APPENDIX 12
Memorandum by The Federation of Small
Businesses (FSB)
1. INTRODUCTION
1.1 The Federation of Small Businesses is
Britain's biggest direct-member business organisation with 185,000
members. It exists to protect and promote the interests of all
those who own or manage their own business.
1.2 The FSB has 5,500 publican members.
Based on previous survey data we estimate that 3,135 are tenants
of pub companies or brewers.
2. SOME HISTORY—THE
RISE OF
THE PUBCO
2.1 Prior to the Beer Orders, to which the
Monopolies and Mergers Commission's (MMC's) 1989 report, "The
Supply of Beer" gave birth, pub companies barely existed
in the UK. Yet by 2004 just two pubcos, Enterprise Inns and Punch
Taverns, owned some 16,000 pubs, or in excess of 25% of all pubs
in the UK. A further 7,000 tenanted pubs are owned by other pubcos,
whilst fewer than 10,000 pubs are in the hands of brewers. As
the Director General of Fair Trading (DGFT) remarked in his review
of the Beer Orders in 2000:
"The structure of retail ownership has
changed dramatically following the implementation of the Beer
Orders and subsequent emergence of retail pub chains."
2.2 How did such a fundamental re-structuring
occur? It had been the intent of the authors of the Beer Orders
that the c 11,000 pubs which the Orders compelled the big brewers
to divest should be sold individually, to sitting tenants who
would then trade free of the tie. For various reasons, theory
was confounded and this did not occur. Instead, forced to act
quickly in a declining property market, the brewers sold pubs
in parcels to opportunistic venture capitalists, striking contracts
to supply beer. The pubco was born.
2.3 The traditional justification for the
tie was that the existence of an estate of tied pubs guaranteed
an outlet for the brewers' manufacture and distribution of beer.
Pubcos do not brew beer so this traditional justification has
disappeared.
2.4 Over time these new companies amalgamated
to form the two large players now dominating the market. This
concentration has meant that the economic and real market power
in the distribution chain has now transferred from large brewers
to large pubcos and net prices paid by the pubcos have fallen
dramatically. In 2000 the DGFT observed, based on data submitted
by the industry, that:
"Margins (achieved by brewers) on sales
of draught lager to retail pub chains are zero if not negative."
Lager represents over 50% of total beer sales.
Overall, the DGFT observed that the brewers made a small margin
on sales to pubcos.
2.5 Thus, the Beer Orders have had the effect
of a massive transfer of margin from brewers to pubcos. This benefit
has not been passed onto the licensee but has been retained by
the pubco acting as the intermediary.
2.6 When the DGFT reviewed the industry
in 2000 he stated that between 1992 and 2000 there was a 15% decline
in wholesale prices achieved by brewers in their sales to pubcos
(paragraph 4.6). Over the same period brewers' list prices, i.e.
prices before discount, rose by 24.5%. (The British Beer and Pub
Association (BBPA) Handbook 2000 shows an increase from an index
value of 83.2 in January 1992 to 103.6 in January 2000).
2.7 Lack of transparency in pubco terms
means that the FSB does not have access to data showing the increase
in prices charged to tenants by pubcos during this time. However,
in the absence of discounts which we believe to have been uncommon
at that time, the increase would have been in the order of the
24.5% increase in list price.
2.8 Meanwhile it is a matter of record that
the price of a pint has risen ahead of inflation. The shift in
margin from the brewers has not reached the consumer. The DGFT
found that the price increase in retail beer prices charged in
the "on trade" of " a little over 25% (in real
terms and pre-tax) in the last 10 years." (para 4.3.)
2.9 So between 1992 and 2000 we saw:
— A price reduction from brewers to
pubcos of 15%,
— An unknown price increase from pubcos
to licensees, which may have been in the order of 24-25%,
— A price increase from retailer to
consumer of 25%.
2.10 It is the contention of the FSB that
the margin transferred from brewers to pubcos has remained with
the pubcos, and that individual tenants have not shared in the
benefits of this market dynamic. Indeed many tenants believe that
brewers were fairer landlords and better partners.
"Whilst Whitbread brewed the beer and
owned the pubs, the arrangement with rents and beer discounts
was reasonably fair. Once venture capitalists came onto the scene
things changed, quickly"—Enterprise tenant in the
East of England.
2.11 The economic imperative for brewer
landlords is to set prices that maintain and improve beer sales.
Pubcos are not driven by the same commercial logic.
