Select Committee on Trade and Industry Second Report



We undertook this inquiry at the request of the Federation of Small Businesses, which was concerned about the degree to which public house ownership was being concentrated in the hands of a small number of pub companies (pubcos) and the consequences of this concentration on their tenants. From the large volume of evidence provided by companies and individual public house tenants it was clear that two issues were of particular concern to those tenants: the exclusive purchasing obligation (beer tie) required by pubcos of their tenants, and the basis on which public house rents were calculated.
We were not convinced that the division of the wholesaling and property functions of pubcos, i.e. the removal of the beer tie, as advocated by many witnesses, would necessarily benefit tenants. We felt it likely that in the absence of the tie pubcos would exercise their contractual right to raise property rents to compensate for the loss of income from beer sales. Indeed, if brewers were free to supply all public houses on a wholesale basis it is possible that major brewing companies could achieve a dominant market position to the detriment of individual public house operators.
However, while the majority of public house tenants may be happy with the service provided by 'their' pubco, it is clear from the large volume of evidence submitted to us that many tenants are unhappy with their contractual relationship with their landlord. There is considerable scope for eliminating the root causes of such disputes. All pubcos should be open with their tenants or prospective tenants about the way in which rents are calculated, about how the beer tie will operate in their particular circumstances and about what the contractual obligations are on both parties. A tenant should never be forced or choose to enter into an agreement without taking proper independent professional advice about the basis of the pubco's offer and the significance of the commitment they are asked to undertake. It would appear that the performance of business development managers (BDMs) varies across the industry from excellent to dire. Some seem to be more concerned with the policing of operations in the public houses under their supervision rather than the provision of genuine assistance to tenants.
Many pubcos have adopted voluntary codes of practice which incorporate guidance from the British Beer & Pub Association on the granting and operation of leases. This should be a code of best practice and not a reflection of the lowest common denominator of behaviour within the industry, as any such lower standard would strengthen the argument of those who might call for a statutory industry code. The code of practice should cover areas such as rent reviews; the role of BDMs; complaint and dispute procedures; disclosure and the availability of information; and the taking of legal and professional advice by prospective tenants. At this stage we do not think a legally binding code of practice necessary, but if the industry does not show signs of accepting and complying with an adequate voluntary code then the Government should not hesitate to impose a statutory code on it.

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Prepared 21 December 2004