pay £5.50 for a bottle of craft beer. They want to be in a place where they recognise the food offering. Many of these people’s parents and grandparents have been coming here and marking their life events here for years. They are almost the forgotten people of Hackney, but these people are council tax payers and they have been here a lot longer than the hipsters.” There you are, Mr Johal: the rights of the people to eat sausage, egg and chips and drink cheap beer trump your right to do what you want with something you bought.

I love pubs, and I hate pub closures just as much as James Watson hates pub closures. (I quite like hipsters, though – I like the way they’ve brought the dimpled beer mug back into fashion.) I’m as sorry as James Watson is that the people of Hackney look like losing a place that has been a part of their lives since the 1860s. But the idea that because a building is or has been used as a pub, that makes it special and privileged, and deserving of protected status is nonsense. It’s just the same nonsense that saw the self-styled “pro-pub party”, the Liberal Democrats, pass a motion at their spring conference in York a couple of weeks ago under the title “A Better More Sustainable future for British pubs”, proposing to give pub tenants the right to buy their freehold at an independently assessed market value if their pub company puts the site on the market. But “market value” as what?

A premises might have a market value of £500,000 as a pub, since the returns on its usage as licensed premises would only support that valuation, but a value much more as a supermarket, if the returns on its use as a supermarket supported that value, and a value of millions if it was a suitable site for conversion into a block of flats. If the law the Lib Dems want brought in says the tenant can only buy his pub’s freehold at a price that reflects its higher value as a supermarket, or a block of flats, then if he buys it, he is going to struggle to cover his costs trying to run it as a pub. If, on the other hand, under the Lib Dem proposals, he can buy it at its value as a pub, but it is still worth more as a supermarket, or a block of flats, the first thing any smart tenant will do is flog the pub to Tesco, or a property developer, himself, thus (1) transferring hundreds of thousands of pounds of value from pubco to tenant and (2) still losing the “community” an “asset”. Is this really what the Lib Dems want?

The debate about “protecting” pubs from closure is conducted as if there were only a finite number of sites capable of ever being pubs, and every pub that becomes a supermarket, or a private home, or even a coffee bar means a permanent reduction in the number of pubs there could ever be. But this is total nonsense, of course: even in the days when it was much harder to open a new pub than it is now, Tim Martin, to name just one entrepreneur, was putting up his signboards on premises that had all sorts of previous uses: banks, cinemas, shops, post offices, and the rest. The same process is still going on, all around the country: the micropub movement, for example, has seen pubs open in premises that were formerly, to pick just a few examples at random, a butcher’s shop, an antiques shop, a taxi firm’s offices, a hairdresser’s, a dry cleaner’s, a pharmacy, a tattoo parlour, a kitchen showroom, a bookshop, a launderette, a bakery, a health food shop … you are, I’m sure, getting the picture. There are even a couple of micropubs opened up in premises that had been pubs originally, but which had closed 80 or 100 years ago. If the will, and the demand, is there, pubs can spring into being almost as easily as nail bars and tattoo parlours, kebab outlets and coffee shops.

Pubs don’t need their existence protecting by legislation because, as has been demonstrated hundreds of times over the past couple of decades alone, if the demand is there a pub will arise, and if the demand isn’t there, a pub will close. People get emotional when they read headlines that say “Village loses its last pub”, but almost every time the pub is closing because villagers aren’t using it in sufficient numbers – and if there really is genuine demand, there is little or nothing to stop a village entrepreneur opening a new pub, micro or otherwise, to replace the one that is closing. A pub is not an irreplaceable asset, the way a Norman church is.

If a pub is truly an “Asset of Community Value”, as defined by the Localism Act of 2011, then the community will be showing how much it values that asset by walking through the door and spending enough money every week to dissuade any pub owner from closing it. Truly thriving pubs, pubs that make more money as pubs than they would do as anything else, don’t need protection. It will be argued that many pubs would thrive without the overheads of the pubco on their backs: but this ignores the very considerable support, visible and invisible, the pub receives from the pubco, and the fact that any tenant buying a pub from a pubco won’t be getting that support and will now have the overheads of his new mortgage-provider on his back instead. It will be argued that some pubcos, desperate for money because their bondholders are putting the squeeze on, will sell even a thriving pub to a supermarket if it can get that quick hit of much-needed cash from the sale. But again, just as nobody will run a pub if they can make more from it as a supermarket, a supermarket operator isn’t going to run a supermarket in premises that would genuinely make more as a pub.

