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

 
 

 
Annex: Comparison of BBPA Framework Code of Practices


 Code of Practice published 2005 (Post 2004 Trade and Industry Committee Report)  Code of Practice published 2010 (Post 2009 Business and Enterprise Committee Report)  
BBPA Membership  All members of the BBPA with relevant pub owning interests agree to provide prospective lessees with a copy of the company's Code of Practice which will follow the Association's "Code of Practice Framework on the Granting and Operation of Tied Tenancies and Leases" where its provisions are applicable.  All pub companies operating tenanted or leased pubs should produce a Code of Practice based on the principles set out in this Code. This is a requirement for membership of the British Beer & Pub Association (BBPA). A full copy of the company's own Code of Practice must be provided to all new and existing tenants/lessees.  
Signature   The Company Code of Practice will be signed by the tenant/lessee and the pub company, and thereby will become binding, and may be used as evidence in any disputes or subsequent court proceedings.  
BII accreditation   Pub companies must also apply to the BII (British Institute of Innkeeping), and acquire, accreditation of their Codes.  
Disputes over code  Codes should explain the procedures to be adopted where either party feels that the provisions of the Code have not been followed. Where the lessee believes that he is the aggrieved party, the procedures should ensure that the matter is properly considered at an appropriately high level of management in the company concerned, and at a level of management higher than that at which the relevant decisions were initially taken.  Company Codes should explain the procedures to be adopted where either party feels that the provisions of the Code have not been followed. Where the tenant/lessee believes that he is the aggrieved party, the procedures should ensure that the matter is properly considered at an appropriately high level of management in the company concerned, and at a level of management higher than that at which the relevant decisions were initially taken.  
Independent dispute bodies  In such circumstances, and provided that the lessee has not referred his complaint to an independent adjudicator, it will be open to him or his representative to send the Association a brief description of the circumstances with an explanation why the lessee believes the code has not been properly followed. The Association will pass on this information to the company concerned and use its good offices to ensure, as far as possible, that there are no misunderstandings, or personality issues, that are standing in the way of a more fruitful dialogue between the company and the lessee or his representative.  In such circumstances, it will be open to him or his representative to send the BII a brief description of the circumstances with an explanation why the lessee believes the code has not been properly followed. The BII or FLVA will pass on this information to the company concerned and use its good offices to ensure, as far as possible, that there are no misunderstandings, or personality issues, that are standing in the way of a more fruitful dialogue between the company and the lessee or his representative.  
Outline  Companies should provide a full explanation of the types and terms of agreements offered and how these differ, i.e. leases vary in length and usually involve full repairing liability whereas tenancies are often offered for shorter periods and cannot be "sold on". With a lease agreement the business and any "goodwill" can often be sold (or assigned) to a third party after a qualifying period.)  Details of the business opportunities offered by the company will be described including the types of tenancy/lease agreements available and the period of tenure, any purchase obligations such as a beer tie, amusement machine tie and any other product ties.  
Training    Obtain accredited pre-entry training to enable them to evaluate and understand the contract they are seeking to enter into  
Professional Advice  It is of paramount importance that lessees should take proper independent professional advice prior to accepting a lease, and during the operation of the lease whenever the need arises. Lessees must demonstrate that they have taken such advice or have chosen not to do so  Before a prospective tenant/lessee is offered a substantive agreement, they MUST meet the following requirements:
  • Demonstrate they have taken proper independent professional advice prior to accepting a tenancy/lease (and during the operation of the tenancy/lease whenever the need arises)
  • Take professional legal and business advice which should be used to prepare an appropriate business plan
 
Financial Advice   Financial advisers should ensure their clients are made aware of the effects of changes on the business plan. For the avoidance of doubt a financial health-warning statement should be provided to the tenant/lessee, akin to the warnings attached to financial products such as endowments  
Waiver   The above requirements may be waived, at the company's discretion, in cases where the acquiring tenant or leaseholder is suitably qualified through experience and achievement to rely on their judgement or is a company of sufficient standing.  
Reasonably competent operator  Codes adopted by signatories to this Framework Code should provide procedures enabling the reasonably competent lessee to understand:
  • the nature of the business transaction embodied in the lease and trading conditions.
  • the features of the lease and other business opportunities available based on the assumption that the business will be run by a competent lessee capable of making the best of the opportunities presented
 