2.12 In short, the pubco, an unintended
consequence of the Beer Orders, has taken a dominant role in the
supply chain, but without, in our view, adding any real degree
of value other than to their capital providers. It has supplanted
the brewer as the owner of property, leaving little else changed.
True, tenants have achieved better security of tenure but that
was a product of legal change, and not a result of the advent
of pubcos.
3. THE PUBCO
BUSINESS MODEL
3.1 In essence the pubco's business model
is simple. It leases a pub to a tenant via one of a number of
different forms of lease. These vary in length and conditions,
but typically specify full-repairing and full-insuring obligations
on the tenant. Beer and some other supplies must be purchased
from the pubco or from suppliers nominated by the pubco, and rent
paid by direct debit, usually a month in advance. Income from
amusement with prizes machines (AWPs) in some cases goes solely
to the pubco but is generally shared equally.
3.2 The relationship between pubco and licensee
is sometimes likened to a franchise. This is not the case because
the products offered by the pubco are also available on the free
market, which is not the case in the normal franchise model, used
for example by McDonalds. Normal franchisees also benefit from
the marketing and advertising of the product or service.
3.3 Rents are indexed, increasing annually
by the increase in RPI. They are also subject to review at a prescribed
interval, say three or five years. Most leases specify an upwards
only review.
3.4 Pubcos enjoy the "company's right
of entry" into licensees' premises. They employ flow monitoring
systems and regular surprise searches by external agencies to
ensure the licensee is not buying "off-tie."
3.5 The input and selling price of beer
is crucial to the business model. As we have seen, the pubco buys
cheaply, indeed near to cost. It then sells to tenants at prices
which generate a handsome margin. It is not in dispute that pubco
tenants pay higher prices than any other channel of distribution.
3.6 The offset, or "countervailing
benefit", to the tenant is in the form of a lower than commercial,
or free of tie, rent. It is this that is meant to compensate for
high beer prices and enable the pubco tenant to compete with other
pubs and make a reasonable return.
3.7 For the pubco this is a very effective
and low risk business model. It is in a position of bargaining
strength with both its suppliers and its customers. Growth is
assured in that rental income is index-linked, as well as being
subject to regular upwards only review, and increases in the cost
of beer are passed on to the tenant. Cash generation is both strong
and stable, whilst risk is minimised. The ease with which pubcos
such as Punch, Pubmaster and Unique have securitised their income
streams indicates the low risk nature of the model. Investors
and bond holders have been well rewarded with double digits earnings
growth and Enterprise reporting a 16% increase in profits for
the period ending 13 March 2004.
4. THE UNEQUAL
PARTNERSHIP
4.1 The FSB takes no issue with the right
of pubcos to succeed. However, on behalf of its members, it seeks
a more equitable sharing of the value created in the transaction
between landlord and tenant.
4.2 A survey of 350 licensees by the Publican
newspaper in May 2004 found that 92% of respondents felt that
the relationship between pubco and licensee favoured the pubco.
4.3 Deutsche Bank AG (brokers to Enterprise
Inns) has produced a sample Profit and Loss account for the average
pub from both the lessee's and lessor's point of view ("The
Bear Pit", October 2003). This is based on a pub selling
210 barrels of beer per annum, and achieving a retail turnover
of £200,000. Making various assumptions, Deutsche estimate
that the annual profits made are:
| Tenant before "cost of living benefit"
| £24,240 |
| Pubco before Head Office costs | £60,841
|
| Total | £85,081 |
4.4 On this basis, the pubco receives 71.5% of all profit
and the lessee 28.5%. The Deutsche model enhances the earnings
of the lessee by a further notional £10, 259 to represent
the value of free accommodation, increasing the lessee's share
to 36%. In our view the inclusion of accommodation in this calculation
is questionable for a number of reasons:
— it is a non-cash figure; as such it is not available
for re-investment in the business,
— it ignores the fact that prudent lessees need
to allocate some earnings to future housing needs as they cannot
retire in the pub,
— it ignores the incidence of multiple lessees who,
of course, can only live in one property,
— it seems, erroneously in our view, to include
the value of personal expenditure by the lessee on food, drink,
and tobacco.
4.5 For these reasons we have, arbitrarily, reduced the
accommodation benefit by 50%. This is not unreasonable in our
view, since it should be acknowledged that there is also a financial
benefit to the landlord in having the enhanced security of ensuring
that the property is occupied, (i.e. not merely operated as a
"lock up" business).
4.6 In our view, then, and based on the Deutsche model,
the earnings available are shared approximately 32:68 in favour
of the pubco.