It will also be argued that in places like Hackney, the price of property is a threat to every pub, that the money to be made from redeveloping each and any pub site into blocks of $500k-a-pop flats means even the most thriving pub is in need of protection. That may be true, though I note that even around Oxford Street, where rents are truly shocking (this is no hyperbole – I saw a room full of experts literally gasp a couple of weeks ago at the news that the rent on an Oxford Street restaurant site was £2.3 million a year), pubs still manage to stay open. But I still don’t believe that if a building is a pub, it must be a pub for ever: I cannot see how somewhere that was operating as a nail bar, for example, suddenly becomes privileged because it has been turned into a pub. And I strongly believe that the only results of the Liberal Democrats’ new policy would be either to persuade some pub tenants suddenly able to buy the pub a pubco wants to sell to try to keep unviable pubs going at their own expense, with every likelihood of failure, or to rob pub owners of much of the value of their pubs and hand it to tenants for nothing, while still ending up with a closed pub.

(Parts of this rant appeared on the Propelinfo.com site on March 14 2014)

0 thoughts on “How much is a pub worth? The Lib Dems don’t know

  1. Hi Martyn – two points that might put a bit more light and shade into the “rant” (your description, not mine): first, it’s not the case that merely owning a property does (or should) give you the right to do with it as you please; the planning system exists to protect people from being disadvantaged by the actions of their land-owning neighbours, and it’s a good thing it does, too. You probably wouldn’t get change of use permission to change your front room into a pub, any more than I would to add an extra six storeys to my house complete with battlements and crenellations. The debate here is not *whether* planning measures should restrict landowners’ ability to do what they please with the buildings on their property, but rather about *what* should and shouldn’t be subject to third-party approval – and there’s nothing particularly weird in someone calling for restriction on change of use from public house to something else, given that there are restrictions on change of use from something else to public house, as it were. It is, of course, weird, that this change of use restriction appears to be in some cases implemented by going round the houses via ACV rather than just by a change to planning law, but that’s peripheral to your argument as I understand it.

    Second, it is definitely true that some of the major owners of pub freehold in this country are engaged in selling off a proportion of that estate each year so their own business can stay afloat. (Some of these pubs, including the Ivy House in SE London, which was the UK’s first pub ACV, were indeed making money as pubs, and strongly supported buy the local community, at the time of closure.) It’s rarely as simple as “whether or not the pub is paying its way”, since the decision for the company that owns the freehold is between (i) the long-term gain of maintaining the revenue stream that goes with the continued lease of the pub or (ii) the short-term gain of realizing the value of the asset by selling it off to the highest bidder. The latter loses them the revenue stream but massively increases their liquidity in the short term. Unfortunately, the current situation is that (i) (as a long-term consequence of the Beer Orders) a large proportion of UK pub estate is owned by companies which do not make and sell their own beer, and consequently have no long-term vested interest in maintaining a network of pubs as outlets for their own product; (ii) many of those companies are in such poor financial health that a steady sell-off of assets is probably the only way for them to stay in existence from year to year; (iii) the “highest bidder” in any sale of the freehold of a non-ACV pub is almost certainly going to be someone who wants to turn it over to residential or supermarket use – especially given that planning consent is not required to convert from pub to supermarket, and often waved through for conversion from pub to flats.

    There might be a sensible discussion to be had about what level of third-party intervention in pub change of use is desirable, and about what is the fairest way to adjudicate between the interests of rival parties – but the idea that the owner of the freehold of a piece of land has the right to use it for whatever commercial or non-commercial purpose they please is an obvious non-starter. And – with the greatest respect – the structural deficiencies within the ownership structure of the freeholds of UK pubs need a more careful treatment than simply “if it’s making money, the pubco will keep it open”, since often the pubco is not the same company that owns the freehold, and it’s the owner of the freehold who makes the decisions about any possible sale. (Again, compare the Ivy House: previously run by a small local pubco, who were as dismayed as anyone to be kicked out at short notice by the owner of the freehold as they liked running a business there and were turning a profit.)

