6 Choice to go free of tie
148. Our 2009 Report recommended that:
The dispute over the tie could be ended easily: every
lessee could be offered the choice of being free or being tied.
This would enable both sides to prove their competing claims.
We believe each and every existing lessee should, in a phased
programme, be offered this choice and the same choice should be
offered to every new lessee as he or she takes on the lease.[223]
149. When challenged over why this recommendation
had not been taken up by the pub companies, Alistair Darby, in
his capacity as Managing Director of Marston's, argued that for
brewers such as Marston's and Greene King the tie was "fundamentally
part of their DNA".[224]
150. That said, the BBPA believed that the situation
was evolving and that more pub companies would be offering free
of tie arrangements. Brigid Simmonds stated:
the market will move over a period of time because
if they are not attractive to tenants in that marketplace it will
not work as a model going forward.[225]
Mr Alistair Darby warned against statutory intervention
to push this forward. He believed that such intervention would
result in "a substantial flood of pubs going free of tie
onto the market" and that there would be "some baleful
consequences".[226]
151. The contrary view was put by Simon Clarke
representing the IPC, who told us that:
The option for tenants to go free of tie is the very
incentive the pubcos need to ensure they offer attractive benefits,
rather than the window dressing and false promises currently tabled.
It is an efficient and solid backstop to discourage the abuses
currently all too apparent by some of the bigger companies.[227]
152. Mr Alistair Darby told us that 60 lessees
at Marston's had been offered an agreement to buy at free trade
prices in return for a higher rent but half of them chose not
to take up this offer. He explained:
the fundamental reason being that they do not wish
to take on additional fixed cost in their business. They say they
are happy with the way it works and recognise that rent is variable
through beer pricing and that if trade goes up they benefit; if
it goes down they suffer. That is the attraction.[228]
We do not have enough information to judge the reasons
for this but it does not necessarily follow that the offer should
therefore not be made.
153. We remain convinced 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. In the meantime, we recommend that the BII
website makes clear for potential lessees what options are available
to them, and sets out the benefits and disbenefits of being tied.
This will ensure that both current and potential lessees are empowered
by greater knowledge, so bringing more equal power to both sides
in any commercial negotiation.
154. The tie is a highly emotive issue in the
pub industry and many organisations campaign for its removal.
However, during the course of our inquiry we were made aware of
an anti-tie campaign in which lessees have been encouraged to
break their tie. This campaign encourages lessees to break their
contract and therefore open themselves up to legal action. We
have articulated our reservations about the tie on a number of
occasions but this is not the way to proceed. It will only serve
to harm those lessees who take part in the campaign. We are concerned
about the potential harm to those lessees who decide to take part
in the campaign.
List prices
155. One of the outstanding concerns of lessees
which is not met by the Framework Code of Practice is the ability
of pub companies to raise list prices for tied products as they
wish with no controls. Simon Clarke, representing the IPC, believed
that "RICS can resolve the misinterpretation of their rental
valuation guidance but there remains no control whatso-ever over
the price that pub companies can dictate on tied products, what
they lose on the roundabouts they will gain on the swings."[229]
156. In the absence of pub companies
offering their lessees a free of tie option with a full rent review
we recommend that the BII, as part of its new website, list the
prices pub companies charge for their tied products and the discounts
available with comparisons to the free trade. The website should
also contain information on the business support available from
the various pub companies presented in an easily comparable way.
This provides lessees entering the trade information on the best
'deals' but also brings to the attention of current lessees whether
they are getting the best out of their pub company. We also recommend
that the Office of Fair Trading monitors the pricing of products
being offered to lessees to keep a check on unsubstantiated price
rises.
223 Business and Enterprise Committee, Seventh Report
of Session 2008-09, Pub Companies, HC 26-I, para 138 Back
224
Q 118 Back
225
Q 119 Back
226
Q 119 Back
227
Ev 137 Back
228
Q 113 Back
229
Ev 70 Back
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