Machine Income - BII Advises Members

We are writing to update and clarify to tenant/lessee members how pub operating companies are treating machine income in rental bids.  As you may recall this has been a live question for a while.

Where machines are subject to a supply tie, the income generated from them is usually split between the landlord and the tenant/lessee.  This means that after the machine rent, VAT and other outgoings have been accounted for you receive a percentage of the remaining money in the cash box.

If your landlord is a BBPA member, details of the income sharing arrangements should be set out clearly in the company’s Code of Practice.

In the past the income you received from machines in some but not all companies formed part of the ‘divisible balance’ (the estimate of total pub profit from which the negotiated rent is then deducted).  Under the new BBPA Code of Practice the tenant’s share of machine income is excluded from the ‘divisible balance’ for the purposes of a rent review and shown separately from all other income generated by the pub.

All landlords have completely removed shared machine income from their rental calculation.  However, some may still take into consideration the tenant’s share of machine income when making their rental bid.  We strongly advise you, at interview or rent review, to ensure you understand exactly how the landlord has arrived at their rental bid and whether their bid has been materially influenced by the tenant’s share of machine income.  You may also wish to consider whether your landlord receives any additional income from machines, such as royalties, directly from equipment suppliers and in which you do not share.  Furthermore, you are unlikely to be obliged to have machines in your pub at all and you should consider carefully whether the income you derive from the machines make their presence worthwhile, as opposed say, to more space for eating and drinking.  In circumstances where the machine income is free of a tie i.e. licensees receiving 100% it is standard practice to include that income in the divisible balance.   

As landlords are taking different approaches, it is important for you to understand your landlord or prospective landlord’s methodology in arriving at a rental bid.  As further evidence about the different approaches emerges, we will produce best practice guidelines.  Meanwhile, as ever, transparency is the key.

If you would like further information, or to discuss a specific case, please contact BII or email Neilr@bii.org