    I hope that in turn doesn’t come across as too much of a rant!
    h

    • Howard, thank you very much for contributing to the debate. Of course we need planning laws, but the argument that there are restrictions on turning something into a pub so there should be restrictions on turning a pub into something else doesn’t cut it, in my opinion. For a start, it has been cogently argued that a big part of the problem the pub industry faces in the UK is precisely the restrictions placed in the way of people wanting to open new pubs – see Government Intervention in the Pub Industry ((Spicer, Thurman, Walters and Ward) pp245-7, and elsewhere. There should be far fewer restrictions on turning premises into pubs, and conversely there shouldn’t be any restrictions on turning pubs into something else. A pub should not be a privileged use.

      You’re right, of course, about big pubcos having to sell a proportion of their pubs right now to stay afloat. But even before their current woes, they always churned the bottom end of their estate, selling off the poorest-performing ones to get money to buy better ones. So pub sell-offs, I suggest would still be happening, whether the pubcos had huge debts to cover or not. And I’m sure that the Ivy House was making money for the people running it. But was it making as much money for its ultimate owner as the ultimate owner could have made if the premises were being used as something else other than a pub? (I don’t know, I’m just asking. But I presume not.)

      In addition, I fear the evidence says you’re wrong that in the days when the big brewers owned most of Britain’s pubs, they would keep them open and not sell them for other uses because they wanted to sell their beer in them: the big brewer sold thousands of pubs for alternative uses, because the money they were making from them didn’t match their value as something else. It was precisely the mismatch between the value of so many pubs as pubs, and their value as something else, that prompted the big property tycoon Charles Clore in 1959 to make a bid for Watney Mann, a bid which, in part, helped push the series of mergers in the 1960s that saw us end up with the Big Six brewers. The big brewers, if they were around, would be selling off pubs, I suggest, just as much as the big pubcos.

      A company’s prime responsibility is to its shareholders, the people who put up the risk capital that underpins the enterprise. That responsibility includes as a major part ensuring the company makes as much return as possible out of its assets. If the company owns a pub, but can make more money selling that pub to a supermarket, it’s irresponsible of it, from a shareholder’s point of view, to keep those premises open as a pub. I’m a believer in the idea of companies having wider stakeholders than just their shareholders, and those stakeholders certainly include the communities in which a company operates. But I don’t believe a community has the right to dictate to a pub owner that it must keep a pub open as a pub, to the detrimentof the people who risked their capital by becoming the pub owner’s shareholders. And if pub owners WERE forced to keep pubs open that brought them lesser profits than they could potentially make, and as a result smaller dividends to give to their shareholders, giving them smaller returns on their investments, those shareholders would leave to invest in firms where they could get better returns, the pubcos’ share prices would plunge, they would be unable to raise capital to invest in their estates, more profits would have to be diverted into dividends to gry to keep the shareholders, rather than used to maintain and improve the pub estate, and we would be left with lame-duck pub owners and thousands of increasingly dilapidated pubs.

      The biggest problem facing pubs in this country is not the structural deficiencies of pub ownership, not supermarkets selling beer much cheaper than pubs can, not stupidly high taxes, not people being keener today to stay at home rather than visit their local, but the high price of property. It’s the high price of property that makes it more worthwhile demolishing the Prince Edward and building flats on its site than running it as a pub. It would be wrong, however, to argue that market forces must be repelled by freezing the usage of a premises as a pub forever. Tim Martin at JD Wetherspoons has shown that you can turn any premises into a pub, and the growing micropub movement is doing exactly the same. (I have yet, incidentally, to see anyone argue that micropubs are a threat to other pubs the way they argue that Wetherspoon’s is). Pubs are not privileged, or irreplacable, and to try to make them privileged not only harms the rights of their owners to do what they want, within law, with their property, but runs the serious risk of keeping pubs open where, economically, they are unviable, and as a result lowering the viability of other pubs by spreading the available trade too thinly.