4.7 In case it should be argued that this reflects the
proper sharing of the balance of risk, we quote Deutsche:
"In practice, most lessees in the industry are sceptical
of claims that they and the landlord share in the upside and downside
risk in equal proportion."
4.8 It might be argued that the share of earnings is
immaterial and that what matter more are the actual earnings of
the lessee. The cash earnings (ignoring any accommodation benefit)
of the average lessee in the Deutsche model are £24,240 per
annum before interest and tax.
4.9 Like many self-employed people, pub lessees work
long hours. In the pub business this is, to a degree, a necessity.
It is not at all uncommon for a couple to put in over 100 hours
per week between them. On this basis the average hourly rate of
pay is £4.60—below the new National Minimum Wage rate—with
all of the risks and stresses of self-employment thrown in, plus
the additional stress of living "on the job".
4.10 Certainly many of our members would dispute the
figure used by Deutsche Bank AG, and assert that they are making
well below the National Minimum Wage and working well in excess
of the 48-hour-week permitted by the Working Time Directive.
4.11 An FSB member in the Midlands states that she earns
£10,400 pa compared to the £48,411 made by Enterprise.
This is the equivalent of £200 pw for a 90 hour week or £2.22
per hour. Another Enterprise tenant in the West Country has provided
Profit and Loss accounts which show that his annual income is
less than £8,000 pa.
4.12 According to an FSB survey in 2001, 24% of respondents
had taken a second job to make ends meet.
4.13 If, as we contend, the rewards from the so-called
partnership are shared unequally and that this results in the
average lessee achieving only meagre earnings, then we need to
examine why this is so.
5. THE CAUSE
OF THE
PROBLEM
5.1 At the heart of this issue is the price which lessees
pay for beer and the rent charged for the property, and the relationship
between these two. According to Deutsche, lessees forego some
£70 per barrel of beer by buying from their pubco as opposed
to buying on the open or free market. We have no reason to doubt
the accuracy of this figure, which amounts to a disadvantage of
24p/pint, although we certainly know of instances where the disadvantage
rises to £100 per barrel, or 35p/pint. For example:
— £113/barrel difference on Carlsberg for a
Punch tenant in Wales (39p/pint.)
— £107/barrel difference on Stella Artois for
an Enterprise tenant in the South West of England (37p/pint.)
— £100/ barrel difference on Castlemaine for
an Enterprise tenant in the South East of England (35p/pint.)
It should also be remembered that pubcos pay far less than
the open market price due to their purchasing power which means
they can attract bulk buying discounts.
5.2 Under the Beer Orders brewers were required to publish
the wholesale "list" prices that they charged to their
tenants. Unfortunately pubcos are not bound by a similar requirement.
5.3 Two other factors must be taken into account:
— Firstly, AWP income which most leases specify
must be shared 50:50 with the landlord, and which Deutsche assess
as being worth £4,800 per annum to each party. One FSB member
reports that his new lease requires him to have at least one AWP
even though he does not have room for it.
— Secondly, agreements specify varying degrees of
tie on the supply of non-beer products. FSB members report that
pubcos seek to tie for more and more purchases such as cider,
Flavoured Alcoholic Beverages (alcopops), spirits, and soft drinks.
Over half of the respondents to the 2001 FSB survey said that
they were tied for all spirits purchases. Again this is in contrast
to purchasing contracts which existed with national brewers under
the terms of the Beer Orders. We have estimated this factor as
costing the average tenant some £2,000 per annum. This figure
can be expected to grow in line with the current trend for an
increasing percentage of pub revenues to come from non-beer products,
as consumers demand more innovation, variety and choice.
5.4 As discussed above under "The Pubco Business
Model", the offset to the cost of being tied is in a lower
than market rent. Indeed, under EU competition law contracts containing
an exclusive purchasing arrangement, such as the tie, have only
ever been permitted if such a "countervailing benefit"
exists.
5.5 In the Deutsche model the average rental is included
at 11.9% of the sales of the pub. Although we are aware of Enterprise
tenants paying up to 28% of turnover, we are happy to accept the
Deutsche model figure for the purposes of this submission. We
contend that the average free of tie rent is about 15% of sales,
and this is supported by conversations with industry commentators.
Thus, the average lessee benefits to the extent of £6,200
per annum by way of rent "subsidy" (15% minus 11.9%
multiplied by £200,000 trunover.) This compares to the penalty
of higher beer and other drink prices, plus the loss of 50% of
AWP income thus:
| Higher beer prices | £14,700
|
| Higher non-beer prices | £2,000
|
| Loss of AWP income | £4,800
|
| Less Lower rent | £6,200
|
| Net deficit to lessee | £15,300
|
5.6 Pubcos may argue that the deficit is compensated
by other commercial offers which they make available to lessees.
