Pub Companies - Business and Enterprise Committee Contents

Memorandum submitted anonymously

  I would like to recount my story and why I believe this demonstrates irrefutably that the tied-lease "Pubco" model is fundamentally unfair and is abused by the Pubcos.

  In six years of ownership we had never missed a weekly direct debit payment for our rent and beer order; because we are tied both of these payments were made by direct debit to our Pubco every week. We never "brought-out" or broke the terms of out lease in other respects. We spent a lot of money on the site improving it and meeting our "fully repairing" obligations. Our business plan was submitted to the Pubco before we took over the lease, and if an absence of any comment on the plan can denote approval, the business plan was approved.

  Two weeks ago we missed our first direct debit payment in our entire time at the pub. We proposed a repayment plan that would have caught up the missed payment and placed the account back in order over a five week period. This was rejected because the Pubco has decided it doesn't take cheques and because repayment plans had to be over four weeks. We were placed immediately on something called "cash with orders".

  Moving to "Cash with orders" from a credit account is extremely onerous and places an enormous extra burden on an already struggling business. it means that;

    1. Everything outstanding on our account became payable immediately. We were apparently treated with great leniency as we were given an extended period to repay this amount. It still amounts to a substantial additional sum we must pay every week on top of the rent and beer.

    2. Rent payment is now due 9 to 15 days in advance.

    3. Payment for rent, beer and arrears was moved from a Monday to a Friday, when the pub takes most of its money over the weekend. When I pointed this out, the problem was ignored and I was told that if we didn't pay on Friday the matter would be referred immediately for legal action and that there would be a £47 charge added to our delivery because it would not take place on our "scheduled day" (which could not be moved).

  If we could not comply with the above (having been given virtually no prior warning or being offered any flexibility over the conditions) legal process would begin immediately!

  I'd like to remind the reader of three facts here:

    1. We'd missed one payment in six years.

    2. We'd proposed a perfectly reasonable repayment plan which was rejected.

    3. The Pubco had £12,000 of our cash on deposit with them.

  I was told by the Pubco that these terms of trading are contained in my lease they are not. They are also not shown on any of the invoices or statements ever received from the Pubco. The glossy "charter" the Pubco recently sent me mentions cash with orders but absolutely no details are given about what it involves. What can I do about this?

  Somehow in the space of less than two weeks we had gone from having a perfectly reasonable relationship with our Pubco to being on the point where legal action being taken against us. "Cash with orders" makes you feel like a criminal, someone who cannot be trusted, and someone because of the constraints of the beer tie who has no option but to go along with whatever the Pubco demands. The attitude of our Pubco immediately changed it is as though their aim now is to hound us out of business, collect on the insurance and benefit from the improvements we had made to the property.

  We are a business of just four employees, working 60-70 hour weeks each and without any recourse to specialist advice. The Pubco are a major FTSE listed business with, i imagine, huge resources of financial and legal advice. I would like to consult with a professional over this treatment but I cannot because I have no money to do so (that's why we missed the direct debit payment). The mantra of "caveat emptor" is trotted out; "you signed the lease, you knew what you were getting into" to justify the situation (although, like I said above, I just can't find where it says in my lease that this is what happens to you if you miss one payment).

  I have absolutely no choice but to try to battle through whatever payment and trading terms the Pubco throw at me. Without doing so they have the ultimate sanction, far more effective and faster acting than taking the lease away; they simply stop supplying the pub with beer. We then have nothing to sell, the pub closes down, the rent is unpaid and the whole sorry saga starts again when the Pubco find their next victim lessee.

  The Pubco's are nothing short of a consumer con-trick. They employ enormous marketing resources in convincing ordinary members of the public to sell up their houses, or borrow against their equity and start a glamorous new life running a shiny new pub with the support of a "paternal" Pubco partner. It must all be OK mustn't it they saw our business plan and our area manger will be around to give us advice? And as soon as these ordinary members of the public cross that dotted line that means they become a "business" any regulatory protection they might have enjoyed as a member of the public disappears; same person, but you've signed a Pubco lease now. I am not advocating here that people should not face the consequences of their own decisions, but in the face of the powerful marketing machine that hauls ordinary people into the net, some will succumb and some of these will lose EVERYTHING. In our particular case we had a full valuation done by a RICS surveyor before we signed the lease and as mentioned above our business plan was approved by our new Pubco "partner". The pub has won awards and I have stacks of positive customer surveys and questionnaires. We are much better than the competent operator benchmark the Pubcos and RICS use to set a fair maintainable rent against and yet we still cannot make ends meet.

  And what underpins the "con trick" being pulled by the Pubco on ordinary members of the public is that they insure themselves against the financial losses when a lessee surrenders or forfeits their lease. They can destroy lives and move on with their share price and results unaffected. I and all other lessees out there pay for this insurance, funding the safety net that allows the Pubco to treat us as "lambs to the slaughter". So when the executives of the Pubcos sit there in front of parliamentary committees, or explain to the press that really their business model works because "we're more closely aligned to the objectives and success of our tenants" remember that the Pubco doesn't lose out they're insured.

  They reckon you should stand up to bullies but how can you when they not only hold the levers over the property you trade in but also the supply of the one thing you can't do without..,beer? The relationship is so unequal in terms of size and resource that the lessee simply has no chance you accept the unacceptable treatment and put up with the harassment because otherwise you loose EVERYTHING.

  The beer tie is wrong because:

    The tied model allows this chronic abuse of corporate power and greed. The relationship between Pubco and lessee is already completely one-sided in terms of resource and expertise. The tie is the ultimate weapon in this unequal relationship. It allows Pubcos to ride rough shod over any normal and acceptable business practice. It amounts to nothing short of a mandate for corporate bullying and excessive greed at the expense of what are ordinary people at the end of the day.

    The tied model also greatly inflates the prices paid by the end consumer because tied sector prices are inflated by the Pubco's insertion into the supply chain, retail prices across the whole sector are higher than they need to be for the end consumer. Remove the tie and you allow genuine competition to the benefit of the consumer and the industry as a whole.

    The Pubcos defence of the tied model is that their success and that of the lessee is aligned is a SHAM. They have insured themselves against "failure" paid for by the lessees themselves, Provided the marketing machine can still put new lessees on the conveyor belt and the insurance premiums don't get too high "churn" is all part of the game ... unless your one of the ones being churned in which case you lose the lot.

    The tied Pubco business model is an outrage, a small number of people loss everything because of it, the wider public pays too much for a pint, and society is steadily loosing a cornerstone of the community as smaller local pubs are squeezed out of business.

29 September 2008

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2009
Prepared 13 May 2009