      • Hi – thanks for the response Martyn! I think that, as long as this debate is conducted in terms of “whether it’s more profitable to do X than do Y”, or “whether a company can make more money by doing X than Y”, it’s not going to get to the bottom of it. As I understand it (and more competent contributors can confirm), if a pub is correctly valued on a company’s asset sheet, and sold for what it’s worth, then that does not show up as any kind of net profit whatsoever, as value of cash received is cancelled out by value of asset lost – but it *does* give the business a boost in terms of liquidity which may enable it to service debts in the short term. (In fact, if the pub is overvalued on the balance sheet then its sale will count as a loss even though it releases more funds into the company cashflow) So it’s not that we have people sat around thinking “hmm, what is the most profitable use of this building – pub, flats, supermarket?” Rather, what they’re doing is trying to find ways to maintain liquidity at (presumably) the detriment of the long-term profitability of the business – in effect, shrinking their business to stay afloat. And of course, if pretty much every pubco is doing this at the same time, the only candidate buyers for pubs are people who want to convert them to other use.

        • also nb – nothing I said implied that I thought the behaviour of pub owners pre-Beer Orders was okay; just that the behaviour of the current ones is understandable on the basis of the slightly strange financial circumstances they’re in.

        • “what they’re doing is trying to find ways to maintain liquidity at (presumably) the detriment of the long-term profitability of the business” – not really, or necessarily. Value (and sale price) ought to equal the net present value of the discounted future profit obtainable from the property. If they’ve worked it out properly, they should be selling it to the supermarket (or whomever) at a price equal to or greater than the present value of the future profit they would have got if they’d kept it. In which case there’s no harm to their profits: they have got a sum equal to what they would have got in the future, counting in the returns available from having that money now and not in ten years. I agree they may be selling properties cheaper than they ought, to raise needed cash now, but the only people with the evidence for that are the pubcos’ estates departements.

          • “Value (and sale price) ought to equal the net present value of the discounted future profit obtainable from the property.” I don’t understand the “ought” here: is this as in, accountancy ought to be run differently from how it actually is? In standard accounting, you can either charge a depreciation expense on your asset each year, leading (in a buoyant property market) to the asset being valued below its market worth in the balance sheet – which obviously means you write down a dummy loss due to depreciation in your annual profit and loss statement – OR you revalue the property by instructing a surveyor to perform a valuation survey at year end – which of course is done on the basis of current likely market sale price. Market value might track future profit of your particular business, or it might not depending on how overheated the property market is. I’d imagine that most pub owning companies would prefer the option of annual revaluation as it keeps their profits and assets looking healthier, plus it’s a more accurate picture of the net worth of the business. You just don’t get to value an asset like a pub freehold within your balance sheet merely on the basis of your best guess of how much you think it’s probably worth in terms of future earnings – that would open the door to all kinds of dodgy accounting!

            The idea that there is “no harm to profits” in selling an asset at market value is a red herring: the only profit you *can* realize from doing this is the difference between what the asset is valued at in your books and what you actually get in cash – so in most cases the sale of an asset is only marginally “profitable” so long as the books are kept in good order in the first place.

            BTW – if you’re actually worried about *profit* rather than cash flow, you can achieve a “profit” without actually selling the premises: just get it revalued by a surveyor to show that it’s worth more than it used to be, and that will enter your books as net profit.

            Pubcos sell pubs at market value (what they can get for them) – which is a figure only obliquely related to the possible future profitability of a pub business in those premises – doubly so in a planning market where conversion to flats is easily granted.

          • Howard, Martyn was making an economics argument, not an accounting one. He defined the value of an asset properly as a theoretical economist would, which has virtually no correlation with how it appears on the books.

      • “Of course we need planning laws”

        I dont agree with that premise.

        I much preferred your wording in the article, although I would make an exception for covenants, as those are agreed to at the point of purchase. If you dont want the covenant dont agree to it (buy somewhere else).

  2. An interesting point Martyn, which I can broadly agree with but not in such a black and white way as you. Let me raise a few caveats to show why:

    The argument against restrictions
    I wonder, if your immediate neighbour wished to turn his house into a nightclub, or strip bar or go-kart track, would you be just as supportive of his inaliable right to do so, even if there were concrete safeguards regarding any direct, measurable annoyance to you? I find that people with such open views tend to change them somewhat when it affects them directly (staunch supporters of wind power when faced with a 300′ turbine in their own back garden, for example).

    The argument against history?
    Ignoring the irony of a well-known pub historian arguing against any historical importance of a pub, are you really saying there is no argument at all for protecting the historical significance of a building? They recently found a sole-surviving example of an early Industrial revolution ‘domestic’ workhouse in Manchester (which is basically now somebody’s garden shed) and have applied grade 1 listed status to it; should that homeowner be allowed to knock it down to make way for a kitchen extension because it’s their property?

