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Does the removal of PDRs for pubs mean an end to ACVs?

Following the Government's decision to scrap permitted development rights for pubs, Simon Chaplin, Head of Pubs & Restaurants - London discusses the impact that this may have on the industry.

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The latest move by the Government to “save our pubs” was approved last week, with a proposed amendment to the Neighbourhood Bill and the removal of Permitted Development Rights (PDRs) for pubs. The intention is to stop pubs being developed for other uses or demolished without having to obtain planning permission. This whole subject has been a disruptor in the pub property market for some time now and came to the fore when CAMRA started suggesting 45 pubs a week were closing in 2009, the height of the last recession, starting the “save our pubs” campaigns and ultimately the Asset of Community Value (ACV) legislation in 2012. Not surprisingly since then the number closing has fallen to half, and even then the counting of pub closures is somewhat arbitrary with many remaining as licensed premises. Indeed, CAMRA’s figures only take into account pubs closing, and not those being reopened.

So what does this mean to the pub industry going forward? Well the amendment will not get passed for a few months yet so there may be some tweaking by numerous interested parties. There appears to be a need to clarify what is a pub and how food-led pubs are classified, but as it stands it could at last draw a line under the subject and allow all parties to buy and sell pubs in the knowledge of what the ‘rules of the game’ are.

As part of the ongoing discussions in the trade, Christie & Co has looked at the issue and the effects it has on the pub property market. As a company we advise owners of around 7,000 pubs a year and therefore have a good insight into the issues that are encountered when they look to sell their business.

One substantial benefit the amendment could bring is to remove the need for Local Authorities to list pubs as being an ACV. Currently the listing has two effects: giving the local community the option to delay a sale process with a view to buying the pub, and removing the permitted development rights. As the removal of the PDR was one of the cornerstones of the legislation is it worth listing any pubs as ACVs if it is only to give locals the chance to buy the pub?

We have many examples where it would appear that the legislation has been misused and brought about a number of unintended consequences, and it is debatable if ACVs have been successful in saving many pubs from closure, which was the original intention.

Currently, when we place a pub on the market there can be local groups who fear that the pub may be sold to a developer and therefore apply to list the pub as an ACV. This can come about even if the intention is to sell the pub on a Transfer Of a Going Concern (TOGC) basis for continued pub use.

If listed as an ACV during the marketing process it can cause delays and a reduction in value as buyers and lenders often see this as a possible restriction in the future. This then puts it at a disadvantage to other properties which retain PDR and places restrictions on its disposal if the business fails.

If the vendor of an ACV listed pub wishes to sell they can do so on the basis of it being a TOGC without notifying the local authority or offering the pub to the community group, but at the point of going to the market we have no way of knowing the intentions of a would be purchaser. In these circumstances, although the community group are able to bid like any other party, they may campaign to be given the rights to have more time as granted under the ACV.

Some local community groups are blindly committed to the idea of “saving their pub” despite the pub not being under threat from development, which can put the vendor and any purchaser in a difficult position not wishing to alienate the local customers.

Today, if a buyer for an alternative use is found for an ACV pub and it will not be a TOGC sale then the rules apply and the community have to be given the six week interim period to confirm a bid and then a further 20 weeks to purchase the property.  There is no commitment placed on the community group and the vendor has to wait for the process to complete which costs time and money with no compensation should they not proceed. Similar issues are encountered when a closed ACV listed pub is put to market which can lead to the property remaining closed and dilapidated for longer.

Mark Brown of Freeths Solicitors has highlighted the fact that when an ACV application is objected to by the pub owner, they have been successful in appealing these in nearly two-thirds of cases in 2016. Out of those that have been listed where they have been involved, the rate of community groups bidding is less than 1%.

In our opinion the balance had swung too far in favour of the local community to disrupt a legitimate sale process and that the future of a pub is best decided through the planning process. If the proposed legislation is passed and ACVs become a thing of the past, the future of a pub could be decided by a recognised planning process where all interests could be heard. This would then look at the viability of the pub and its “Fair Maintainable Trade” if operated by a competent operator, the impact on the local community and facilities in the surrounding area, plus the benefits that may come as a result of its change of use.

In this way if a pub was unable to obtain planning permission for change of use and was to be sold, then the local community would be in a position to enter the bidding process in the normal way and could be successful if they were the only party who could see a viable future for it as a pub.

Of course it is not clear exactly how or when the removal of PDRs will be implemented. One of the unintended consequences could be that in the intervening period we see an acceleration in pub closures as freeholders take advantage of the current PDRs before the changes.

If the proposed amendments are adopted, along with a review of the ACV legislation, then it would still give the local community the opportunity to have a say in the future of the pub, remove the fear encountered by many pub owners when looking to sell their property and mean that good pubs that have a future will be able to invest and flourish.

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