The key principles set out below must be followed to ensure sufficient information is provided to enable the "reasonably competent operator " to understand the nature of the pub business being offered and how this will be embodied in a tenancy or lease agreement.  
Heads of agreement  Initial heads of agreement covering principle terms of lease are to be supplied to prospective lessee at the outset with a full copy of the lease before they are asked to sign any commitment  Initial heads of agreement covering the principle terms of a tenancy/lease will be supplied to prospective tenants/lessees at the outset with a full copy of the lease before they are asked to sign any commitment.  
Price list The company's current price list under the terms of the agreement for tied and other products and notification of any imminent changes  The Pub Company's current and relevant price list will be supplied (under the terms of the agreement for tied and other products) which will include notification about any imminent changes  
Purchasing obligations  All purchasing obligations and an outline of trading terms (e.g. credit/payment terms)  Where beer is supplied under a tie details of the range of products available will be provided including the prices charged, qualifications for discount and whether the company will allow a guest beer supplied direct from a small brewer to be purchased outside the tie.

Where wet products other than beer are also supplied, the terms of the purchase obligations attached to these products will be made clear according to the type of agreement. An outline of trading terms (e.g. credit/payment terms) will also be provided  

Insurance Liability for maintaining and meeting the cost of insurances required - (buildings/contents and business insurance liability)  Liability for maintaining and meeting the cost of insurances required. Full details of the insurance schedule (to include all aspects of cover provided) and the charges payable to the company will be given to the tenant/lessee together with any excess applicable. Companies will offer to "price-match" on any like for like policies identified by the tenant/lessee  
Amusement Machines  Full and transparent description to be provided of arrangements for all leisure equipment, where applicable, including: terms of supply, number and siting of machines, how machine income and rental is calculated and apportioned, arrangements for the collection of cash  Company policy with regard to the supply and operation of tied amusement machines on the premises. Relevant information will include the terms of supply (whether or not a machine tie exists), number and siting of machines, arrangements for the collection of cash, machine-management support provided and details of how the landlord/tenant share of machine income will be assessed  
Capital developments  Shared parameters for any future investment - how any future investment might be shared as between the tenant and the company and the terms thereof and any implications for rent  Company policy with regard to potential opportunities for improvements/refurbishments and any implications for rent.  
Flow monitoring equipment   Pub companies to develop a protocol setting out the terms under which flow monitoring equipment may be installed and any further prima facie evidence available.  
Licence Details of the premises licence and any conditions relating thereto (including any enforcement action taken during previous two years)  Before a prospective tenant/lessee is offered a substantive agreement, they MUST hold a personal licence

Details of the premises licence and any conditions attached thereto as well as any enforcement action taken during previous two years, where known  

Material changes  To the best of knowledge awareness of any material changes of commercial conditions likely to appear in the area (licensees to be encouraged to make full consideration of any competition within their business plan)  To the best of knowledge information about any material changes of commercial conditions likely to appear in the area and how these might influence the business opportunity available  
Lease restrictions  Any restrictions contained in the lease on the uses to which the premises may be put (e.g. planning constraints on types of trading and/or hours, disclosure of Use Classes - A3 or A4)  Details of any restrictions on the uses to which the premises may be put (e.g. planning constraints on types of trading and/or hours, disclosure of Use Classes - A3 or A4) will be provided.  
Repairing covenants  Company Codes of Practice should, as far as reasonably practicable and possible, provide for the making available to the lessee of information relating to repairing covenants.  Companies will describe the nature, scope and extent of their policy with regard to repairing covenants.

Companies will provide the prospective lessee with details about the nature, scope and extent of their obligations in the Heads of Terms agreement.  

Pub Building  The pub building (prospective lessees to be urged to inspect the property thoroughly and encouraged to seek independent professional advice on the structure of the property)  Prospective lessees will be encouraged to inspect the property thoroughly, seeking independent professional advice on the structure.  
Rent assessment  How the rent will be determined initially

Assessment procedures for rent reviews, including those matters that should be taken into account or disregarded by both parties  

The rental assessment model will be based on a lawful application of statute and common law. Companies will ensure that the prospective tenant or lessee is aware of the basis of the rental assessment (FMT) and how the market rent for the property is established. The setting of initial rent and its subsequent review will be handled fairly, with reasonable allowances made for costs and sustainable trade.