    The argument for profit?
    Of course profit is very important but whilst it might be the number one concern for business, and quite rightly so, society would collapse if it became the number one concern above all else. There are two problems with your thinking. Firstly, businesses generally confine themselves to their own area of expertise, so whilst you say a supermarket wouldn’t build on the site of a pub that was more profitable as a pub, that’s extremely naive? They couldn’t care for the profitability of any other use, as long as it offered them a profitable supermarket? But secondly, if profit were allowed to dominate in any decision, how could you deny a farmer the right to turn his extremely restrictive green-belt fields into lucrative multistorey car parks? There must be barriers to profit for society to exist, where history, or a great view, or species protection override profit potential (to name just a few obvious examples).

    The argument for common sense?
    If you buy a particular building or business then there must of course always be an opportunity for change but, equally, there must surely be a natural reluctance for such change built into law? And the ease of getting such change should be dependant on how intertwined that building’s use is with society, regardless of whether the importance is physical, moral, practical, emotional, etc? So, if you buy a nail bar, there isn’t much legal argument against converting it into a hairdressers but if you buy a museum, there should be more protection? The argument for pubs then moves on from “should change be allowed” to a more reasonable “where on the reluctance scale should a pub’s change of use sit”?

    Maybe one way of getting around this problem is to make any potential developer apply for change of use before purchasing any building, if they plan to change it? That way, their motivation is clear to all from the start and it puts the pressure on the current owner to justify the change? There could be a clause automatically preventing change of use applications unless the current owner has already operated the building in its current form for a defined period, or can show a clear, irreversible change in circumstances? Not ideal, but certainly more workable than a free-for-all…

    • “I wonder, if your immediate neighbour wished to turn his house into a nightclub, or strip bar or go-kart track, would you be just as supportive of his inaliable right to do so …”

      I’m not arguing against laws to protect people against nuisance. I’m arguing against laws to privilege a usage that in my opinion for very good reasons, shouldn’t be privileged.

      “Are you really saying there is no argument at all for protecting the historical significance of a building?”

      No, I very much hope I’m not giving that impression. But the sole-surviving example of an early Industrial revolution ‘domestic’ workhouse is an irreplaceable one-off. The Philharmonic in Liverpool, the Bartons Arms in Birmingham, and many other similar pubs, likewise. Most average boozers not. And the argument isn’t, in any case, about their historical significance – that’s a red herring – but about whether their use is privileged.

      “businesses generally confine themselves to their own area of expertise, so whilst you say a supermarket wouldn’t build on the site of a pub that was more profitable as a pub, that’s extremely naive? They couldn’t care for the profitability of any other use.”

      No, you’re wrong. Property experts can work out very well how much value a particular site has for a particular use, and a supermarket’s property department would know very well if a site could be flogged to a pubco for more money than its worth as a supermarket. They wouldn’t be doing their jobs if they didn’t know that.

      “If you buy a particular building or business then there must of course always be an opportunity for change but, equally, there must surely be a natural reluctance for such change built into law?” – why? I see no logical argument for that. “And the ease of getting such change should be dependant on how intertwined that building’s use is with society, regardless of whether the importance is physical, moral, practical, emotional, etc” No, sorry, can’t agree. You can’t have other people’s sentimentality, in isolation, automatically dictate what someone can do with their property.

      “The argument for pubs then moves on from ‘should change be allowed’ to a more reasonable ‘where on the reluctance scale should a pub’s change of use sit?’”

      As a society we do indeed draw these sort of lines, from drink-driving limits to minimum wages to the permitted age that people can first have sex. I don’t believe a pub’s change of use should sit on any reluctance scale. If this were, say, the Princess Louise in High Holborn that the owner was proposing to demolish, I’d be right there on the barricades. But it’s not – and I don’t believe it’s hypocrisy to make a difference between the two cases.

      • I think you’re talking about supermarket land holdings then? I personally don’t know of any supermarket who ditched a profitable store because of the chance for a one-off profit from the land sale? Tesco could make an instant (and not insignificant) asset profit from EVERY store they own, due to nothing more than land/property value gains, but they don’t do this because they’re a SUPERMARKET business and not a PROPERTY business.

