Memorandum submitted by Simon Clarke
The pub industry is a modern day "Easter
Island". The pubcos, like the Rapanui people, over exploited
their islands natural resources, are over exploiting the resources
of tied tenants resulting in the collapse of a finely balanced
system and the extinction of British pubs at a rate of seven a
day. Eventually the Rapanui died of starvation at the expense
of the natural resources and species of their island leaving only
"moai", the statue monuments of their past. The islanders
had no foresight that their actions would end in their ultimate
demise and no one to advise or control their destructive nature.
Sadly, the pub industry is incapable of policing itself and government
should intervene to help preserve its future.
A number of initiatives have taken place which give
the appearance of significant changes in the industry and a willingness
to self regulate. The formation of a much needed voice for tenants,
the Independent Pub Confederation (IPC), a position formerly falsely
claimed by the British Beer and Pub Association (BBPA) who, in
reality, represent the interests of major pubcos and brewers.
The Royal Institution of Chartered Surveyors (RICS) report, clarifying
that their existing valuation guidance, if undertaken correctly
should result in the tied tenant being no worse off than the free
of tie tenant and acknowledging the possibility of perceived conflicts
of interest within their Trading Related Valuations Group (TRVG)
and the BBPA revised code of practise, which claims to offer the
solution to all the industries ills but in reality is little more
than an effort to avoid government intervention in exchange for
a few insignificant and unenforceable "good housekeeping"
I am a tied publican and chartered surveyor.
During the BESC inquiry I presented a number of submissions, five
of which were published in Volume II, more than any other individual
contributor, and I gave verbal witness evidence to the Committee
on the 18 November 2008.
I wholly endorsed the findings of the Committee
and since publication have joined the Fair Pint Campaign and represented
their interests on many occasions, most recently the industry
mediation and All Party Parliamentary Beer Group meeting earlier
I believe I am the only surveyor to have been
called to give two presentations to the RICS during their in-house
Pubco Forum, prompted by the criticism they received in the BESC
report. I was pleased to find the subsequent RICS report reflected
and addressed many issues raised during my presentations, although
I consider I may not have been the only party to raise these issues.
The Committee will receive copious presentations
from parties regarding the "progress" of the industry
since the publication of the BESC report in January 2009. I considered
it may be helpful to the Committee members to have a summary of
the initiatives and developments and my opinions of their consequence
MediationAt the invitation
of the Association of Licensed Multiple Retailers (ALMR), industry
representatives gathered to mediate terms that would prove the
industry has the ability to reform itself without government intervention.
The mediations failed to agree a mediated document and therefore
overall was a failure. The BBPA produced a 'post' mediation agreement
which was only endorsed by the British Institute of Innkeepers
(BII), as the agreement addressed the tertiary issues of transparency
and codes of practice, and the Federation of Licensed Victuallers
Associations (FLVA). The FLVA has been the subject of considerable
criticism over perceived conflicts of interest Martin Caffrey,
former Enterprise Inns regional manager, is now operations director
and Dennis Griffiths (President), and Alan Jane (executive committee
member) have recently launched a new company running failing pubs
for Punch and Scottish & Newcastle Pub Enterprises.
Mediation had some helpful consequences but
its primary aim, to reach a settlement, that would show the industry
is capable of self regulation, failed.
This was not a pubco initiative.
Independent Pub Confederation (IPC)The
BESC indicated they were surprised that there was no one body
representing the interests of tenants. There are many groups representing
tenants interests but no particular one can match the power and
resources of the pubco and BBPA.
Following the industry mediation attempts it
became clear that no agreement would be reached between the parties
that truly represented tenants and those representing the pub
owning companies. The only real success of the mediation was the
identification of common ground and consolidation of views of
the tenants bodies and the ultimate formation of the IPC which
now represents around 25,000 licensees and 100,000 consumers.
The parties within the IPC have found common
ground on many issues and have issued their "manifesto"
for the Committee's consideration. Whilst there may be differing
views on the future of the tie, there is a unanimous consensus
and agreement with the BESC recommendation that "
tying of beers, other drinks and ancillary products should be
severely limited to ensure competition in the retail market is
You will note the IPC manifesto addresses significant
issues which were highlighted by the BESC whole hearted support
for the recommendation that "
the pubcos should offer
lessees a choice between a free of tie lease and a tied one".
The IPC have called for this offer to be made on new lettings,
rent reviews and lease renewals.
Whilst, the formation of the IPC will hopefully
fill a much needed void in the industry and offer a voice to all
tenants be they free or tied, it only serves to fulfil one of
the many BESC recommendations and is a tenants initiative driven
by the pubcos failure to offer or agree any significant terms
This was not a pubco initiative.
The Royal Institution of Chartered
Surveyors (RICS) reportI am assuming the report has
been seen by Committee members and will be submitted as evidence
in the forthcoming meeting on the 8 December 2009.
(A) The report indicates the RICS plan to set
up their own code of practice (although there may be some difficulty
in enforcing this against non members).
