Memorandum submitted by Justice for Licensees
In January 2007 Justice for Licensees was formed
and currently has approximately 1,000 members. We formed as a
group after a few of us realised that we were not alone in the
perception of how pub companies operated.
Over the past year or so we have heard of many
tales of woe from the tenants of the major Pubcos.
Historically Brewers acted in a paternalistic
manner which was to the best interests of both the brewer, the
tenant and the consumer. As time went by they changed and their
monopoly was used against tenants. From 1989 when the Beer Orders
were formed to adjust the brewers monopolistic control Pubcos
emerged. As time has gone by their growth fuelled by easy money
has allowed them to pay high prices and also grow substantially
in size. The expression power corrupts and absolute power corrupts
absolutely perfectly describes Pubcos in their current form. Their
sole interest is apply heady levels of rent, charge the highest
supply prices possible and extract little extras, which amount
to millions, by taking royalties and listing fees from suppliers
as well as an extra slice of the awp takings which they all ignore
when it comes to assessing rent.
It is JFL's opinion that there is a much more
serious situation now than there was in 1989. Many of the benefits
for tenants that were introduced during the Beer Orders now no
longer exist and it is a fact that many tenants are now more tied
than they were in 1989.
We have spoken to trade groups, Pubcos, shareholders
and tenants to see if there is a common goal that we can work
towards but our discussions reveal intransigence on the part of
the Pubcos. They just want money to service their debt, pay their
shareholder dividends and increase the share price. Tenants and
consumers come a long way down the list of interest.
There are two very important bodies which Pubcos
appear to have infiltrated and use to their own interest. They
are the BBPA and RICS. The BBPA relative to the discounts that
they extract, and RICS regarding the levels of rent, their control
of arbitrations, valuers and independent experts.
The British Beer and Pub Association purports
to represent the trade and yet the majority of its members are
brewers and Pubcos. Taken from the BBPA website Our members account
for 98% of beer brewed in the UK and own more than half of Britain's
Chairman: Michael Turner (Fuller Smith &
Vice Chairman: Ralph Findlay (Marstons plc)
Vice Chairman: Mark Hunter (Coors Brewers Ltd)
Chief Executive: Robert Hayward OBE
There are three Executive Groups as follows:
Brand Owners & Brewers Group
(ChairmanJonathan NeameShepherd Neame Ltd);
Pub & Leisure Group (ChairmanRalph
FindlayMarstons plc); and
Communications Group (ChairmanSimon
TownsendEnterprise Inns plc).
The former Chairman and the Vice President is
one Mr Graham Edward Tuppen, the CEO of Enterprise Inns. Mr Tuppen
was quoted in the press stating that he thought that the MP's
who were looking to have the Pubcos re-investigated were moronic.
While the BBPA holds itself out to represent
the retail trade they in fact only represent less than 10,000
retail operations relating to managed houses and members of AMLR.
Their stance in claiming to represent the retail trade is totally
and absolutely dishonest. It is recognised that nearly 30,000
pubs are owned by Brewers and Pubcos but that is in the capacity
as property companies which lease out the properties to retailers,
often with a supply tie. They do not and cannot act in a retail
capacity for those leased properties. The BBPA neither represents
the tenants or the opinions of the tenants. Evidence supplied
by the BBPA will only reflect the opinions of the Pubcos and brewers
We are also of the view that the Pubcos, in
their desire to increase their earnings, apply pressure through
the BBPA to obtain more discounts off the wholesale price. It
does not take a genius to recognise that for the Pubcos to extract
an extra discount of £30-£50 a barrel over the last
four years it has to come from somewhere. The brewers were not
making so much that they could give that kind of money away. Looking
at how the wholesale prices have increased it would seem clear
that as the Pubco asks for more the Brewer puts up their prices
to cover the discounts. This is not new. The small brewers admitted
to the T&ISC that they put their prices up so that the Pubco
could get a bigger discount.
It has been happening to the bigger boys as well.