        I don’t believe the historical significance of a pub is a red herring? If a building has been operating as a butcher’s shop for 200 years, surely there must be some argument for maintaining a certain level of obligation to at least consider that butcher’s history before steam-rollering it for one person’s immediate financial gain? Isn’t this the whole point of planning laws? It’s not saying it can’t be changed, only that you have to present a reasonable argument balanced against any arguments for the status quo. An inherent privilege IS an intrinsic part of historical context, how could it not be? I can’t believe I’m defending historical significance with an historian!

        If we follow your logic then I could buy the Princess Louise in High Holborn and convert it to flats for a profit because it means nothing to me (or to the majority of the UK population)? If there is even a single building in the country to be afforded any sort of privilege, then they must all be afforded it, in the first instance. It then, as I said, becomes a much more reasonable argument about the ‘level of privilege’ rather than whether privilege itself is a right?

        • “If a building has been operating as a butcher’s shop for 200 years, surely there must be some argument for maintaining a certain level of obligation to at least consider that butcher’s history before steam-rollering it for one person’s immediate financial gain?”

          No. If it contained unique features, and was as close to being exactly the same as it was in the early 19th century, thus telling us invaluable facts about 19th century butcher’s shops, then there’s a pretty overwhelming arguement for keeping it. If it’s a Trigger’s Broom scenario – not so much. Actually, the Princess Louise IS a Trigger’s Broom, because Sam Smith’s restored it, and how it looks now may be how it looked in the 1890s, but it’s not how it looked 20 years ago. All the same, its uniqueness demands that it be preserved, and indeed, if Sam Smith’s wanted to turn it into flats, I’d argue the community’s right to see something so rare preserved did indeed trump the owner’s right to do what they wanted with their property. It IS a question of where you draw the line, I agree with you completely on that. My line goes your side of the Princess Louise, but not your side of her brother, Prince Edward.

          • So why would you place importance on, say, an Edwardian window, Victorian plasterwork or mediaeval chopping board but not on, say, a 200 lineage in the same butcher’s family or a 400 year history of being part of local society? Who decides that physical artifacts are important but not societal? One could argue that you can already see more than enough examples of historical architecture in every (historical) town, so we don’t need any more, we should convert all others to much more efficient glass and steel structures? That’s the problem with deciding which things should on the line, let alone where on the line they should be!

        • Re Tesco and gains from “asset profits”: worth saying here too: you can write down a profit on an asset that’s appreciated because of increased land values, simply through revaluation, without having to sell it. Why would Tesco sell off an asset if they could include the profit in their P&L while holding on to it?

  3. And I must deal separately with the other theme in your argument regarding Pubcos. You ask:

    Why should a tenant have any right to purchase the freehold at a fair open market price, if the Pubco decides to sell? And an open market price as what?

    Do you really have to ask this Martyn? You say you love pubs and hate seeing them close but I find this statement hard to reconcile with your frequent opinions about the all-powerful market forces and total rights of businesses to do as they wish? The tenant should have this right because he bought a lease on a PUB, with a view to running a PUB. The Pubco itself bought the freehold of a PUB, so any valuation must first be as a PUB? You cannot on one hand argue for the rights of a Pubco to do as it pleases based on it’s earnings potential and then on the other hand argue that tenants should have no rights to maintain their earnings potential? It works both ways Martyn, surely?

    As an aside, look back over your previous arguments against some of the many (apparently nonsensical) accusations of (apparently self-defeating) Pubco behaviour against their tenants and view them from the point of view of a property company trying to maximise it’s asset value? You might start to see why many of your arguments appear overly simplistic…