This could include business advice and group procurement terms
on, for example, insurance. We would question the value of such
services. Feedback from FSB members suggests that their leases
are fully repairing and fully insuring, that they do not have
regular meetings with their Business Development Managers, that
they have to pay for training (albeit sometimes at cost) and that
the standard of marketing and training is poor. Overall they would
much prefer to forego these commercial offers and receive cash
discounts in their place.
5.7 We conclude that pubco leases and terms are such
that high prices paid by tenants are NOT compensated by lower
rents.
5.8 No wonder then that many members comment on the difficulty
they face in competing with other local "on trade" outlets.
Often the retail prices offered by local branches of large chains
(not only on beer, but also on faster growing lines) are so low
that tenants cannot compete with them. The position is exacerbated
in that price increases announced by the national brewers are
passed on in full to tenants, who are then confronted by the choice
of a margin squeeze or a loss in sales to more competitively priced
outlets.
— My nearest competitor is charging 90p less for
a pint on some products."—Enterprise tenant in South
East England.
— It (the high prices charged by a pubco) makes
it very difficult to compete in such an overcrowded marketplace.
We are forced either to drive up prices beyond our customers'
wallets or keep prices down and struggle to break even."—West
Country tenant of Enterprise.
6. THE BASIS
ON WHICH
RENTS ARE
SET AND
INCREASED
6.1 If the rising cost of beer works against the tenant,
so too do the arrangements for rent increases.
6.2 As described above, rents typically rise annually
by the general rate of inflation. Changes in the circumstances
or the fortunes of the pub are not part of this process.
6.3 Tenants complain that when it then comes to the time
for a full review of the rent, the process is neither transparent
nor subject to negotiation.
6.4 An Enterprise tenant in South East England was advised
by his accountant to ask for a written explanation of how his
rent was calculated. He was refused both a written explanation
or even a breakdown of the possible factors which could influence
rent levels. He concluded "rent is charged at whatever
rate the pubcos feel they can get away with, with no prescribed
formula or framework for calculation."
6.5 Another FSB member argues:
"The basis of setting rent seems to be a black art
which seems to be dominated by `models' when there are few pubs
that can be compared directly. The prospect of a rent reduction
never seems to be available and there is no visibility of what
consideration is given to massive increases in outgoings like
wages, utility bills and rates."
6.6 We contend that the rent review process disregards
realistic wage and operating costs such as the Working Time Directive,
National Minimum Wage, changes to premises required by the Disability
Discrimination Act, planned maintenance, cellar requirements,
administration, and the costs of licenses for entertainment. The
Chief Executive of Mitchells and Butlers is on the record as saying
that the operating costs for his managed estate increased by over
£10 million per year between 2000 and 2002 as a direct result
of government regulation. In the tied pub estates, it is the lessees
who have born the brunt of the cost of compliance and this element
has not been adequately factored into the rent review process.
6.7 Some licensees are subject to Upward Only Rent Review
clauses. Such clauses are not restricted to the tenanted pub sector
but are particularly inappropriate to the trade because premises
have a single user specified, because rent is the key countervailing
benefit justifying the tie and because overall trade is in decline
in volume.
6.8 Even where leases do not include such clauses, the
pubco expects to see an increase in line with any increase in
the profits / turnover of the pub, but the incidence of a reduction
or standstill in rent is all too rare. Indeed data provided by
Punch in the presentation of 2004 interim results (available on
the Company's website), shows that just 15% of all reviews in
2002-03 and 2003-04 resulted in no increase or a decrease. Further,
Goldman Sachs, in a note on Punch Taverns dated 23 March 2004,
state that the average rental uplift at five-year review in 2003
was 13.5%.
6.9 It is our opinion that rent should be based on profits
not turnover (or arbitrary comparisons with other pubs in the
vicinity.) Two pubs may have the same turnover but vastly different
profits.
6.10 A further important consideration is the question
of the ethical marketing of leases, and whether or not pubcos
may over-state partnership benefits in their marketing of leases.
Whilst the low risk and low capital retail business entry model
attracts a steady and competitive stream of applicants for pub
leases, it is for consideration whether they are adequately coached
to take independent financial, business, and legal advice in order
to verify the stated partnership benefits in lease agreements
and the full business implications before entering into contract.