The T&ISC stated that the BBPA should review
its code in the light of their recommendations. They ignored virtually
everyone, except to a small degree on UORR. They agreed that rent
could go down but then said that it could not fall below the floor
level of the lease. In other words there was a limit to how much
it could fall. Even worse they refused to accept that the annual
increase in rent based on RPI were upward only. Since when did
RPI ever come down? Never! So the new Code was just deception.
In a nutshell BBPA have overseen price fixing
of produce, to the detriment of tenants and consumers, destruction
of the T&ISC recommendations and misrepresentation of their
The other prime issue is the rental basis.
The T&ISC in Para 158 stated that all tenants
should be treated fairly and rents should be reasonable and sustainable.
The amount of tenants who feel that they have been treated unfairly
and /or their rents are not reasonable or sustainable has astounded
JFL. This has not been secluded to one particular area but is
apparent across the whole of Britain.
It is known that the T&ISC issued recommendations
regarding the construction of profit assessment and rental construction.
The T&ISC said
144. The industry could and should establish
clear guidelines for the valuation process. Where they do not
already exist, new national guidance for rent calculation should
be compiled, and disclosure rules clarified. The profit assessment
method of calculating rent should be carried out in accordance
with national accounting standards and with knowledge, prudence
and due diligence.
145. Pubcos should provide their tenants with
a comprehensive breakdown of how their rent was calculated. This
should reveal the whole detail of the profit assessment and how
the specific requirements of the lease conditions had been interpreted
by valuers. The profit assessment should form an addendum to leases,
with any subsequent review, to ensure transparency.
We have already identified that the BBPA would
not endorse these two recommendations. But what about RICS?
JFL has learnt that how the rents are set for
the tenanted sector is covered by the VIP2 paper. This was drafted
by Mr Luay Al-Khatib, an associate director of the Royal Institute
of Chartered Surveyors, and the Chairman of the TRVG Committee,
Mr Robert May. Mr May was introduced to ourselves as the Rent
Controller for Enterprise Inns plc. The rents are set not only
on the premise that the tenant should be an efficient operator
but also that the tenant should be capable of turning back the
tide on national and regional decline. As for International Accounting
Standards they just do not accept that this standard is required.
The view has been given that RICS assumed that
the prospective tenant would have a reasonable amount of training
and experience but that is not reality. Most of the Pubco training
is given after signing the lease.
With reference to Mr Robert May, who is employed
by Enterprise Inns. We believe that in Mr May co-drafting the
VIP 2 paper there would not only have been a huge conflict of
interest but also there would have been a vested interest on Mr
May's part, it is in his employers interest to ensure that the
highest return possible is achieved. It was in Mr May's interest
to ensure that his employers were happy with the outcome of the
The T&ISC was adamant that the tied tenant
should not be worse off than if they were free of tie. This concurred
not only with the EU but the Appeal Court. In addition it gave
clear guidelines, see 144 and 145 above, how transparency could
be achieved. RICS under the guidance of Robert May could not possibly
accept those standards since it would be contrary to their personal
objectives, the instructions given to the valuers and thereby
arbitrators. Observance of the T&ISC recommendations would
cost the Pubcos dearly and could have serious repercussions for
those who were proven to have been deceitful. There could be enormous
claims for malpractice.
Many tenants are suffering due to the un-sustainability
and the complexities of the current rental system but the Pubcos
achieving their comfortable profits at the expense of the tenants
RICS have been shown to have been infiltrated,
their standards diminished, and since they do not believe in transparency
when it comes to assessing the rent of tied premises they must
be seen to be totally untrustworthy.
These are two prime issues, the tie and the
rents. Neither the Pubcos or RICS can be trusted to adjust rents
to ensure that the tied tenant is not worse off than if they were
free of tie or that the tenant[s] should have a liveable income.
They either do the sums correctly or remove the tie. They cannot
be trusted, so remove the tie.
Addressing the actual calculation of rent, RICS
have made it clear that they do not accept that there should be
whole detail or that the profit assessment should observe National
Accounting Principle. They may not like it but it is a case that
they must do so under statute or it should be taken away from
them. RICS require a shake up. Their President cannot stay in
his ivory tower while his minions are raping our industry, our
pubs and our livelihoods. The BESC should make sure that they
are brought to heel!