  4. Martyn,

    Sorry if the papers made me sound anti-hipster. I love them. My relaunched locals in Hackney – The Cock, The Windsor Castle, The Crooked Billet, The Clapton Hart, The Plough, The Kenton are all hipster places to an extent. They are driving demand for decent beer. It’s expensive in many cases but also very nice. But should the classic British pass-time of pub-going become exclusively for the reasonably well-off? Some people depend on their local pub for their daily social interaction. You cannot put a price on that. How much is a pub worth? To people who have socialised in one every day of their adult lives, I would say priceless. There is no other community social facility that comes close. The Lib Dems have recognised this and have also recognised we are losing 28 per week due to weaknesses in the planning system and the unfairness of the tied pubco model. No pub could ever compete with a residential use of the land if judged on purely commercial grounds. The community’s needs must be given increasing weight and that is what the Localism Act tried to achieve. Sadly it has failed many pubs. See http://www.savethechesham.org The Chesham Arms was the 3rd ACV pub in London and is still not saved, despite a huge amount of interest and support (it was always supported). The freehold sold for a price based on a residential land use. Now the new owner is stuck as the Council and the community to not want a residential land use, they want a pub! Of course, for the reasons you have outlined, the owner does not want to sell at a loss, and it is his property to do with as he pleases. I think CAMRA needs to work harder at educating and informing potential property owners of the special place pubs have in our communities. I know Mr Patel wishes with all his heart that he had never laid eyes on the Chesham Arms. The mistake has cost him dearly. We have every faith that Hackney Council will save the Prince Edward from demolition and I am sure Mr Johal will regret buying that, if flats was always his ambition. I have no issue with people building new homes, although affordable family homes would be better than overpriced rabbit hutches. As a CAMRA member with 52% attrition of pubs in my patch over the last 30 years I just wish they would leave our community pubs alone. There are plenty of other patches of land for residential use that do not provide such a vital community social function and are not woven into the heritage of our country. If we do not stop this, our children will never forgive us.

    • Thank you for joining in so speedily with the debate. A few points: “We are losing 28 per week due to weaknesses in the planning system and the unfairness of the tied pubco model.” No, it’s entirely wrong to blame pub closures solely on those two things (and the “unfairness” of the pubco model is highly arguable – it’s a lot fairer than the old Big Six model, when a pub could sell only the one brewer’s beers, and nothing else). “No pub could ever compete with a residential use of the land if judged on purely commercial grounds.” I’m sure that’s true in a lot of places. But, eg, Tim Martin isn’t buying up properties to turn them into residential accommodation, he’s turning them into pubs. “The community’s needs must be given increasing weight and that is what the Localism Act tried to achieve.” But the community’s needs should be met by pubs opening where they are viable, more viable compared with other uses for the same site – as seems to be happening, eg, with the micropub movement, which are all opening in currently closed commercial premises – and not by insisting that pubs must be preserved forever in amber. I really don’t believe that you can say to a property owner “your premises perform such a vital community function, you’re going to have to keep it open as a pub”, thus depriving him of profit he can make selling it, when pubs can increasingly be opened almost anywhere to provide that community function which, I agree completely, is much needed. If there’s enough money to be made in running a pub, someone will open one, just as they’ll open a nail bar or a coffee shop if they see the profit potential in so doing. Sadly, it’s still not as easy to open a pub as a nail bar, but that’s the change in the law the Lib Dems should be promoting.

  5. A solution would be (where possible and if the site is big enough), to keep the pub and develop part of it or share the premises with other local amenity like a shop or post office. The Drum Pub in Petersfield town centre Hampshire (ex Punch) was purchased by developers approx 500k and a local publican. They kept the Pub (now thriving and looking great) and have been granted planning permission for flats to the rear of the land. Pubco’s should try this route and involve their tenants every step of the way to give them a chance to keep their business or tenants should try and purchase with local developers. Of course there is nothing that the tenant can do but leave if sold to a super market.

  6. I’ve got to give a paper at one of Dale’s planning conferences in June. The nub of my argument is that you can’t stop pubs closing and that pub preservation – except in the case of architectural treasures – is by and large futile. But you can’t have it both ways. If pubs are allowed to close, new ones must be allowed to open; and there are too many obstructions put in the way of opening new pubs. I will actually be talking about housing developments so large they almost qualify as new towns, but which are planned to the last square metre and include no flexible commercial properties that might make a takeaway, a dry-cleaner, a cafe or a bar. A Morrison’s must supply all the people’s retail needs; a Harvester clone must stand in for a pub. No room for the small guy, the restaurateur, the micropub. Our planning system is calculated (if not intentionally) to ossify, to stifle. The commercial property market in general but particularly in new developments is rigid and overplanned: it might be better to do as the Victorians did and sell undeveloped commercial plots individually and let the purchasers invest in building the sort of premises they thought most suitable. Which may or may not include proper locals.

  7. While I generally agree with your argument, it is not entirely correct to say “A pub is not an irreplaceable asset, the way a Norman church is.” Most pubs aren’t, but some are of great historical value in the same way as churches and stately homes, and are thus worthy of protection through the listed buildings system.

