Pub companies: follow-up - Business, Innovation and Skills Committee Contents

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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