7. MARKET ACCESS
7.1 In his 2000 review of the Beer Orders the DGFT remarked,
"I believe that the level of competition in the industry
could be better, in particular, the level of access in the market
for competing suppliers at all levels of distribution."
We can but agree. This market failure affects our members
as both suppliers to the pubcos, and customers of them.
7.2 Pubcos tend to negotiate large national contracts
with beer and other suppliers, leaving little or no scope for
the local entrepreneur to deal with the local pub, thus effectively
barring market access for them.
7.3 As an example, we cite a family business in the West
Country with six employees supplying and maintaining gaming equipment
to pubs and clubs. Such would-be suppliers must be nominated by
the pubco before a tenant may use them. The company in question
sought to become nominated, but found the pubco terms too onerous.
Moreover they were forced to sign a confidentiality agreement
preventing disclosure of these terms. The effect of being excluded
from such a large part of the market is very damaging. The proprietor
quotes several examples where business has been lost overnight,
against the wishes of the pub tenant, when a pub has been taken
over by a pubco.
"As a family concern the arbitrary loss of business
on this scale is extremely damaging to us as a company, and as
individuals".
7.4 Tenants of pubcos also suffer as a result of this
phenomenon. They are denied access to what may be more advantageous
contracts. An important case in point is locally-brewed beer.
In general our members report that pubcos now supply a reasonable
range of national beers. However, access to a "guest beer"
is invariably denied, particularly within newer agreements such
as the Punch "Growth Lease". This can represent a major
missed opportunity for the tenant, not only to meet customer demand
for a local brew, but also to purchase at least one beer at a
competitive price.
7.5 An FSB member who owns and runs a small brewery in
the East of England describes the difficulty of gaining a listing
from pubcos for the company's beers. The price demanded makes
any sale uneconomic, so they are forced to rely on sales to a
diminishing number of free houses. The company was founded 10
years ago, and sales grew for 5 years but have since languished
as pubcos extended their grip on the market.
7.6 There is also the case of independent wholesalers
to be considered. In 2000 the DGFT reported that:
"The Beer Orders do not appear to have been effective
in improving the position of independent wholesalers . . .(their)
share of the market has altered little since 1989."
7.7 Prior to the Beer Orders, it was the power of national
brewers that excluded wholesalers from the market, now it is the
pubcos. This is to the detriment of tenants too who would welcome
the flexibility to have greater access to the portfolio of strong
brands available from wholesalers which would enable them to appeal
to consumers' changing tastes.
7.8 Another FSB member who is an independent wholesaler
complains of the confusion he faces as to which pubs are allowed
to trade with him, with threat of legal action from pubcos hanging
over him if he gets it wrong. It is for consideration whether
the terms of business demanded of local wholesalers by pubcos,
and in particular the discounts demanded of them, amount in effect
to a refusal to trade.
8. THE DISENCHANTED
TENANT
8.1 Pubcos argue that their business model provides a
low cost route into the trade for entrepreneurs and that they
have scores of people lining up to become tenants.
8.2 An FSB member who is an accountant with licensee
clients reflects: "there is an endless supply of people
who dream of running a pub, have £20,000 available from redundancy
etc, but who don't have a clue about running a small business
and don't expect pubcos to rip them off."
8.3 Unfortunately many licensees are not so enthusiastic
once they have some experience of the relationship between pubco
and tenant. The FSB has a file of correspondence from members
expressing discontent with one aspect or another of the relationship
with their pubco. A report by the Investment Bank Dresdner Kleinwort
Wassertein (DKW) "Tenanted and Managed Pubs" (March
2003) also states that Punch and Enterprise recognise that across
their whole estates a tenant is at a pub for an average of only
three years.
8.4 Separate evidence of such disenchantment comes from
a timely report in The Morning Advertiser, a trade paper,
on 28 May 2004. The report presents the findings of a survey carried
out in April 2004 in which 624 tenants participated. Some 64%
of respondents were tenants of Enterprise or Punch (or of companies
now owned by them).
8.5 Asked whether they would take out another lease with
their current landlord, the response was:
|
| Total %
| Enterprise % | Punch %
|
|
| Definitely | 13
| 6 | 7
|
| Probably | 17
| 11 | 14
|
| Possibly | 23
| 23 | 17
|
| Probably not | 21
| 26 | 25
|
| Definitely not | 24
| 34 | 36
|
|
(Columns may not add up to 100 due to rounding.)
8.6 Thus over 60% of Enterprise and Punch tenants would
be unlikely to take out another lease. This can only be seen as
a very poor level of customer satisfaction.