    What happens to a unique historic interior if the building is no longer commercially viable is of course a thorny question, but we don’t tend to allow historic churches to be demolished simply because they have lost their congregation.

  8. I think I agree with most of this.

    One thing not mentioned is a possible unintended consequence. By transferring ownership rights without compensation from a particular asset class, you will make that asset class a less desirable investment.

    In trying to stop an owner doing what they like with their own asset, you make that whole class of asset less desirable for new entrants. For investors thinking an area needs a bar or pub, the old pub building has too much baggage attached, to many other interests claiming property rights, to warrant purchase. The old shoe shop is a safer bet.

  9. From a libertarian persepective, if there are positive externalities resulting from the presence of a pub in a certain location that wouldn’t exist for a supermarket or a block of flats, then it is entirely justifiable that the state should do something to replicate that through legal or fiscal measures as appropriate.

  10. To answer the title, a pub can either be valued as a business or as bricks and mortar. Until a few years ago a pub was reasonably valued at around one to one and a half times the expected annual turnover. That was simply because the business had to support the costs of the premises and pubs were bought and sold at reasonable prices.
    The big pubcos though are property people.and traditional pub values look remarkably low when simply regarded as bricks and mortar.They applied a different set of parameters and ended up paying inordinately high prices for pubs whose trade did not warrant it.The temptation to sell off properties for redevelopment must be very great.
    I do not regard ownership as a carte blanche to do what I like.A pub is a private building but a public asset.The name “public house” doesn’t exist for nothing.

    • Well, public house meant that members of the public were admitted and probably that, provided of good comportment and not asking trust, were entitled to be served. Indeed many lodgings and perhaps bars could not lawfully refuse someone (at common law) who otherwise met usual conditions for entry. If a pub is a public asset than surely any property is in the land.

      I live in Canada so am not familiar with this legislation or its practical workings. I must say I have a hard time understanding how the sale of alcohol, which the government in another guise (not just in the U.K. but everywhere) controls to the nth degree and worries constantly over from a public health standpoint, can be considered of community benefit. But that ship seems to have sailed under the law in question.

      If I understand it right, designation as a community asset buys time to make a bid on behalf of a community group to buy the pub, but the owner doesn’t have to sell to them or anyone. So, say the designation is made. A few months go by, and no offer is assembled. Or even if one is, it is refused. At the end of the 6 months, can the owner not then redevelop the property if the local planning laws allow it, which presumably they do else the owner would not have ventured into the project? Or maybe you need a separate permission to change the zoning to residential, but you would have had to apply for that anyway. What is lost therefore apart from a few months?

      Gary

    • “A pub is a private building but a public asset. The name ‘public house’ doesn’t exist for nothing.”

      I’m sorry, Peter, but that’s nonsense. They’re called “public houses” because they’re houses open to the public, not because the public has any rights over them – indeed, the landlord of any public house still has the right to exclude whoever he or she wants (subject to laws against unlawful discrimination, of course). And the fact that a pub can, pretty much, be opened in almost any premises today completely undermines the idea that any particular pub has to be regarded as a “public asset”, the existence of which trumps private property rights.

  11. Good summary here of some of the salient provisions of this law:

    http://mycommunityrights.org.uk/wp-content/uploads/2012/04/Step-5-read-more.pdf

    From what I can see, the significant, long-term possible effect, from the standpoint of the pubcos or an owner wishing to redevelop, is that once listed as a community asset, the local planning permission body might be less likely to allow designation of the land for residential development.

    It would be interesting to see how many properties, so designated but where no sale to a community group took place, were subsequently permitted for residential redevelopment.

  12. Just to round out the picture it appears as well the councils can actually require a sale to themselves of property designated as a community asset so it can be returned to that use (presumably where no one else has bought it and it hasn’t yet been redeveloped).

    So this would be another potential side effect of designation even if a sale to a community group does not occur for some reason.

    It is an interesting law and I can see the pros and cons; in fact the law itself doesn’t seem unreasonable to me, it is more the fact that the sale of alcohol to the community can be viewed as of community benefit. But I gather that is now beyond question and the courts are good with that, so the only way to change it would be by Parliament amending the law, which is probably unlikely in the short term.

  13. Pingback: Publicans to get a fairer deal - Israel Foreign Affairs

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