The assumptions included in the rental assessment model will be explained together with assessment procedures for rent reviews, including those matters that will be taken into account or disregarded by both parties.

When calculating gross profits for tied pubs the prices charged to the tenant or lessee by the pub company in the relevant tied price list should be used  

AWP Rent   It will be made clear in the process of profit assessment that where AWP machines are tied, and the income is shared, such income will not be included in the "divisible balance".  
Upward only rent review clauses  New lease agreements should not contain upward only rent reviews but in the circumstances outlined in section 4 the rent may be reviewed downwards after a negotiated settlement, subject to a floor of the initial rent agreed.  UORR clauses will not be included in leases.

Some existing agreements may contain UORR clauses and, in such circumstances, company Codes of Practice will make it clear they will not enforce them. In addition, if lessees want a side letter/deed of variation to that effect it can be provided though at the lessee's expense. Companies will also provide lessees with the opportunity to convert to new agreements if terms can be agreed.

All rent review clauses will be capable of upwards and downwards reviews  

RPI clauses   Where a tenancy or lease refers to indexation by reference to the RPI, Pub Companies will notify their tenants or lessees that the adjustment in the rent may be upwards or downwards, according to the movement of the Retail Price Index at the time.  
Disclosure and Transparency:   Full disclosure of all relevant information is an essential feature of the relationship between the pub company and tenant/lessee. Pub companies will provide, as a minimum, the following information to any prospective tenant or lessee at the start of a new tenancy/lease or rent review negotiation:  
Profit and loss account   A shadow profit and loss (P&L) account will be prepared by the pub company in good faith based on reasonable assumptions.  
Turnover  Information relating to the trading history of the pub. Precise turnover will not usually be available to the pub company but details of volume purchased from the company directly can be provided  Precise history of turnover and overheads will often not be available as such information rests with the existing or former holders of the tenancy/lease. However details of volume purchased directly from the company over the past three years will be provided where available.  
Benchmarking report   Prospective tenants or lessees will be advised about the availability of industry Benchmarking Reports which may assist with the preparation of their business plan  
Information at rent review   The same information that is provided at the commencement of new lease negotiations must be provided to all lessees at the start of a rent review negotiation (including a shadow P&L containing all the information prescribed above). In addition to a breakdown of costs, detailed information on the assumptions made on turnover by income stream must also be provided.  
Goodwill   The treatment of "goodwill disregard" will follow RICS guidance:

Any goodwill attached to the premises attributable to the tenant or lessee having achieved a greater level of business than an "average competent tenant" and the effects of the tenant's or lessee's improvements will be disregarded.  

Rates   The rateable value used in the rent assessment will be the actual rates payable where available or, if not available, the estimated rates based on FMT.  
Rent Disputes  The company should indicate to the tenant or lessee how the question can be referred to an adjudicator for an independent decision, indicating as far as possible the likely costs. Allocation of adjudicators' costs to be disclosed.  Company Codes should set out the procedures available where the rent review is not agreed including the company's internal procedures and the option for referral to an independent expert through PIRRS or arbitration.  
PIRRS   Company codes must include details about the Pub Independent Rent Review Scheme and reference to the website www.pirrscheme.com

Codes must also contain the company's commitment to support the PIRRS scheme which is a condition of BII accreditation.  

Business Support  Codes of Practice to describe the range of support programmes and advice which may be available through the company, including, where appropriate
  • Commitment to assess capabilities and training needs of lessee and staff
  • Licences and any relevant training requirements under the new Licensing Act 2003
  • Business management advice (tenants/lessees should be advised to obtain professional services in areas such as finance, stocktaking, book-keeping)
  • Brand promotion, merchandising and provision/maintenance of dispense equipment
  • Outlet promotion and marketing
  • Procurement benefits
  • Role of Regional Business Managers (or equivalent) in providing support and professional guidance
  • Rating advice
  • Landlords support - external decoration, signage, building repairs
 
