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In May 2009 we published our Report on Pub Companies. That Report revisited a number of the issues raised in the then Trade and Industry Committee's Report of 2004, in particular the unhealthy and unbalanced relationship between pub companies and their lessees. Our 2009 Report concluded that little, if any, meaningful reform was made by industry.
We stand fully behind all the recommendations in the 2009 Report. We still believe that a Competition Commission reference may be necessary, but we acknowledge the real possibility that the developments prompted by our report may, taken together, correct the serious imbalance of power in the commercial relationship between pub companies and lessees. We would be more confident of such an outcome if the record of the pub companies in addressing issues of legitimate concern was better than it is. All the recommendations and conclusions in this new report should be set against this general background. We have grave doubts about the industry's willingness to do enough voluntarily to prevent statutory or regulatory intervention. We urge all the players to work together constructively to achieve this outcome. Our consideration of the industry's latest proposals—a new BBPA Framework Code of Practice, revised guidance from RICS and a number of other related developments—should be seen in that context.
Previous BBPA and pub company Codes of Practice were not sufficiently robust, and in 2009 we did not believe that pub companies properly complied with them. The BBPA's new Framework Code of Practice has made modest progress in addressing some of these shortcomings, for example on the provision of information in respect of the assignment of leases, and in the areas of training and financial advice for newcomers to the industry.
The Framework Code also goes some way to reconciling problems with flow monitoring equipment by the inclusion of a requirement for additional evidence above and beyond the data from flow monitoring equipment in any accusation of buying outside of the tie. That said, we believe that additional evidence must be physical and not just a signed confession from the lessee. We also recommend that flow monitoring equipment should be included under the Weights and Measures Act 1985 for calibration and verification purposes. This would remove unnecessary disagreements over the accuracy of the equipment.
The Framework Code does not put an end to concerns about Upward Only Rent Reviews. We recommend that, where such clauses are in existing contracts, they be removed by a deed of variation, the cost of which should be borne by the pub companies. Neither does it address existing problems with the AWP tie.
We conclude that major pub companies will have to treat the Framework Code as an absolute de-minimus requirement and significantly build on it with their own Codes .
The successful policing of the Codes will be vital to the success of these reforms. We give a cautious welcome to the BII's role in policing the Codes of Practice. The BII must act as an impartial arbiter in this area and is in the best position to administer accreditation for codes and to oversee and monitor compliance. However, we clearly state the need for the BII to demonstrate the necessary authority and impartiality to be effective as a policeman for the industry. The success of all of the reforms proposed by the industry hinges on the credibility and effectiveness of the BII.
We welcome RICS' new guidance on valuation but conclude that the acid test of its success will be the extent to which it provides clarity on valuations and the principle that a tied tenant would be no worse off than a free of tie tenant.
We also welcome both the ALMR's decision to open up its benchmarking survey to the whole of the pub sector and RICS' undertaking to pursue the objective of a more open and transparent method of comparing and assessing rents. Both initiatives are again steps in the right direction. We therefore deprecate the lack of engagement by the BBPA in this area.
In considering the tie, we remain of the view that over a period of time offering lessees the option of being tied or being free of the tie is the only way to judge properly the fairness of the tie. We are fully aware that tie is a highly emotive issue in the pub industry and many organisations campaign for its removal, but we advise against lessees deliberately breaking their tie contracts as part of a campaign for its removal.
Past Committee inquiries into these issues have proved that proposals for reform mean nothing if they are not carried through. This Report makes clear that this is the industry's last opportunity for self-regulated reform. If it does not deliver on its reforms by June 2011, then government intervention will be necessary. We do not advocate such intervention at this stage, but remain committed to a resolution to all the problems discussed in this Report and those of the 2004 and 2009 Reports.
We conclude that, if real reform is not delivered, legislation to provide statutory regulation should be recommended. Furthermore, we remain of the view that a reference to the Competition Commission may yet be necessary to resolve these long-standing issues.
The pub industry has been found wanting now on two occasions by committees of the House of Commons. If it fails to deliver on its promises by June 2011, it should be in no doubt what the reaction will be.
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