We have carried out further research and listened
to our members relative to the un-sustainability of the rents
and the price of the tie. The effects of these two areas are pivotal
in the "swinging door" analogy of the tenanted sector.
The following records some of our research:
(i) The Pubcos have refused to release the figures
for surrenders or forfeiture of leases, we feel that this is due
to the amount of tenants that are surrendering their leases, going
bankrupt or taken to court by their pubco for forfeiture of lease.
We believe that if these figures were released it would damage
the Pubcos stance that there is nothing wrong with their model
or their estates.
(ii) JFL is fully aware that the Pubcos have
refused to produce the prices that they pay for the products,
stating that it would be detrimental to their business. We believe
this to be a true statement of facts, although we do not believe
in the sense as the Pubcos are intending. We believe that if the
true price that they pay for a barrel was to emerge they could
not possibly justify the increase and burden they place on their
(iii) JFL has been advised that many Pubcos carry
alleviation clauses within their contracts with the brewers. These
are in place to ease any burden of price increases throughout
the duration of the contract, and yet the Pubcos immediately pass
on any increases to their tenants and the consumer.
(iv) The Pubcos have been very vocal on the benefits
of the model especially the cheapness of entry theory. Whilst
in theory there may well be an initial saving in entering the
trade through the tenanted market, however as is being proven
on countless occasions, this is where the benefit ends as the
reality is that it too often proves the most expensive route.
(v) Although Para 165 discussed the benefits
of training and how they would like the Pubcos to benefit from
better trained tenants. The Pubcos are offering training but always
at the expense of the tenant. However JFL is aware of at least
one case, a new tenant of less than a year standing who was offered
no training whatsoever. We do not believe he is a lone case.
(vi) Regarding the tie it has become clear that
there are different variations contained in lease contracts. These
vary from being tied just on dispensed lager and beer to the full
on tie where tenants are tied on all pump products, packaged products,
wines, minerals and spirits. Although there was supposed to be
a benefit of having the tie in that there was a lower rent than
the free trade sector, to compensate the reality is that tied
rents appear are the same as those in the free trade sector; the
benefit of the tie has been removed by the Pubcos.
(vii) Many tenants are of the opinion that there
is no longer any benefit to the tie. There are concerns over the
cost of the tie, many tenants are fully aware that they are paying
in excess of £40.00 per keg or more from the pubco than if
they had the freedom to choose their supplier. Freedom from the
tie would guarantee more income for the tenant and potentially
better prices for the consumer.
(viii) There are also concerns over the restrictions
arising from the tie, such as restrictions on the deliveries,
if you're lucky two deliveries per week whereas if they were free
of tie they could ensure deliveries at least five days of the
week. The tenants also view that being able to place an order
in the morning and receive the delivery later that day or early
the next day would definitely be beneficial and this is something
denied to them as a consequence of the tie.
We at JFL consider that Pubcos, BBPA and RICS
have collectively abused the system, and tenants, and in many
cases mainly for their own gain. That is unacceptable! The T&ISC
made recommendations four years ago and if they had been applied
it would have brought transparency and fairness into the tenant
system. Those recommendations have been subverted, sidelined or
ignored. Had the recommendations been implemented we believe that
virtually all parties would have benefited. We have found that
the most dissent has come from the tenants of Punch Taverns and
Enterprise Inns with Admiral and SNPE. These Pubcos have proven
not to care for either their licensees or their pubs and are driven
solely by profits, at the expense of all others. It is too late
for the Pubcos to now adopt the T&ISC recommendations the
damage to the industry and tenants has been done
The Government have to step in and stop the
abuse of the position of power and strength that the Pubcos hold.
We of JFL require the BESC to recommend to the Government the
removal of the tie and paragraphs 144 and 145 of the T&ISC
recommendations mandatory together with the full and total removal
of upward only rent reviews and the pernicious annual indexation
43 See T&ISC report paragraph 51 and 52. Back