(B) A database of trading information which will
help provide benchmarking and guidance for rental valuation increasing
(C) Rewording of the guidance to restrict further
misinterpretation by parties for their own ends.
(D) An acknowledgement that, rightly or wrongly,
there may be a perception of bias within the TRVG, some surveyors
being seen to have a bias towards pubco landlords' interests,
a proposal to make new appointments being recommended.
(E) Perhaps most significant and reassuring to
tenants is the report's statement that with the correct interpretation
of the RICS guidelines all the lease terms should be considered
and with the appropriate correct treatment of wet rent (tie) the
tied tenant should be no worse off than if they were free of tie.
The BBPA, pubcos and their representative
surveyors have demonstrated their dissatisfaction with the final
statement above, (E), and have refused to incorporate the principle,
that the tied tenant should be no worse off than if they were
free of tie, in their post mediation agreement or their revised
code of practice, despite it being considered as universally accepted
by the TISC 2004 and the foundation of EU and domestic law.
There is a great deal of concern that the pubco will use every
effort to persuade the RICS to reverse or confuse this statement
in order to enable "business as usual" and continue
charging excessive unrealistic rents to service their debt burden.
This report has yet to be put into effect but
should go some way to resolving some of the issues of transparency
and hopefully rental valuation. It should be added the RICS have
undertaken this exercise following the BESC criticism and should
be commended for their efforts thus far, the implementation of
their report's findings needs to be undertaken as a matter of
This was not a pubco initiative.
BBPA post mediation agreementthe
"pub code" got off to a bad start. The code, intending
to offer greater clarity and transparency, was presented to the
All Party Parliamentary Beer Group (APPBG) in secrecy, behind
closed doors. Representatives of the IPC were not permitted entry
and whilst the IPC accepted the invitation by Greg Mulholland
MP to an open debate of the issues affecting the industry the
BBPA refused. The BBPA failed to publish their agreement, however
one of the signatories, the BII, considered the industry should
be allowed the opportunity to consider its contents and published
it on their website.
Whilst apparently lengthy and comprehensive,
the document does little to address the real issues and recommendations
raised by the BESC. If the contents of the agreement could be
enforced then they may be helpful but since members of the BBPA
can simply resign their membership, like Greene King have done
recently, it forms nothing more than good practice guidelines
and is seen by the tenant groups to address nothing more than
the low hanging fruit. There is no mention of reform of the tie
and moreover an implication that the, so-called, "countervailing
benefits" can be incorporated in rental valuations. These
"benefits" are purely discretionary, can be withdrawn
at any time and are not legally enforceable terms of lease contracts
and as such, in accordance with the RICS guidance and the law,
not capable of valuation.
Whilst a pubco initiative, as a tenant I have
no reassurance from the BBPA agreement and see it as little more
than an attempt to avoid the scrutiny of a full and proper Competition
The BBPA document is seen by tenant groups to
be a demonstration of clear and present danger rather than a clear
and transparent future.
Enterprise Inns recent announcement
to offer free of tie to new and existing tenantsI believe
this is a last minute effort to show willing to the BISC and draw
fire from the criticism of the companies accounts announced the
Importantly, despite the headline, the offer
is only to release wines, spirits and minerals from the tie, many
tenants are not tied on these products anyway. The average British
pub turns over around 200 barrels and around 70% of the entire
turnover will be on beer products. Release from any tie should
be encouraged but Enterprise Inns have neglected to mention that
the release comes at the price of additional rent.
Any change in contractual terms should be accompanied
by a rent review to "open market rental value" not a
mandatory increase determined by the pubco.
There have been some positive outcomes since
the BESC report was published, the only ones of consequence initiated
by parties other than the pubcos. I hope the Committee can see
through the smoke and mirrors of the BBPA agreement and appreciate
little has changed that will halt the accelerating pub closure
and tied tenant business failure rate. The collective initiatives
should be seen as a buoyancy aide but even the combination of
them all can not be considered as a rescue package.
Many factors affect the pub industry but the
operation of tie agreements remains the fundamental influential
factor contributing to business failure. The BESC 2009 heard
evidence demonstrating that tied products are in many cases around
twice as much as the same product free of tie. The MMC 1969 report
demonstrates clearly that historically there was practically
no difference between tied and free of tie prices. The purpose
of the tie was to ensure the distribution of a brewers particular
product, not as a source of additional revenue, the reverse now
The RICS can resolve the misinterpretation
of their rental valuation guidance but there remains no control
whatsoever over the price that pubcos can dictate on tied products,
what they lose on the roundabouts they will gain on the swings.
I respectfully ask the Committee to refer the
entire matter of the relationship between the pubcos and brewers
and their tenants to a body who have no vested interest in defending
their earlier position, I consider the Competition Commission
remain the appropriate body to consider such a matter as the OFT
have demonstrated they remain reluctant to address the real issues.
18 November 2009