8.7 Tenants of Enterprise and Punch have a low opinion
of the fairness of their landlord as business partner, with 55%
assessing their degree of fairness as "poor" or "very
poor".
8.8 The survey reveals disquiet at the experience of
the process of drawing up the contract and reaching agreement
with their landlord. This is an issue across the industry, and
not one confined to Enterprise or Punch. Over 30% of respondents
rated their landlord as "poor" or "very poor"
at disclosing all relevant information and over 40% said their
landlord had been "poor" or "very poor" as
regards flexibility in drawing up the contract. Scores for the
landlord's clarity in specifying what investment he would make
were even worse.
8.9 Confusion at the outset of a business relationship
is in no one's interest. Nor is the worrying fact that 41% of
respondents failed to take legal advice at this crucial time.
8.10 Although tenants must share a degree of culpability
where they fail to seek legal advice, this cannot detract from
the fact that the survey represents an indictment of the unhappy
relationship which many tenants have experienced with their pubco
landlords.
9. WHAT CAN
BE DONE?
9.1 The FSB does not seek the immediate ending of the
tie. We recognise that, in the right circumstances, it can form
part of a good business partnership. Local breweries operate tied
pubs as an essential part of their business model. The tie guarantees
distribution for the output of the brewery, and prices to tenants
reflect this. They could not otherwise compete with national brewers.
Local brewers, however, have a reputation for fairness in their
dealings with tenants. Complaints of unequal partnership are relatively
few.
9.2 This stands in contrast to the situation that has
developed with large pubcos. Here the tie is far from benign.
For pubcos we propose an end to the compulsory tie so that
tenants are offered a choice of a free of tie or tied lease.
The free of tie lease would include an open market rent, but without
purchasing restrictions being placed on any item, including AWP
operations. A variation of this might be an option for a lessee
to switch to a franchise agreement that calculated the sharing
of upside to business growth between the pubco and the lessee/franchisee
via a franchise fee calculated as a percentage of turnover.
9.3 Where the tenant is given the choice of a free of
tie lease it will be important to ensure that excess prices for
beer are not simply added back in rent increases on review. There
may be a role for the Office of Fair Trading in monitoring pubco
behaviour in this regard.
9.4 For those tenants opting for a tied lease, the existing
balance of risk/reward must be shifted back toward the tenant
so as to redress what we term "the unequal partnership".
Firstly the tie should be loosened. We recommend that pubco
tenants be allowed to purchase one guest beer, either directly
from the brewer or from a wholesaler.
9.5 Taken together these two proposals will not only
enhance the tenant's income, but will also go some way towards
redressing the issue of market access.
9.6 Within tied leases there is an issue with the way
in which rents are set and reviewed. Firstly, we propose the
cessation of the practice of upward only rent reviews in the
tenanted pub sector.
9.7 The way in which rents are increased annually in
line with inflation, shifting any risk from changing trading circumstances
entirely to the tenant, needs redress. We propose that annual
indexed rent increases be stopped.
9.8 We also propose that there be greater transparency
in the rent review process. The process should place greater
emphasis on realistic wage and operating costs, and on profits
rather than turnover.
9.9 Changes to the rent review process should accompany
any changes to the operation of the tie. If they do not there
is a danger that excessive margins on the wholesaling of beer
will be transferred to the rent.
9.10 Finally, no commercial partnership can flourish
on the basis of legal conditions alone. There must be some degree
of goodwill. Regrettably this does not exist in the relationship
between pubcos and tenants to the degree that it should. Quoting
from a letter from an FSB member from the Midlands,
"Get out from behind your legal comfort zone and build
relationships with lessees based on trust, promises kept, and
moral fibre."
9.11 We believe that there is scope for a Code of
Conduct for Pub Companies. Pubcos should propose a blueprint
for this but such a code of practice should include:
— The procedure for resolving disputes,
— The right to have rent reviews decided by the
courts irrespective of whether there are provisions for such reviews
to be conducted by an arbiter,
— A commitment to transparency in lease negotiations,
rent reviews, and in wholesale "list" prices charged
to tenants,
— A mechanism by which prospective licensees can
compare standard terms and conditions of the various leases offered
by pubcos,
— The specification of advice and support to be
supplied by the pubco,
— An educational scheme for potential licensees
arranged by Learning and Skills Councils / Business Links with
a requirement for pubcos to inform potential licensees of its
existence.
David Bishop
Deputy Head of Parliamentary Affairs
2 June 2004
| 