Codes of Practice will describe the range of support programmes and advice which may be available through the company . Such support might typically include:
  • Commitment to assess capabilities and training needs of tenants, lessees and staff
  • Licences and any relevant training requirements
  • Business management advice (tenants/lessees will be advised to obtain professional services in areas such as finance, stocktaking, book-keeping)
  • Brand promotion, merchandising and provision/ maintenance of dispense equipment
  • Outlet promotion and marketing
  • Procurement benefits
  • Rating advice
  • Landlords support - external decoration, signage, building repairs (including car parks and gardens)
 
Material Changes/exceptional circumstances  The Code of Practice should explain how the relationship between the company and the lessee will be conducted during the operation of the lease so that the business opportunities presented by the outlet can be exploited to mutual benefit. Open discussions to be conducted on anything which could have material effect on the operation of the business (lessees to exercise their own due diligence in these deliberations),. or where lessee identifies business opportunities or experiences difficulties through no failing of his/her own including:
  • A change in the local economy - e.g. imminent or actual opening or closure of a major business in the locality
  • A major road development
  • Significant change in the circumstances of local competition where known
  • Significant brand range changes initiated by the company
  • Level of sustainable rents in exceptional circumstances
  • Significant legislative proposals or measures and their potential costs

These procedures should include discussions with the lessee about:

  • Current trading pattern of the outlet
  • Efficiencies that might be achieved by the lessee
  • The quantified impact of the change of circumstances which has led to the trading difficulties
  • New approaches to the exploitation of the outlet designed to improve the trading situation
  • The potential for further viable investment in the outlet to improve the trading position
  • The possibility or not of an early surrender of assignment of the lease together with any potential cost implications for the lessee. Reference to be made to any contractual cooling-off periods.
 
Company codes will set out the company's policy for dealing with requests for assistance from competent tenants/lessees arising from circumstances where they experience business difficulties which are beyond their control.  
Assignment Companies will:
  • Respond timely to requests for assignment
  • Explain implications for disposal of business
  • Provide full details of procedures and professional support/advice available
  • Disclose all relevant fees
  • Describe buy back arrangements if any
  • Give an early breakdown of any dilapidations to allow licensee time to put right before assignment
 
Lessee Obligations:

Lessees wishing to assign their lease (assignors) must ensure that any assignee of their lease receives the same financial information disclosed by the pub company at commencement of the assignor's interest and actual trading figures and accounts for the preceding three years where appropriate . Where information is unavailable the reason for this must be disclosed.

The assignor must disclose information as if he were the original landlord and will inform a prospective assignee that they must:

  • demonstrate they have complied with pre-entry training,
  • obtain qualified professional advice and produce a business plan.

Pub Company Obligations:

Companies will set out clearly how they will respond timely to requests for assignment and explain the implications for disposal of the business. Full details will be provided regarding procedures, professional support/advice available and all relevant fees. Buy back arrangements, if any, will be described and an early breakdown given of any dilapidations to allow lessees time to put right before assignment.

All pre-entry requirements (including holding a personal licence under the Licensing Act 2003) concerning training or evidence based certification of professional or legal advice shall be capable of being waived by the Pub Company in the case of existing lessees or tenants or experienced operators, on production of suitable evidence.

Pub Companies will not agree to an assignment unless the above requirements have been complied with.  

Dilapidations  Early breakdown of any dilapidations to be given to allow licensee time to put right before surrender and whether fixtures and fittings will be purchased and, if so, arrangements for payment  Companies will provide an early breakdown of any dilapidations to allow lessees time to put right and advise whether fixtures and fittings will be purchased and, if so, arrangements for payment.  
Surrender   Companies will set out how it will deal with any requests for surrender of the lease.  
Business Relationship/Development Managers  Codes of Practice to describe the range of support programmes and advice which may be available through the company, including, where appropriate:
  • Role of Regional Business Managers (or equivalent) in providing support and professional guidance
 
Company codes will set out provisions and commitments governing the competence and future progression of BRM's/BDM's, including qualifications and on-going training

Company codes will set out a procedure for complaints and a mechanism to resolve disputes arising from the relationship between the company and the tenant/lessee.

Codes will set out the role of BRM/BDM's and the support and professional guidance they will provide.  

Restrictive covenants   Individual Pub Companies will make their policy on restrictive covenants clear.  




 

 
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Prepared 4 March 2010