Supplementary memorandum submitted by
the Fair Pint Campaign
A response to the BBPA's; "UK Pub Industry
Framework Code of Practice for Tied Tenanted and Leased Pubs".
1. The Business and Enterprise Select Committee's
Report on Pub Companies published in May last year found
alarming evidence indicating there may be serious problems caused
by the dominance of the large pub companies. The Committee highlighted
the imbalance in bargaining power between pub owning companies
and tenants as one of the major causes of the problems in the
tenanted pub sector.
2. The BBPA promised to respond to the concerns
of the Committee with what they claimed would be a robust code
3. The details of the BBPA's framework code
of practice, which BBPA members will be expected to incorporate
into their own codes of practice have now been published. It does
nothing to rebalance the economic relationship between tied tenants
and their landlords. As the Select Committee showed in their Report
last year, the abuse of this relationship has led to tenants facing
unsustainable costs for tied products combined with levels of
rent, and a means of reviewing it, which make it practically impossible
for tenants to make a profit from their businesses.
4. Pubcos already have codes of practice
and these were promised to be strengthened in response to the
criticisms of the industry in the 2004 Trade and Industry
Select Committee report. However, these codes of practice have
not prevented the kind of exploitative behaviour which was highlighted
by the Business and Enterprise Select Committee's report last
5. The BBPA code is therefore a wholly inadequate
response to the criticisms of the sector made by the Select Committee
given that it totally ignores the key areas of the Committee's
concern. The fact that the BBPA has chosen to respond to the Select
Committee with a set of proposals which would more or less leave
the status quo untouched shows that the BBPA's biggest pubco members
are totally unwilling to consider any meaningful change in the
structure of the industry. Their primary concern appears to remain
their ability to extract short-term income from their pub estates
in order to meet their debt obligations.
6. Even in the limited number of areas where
the framework does seek to improve on the status quo the value
of the commitments are limited because the framework and the codes
of practice of which it will form part are not independent, not
enforceable, and have no meaningful sanctions in place to deal
7. Rather than a new code of practice this
is merely a framework which members of the BBPA will be expected
to incorporate into their existing codes of practice. Most of
the bigger pub owning companies have codes of practice which,
as the Select Committee's report highlighted, have not effectively
protected the rights of tied lessees. Even now there is continuing
evidence that pubcos "disown" their codes of practice
whenever it suits them to do so.
8. The BBPA document states that because
the code of practice will be agreed by both lessee and landlord
the code will be binding and may be used in evidence in
court. We are concerned about the lack of clarity on this point.
Rights and obligations between lessees and their landlords are
set out in the lease, which will remain the primary agreement.
We therefore believe that any change to the legal obligations
of either party should be enforced by a deed of variation to the
9. As well as setting out obligations for
landlords, the framework seeks to impose obligations on tenants.
For example, those related to the assignment of leases. By restricting
the freedom of lessees to sell their interests, the framework
seeks to impose new onerous conditions on lessees. In return the
lessee gets nothing from the landlord apart from the promise to
fulfil obligations which they should be doing anyway. Because
of these additional, and onerous, obligations on tenants it is
likely that many will be advised not to sign the code and as such
the BBPA's members will be able to step away from their obligations.
This is a step backwards.
10. The BBPA document states that the code
of practice is not capable of being altered unilaterally and that
future revisions will be carried out after consultation with representatives
of tenants and lessees. The obligation is only to consult and
it is clear that tenants' representatives will not have a veto.
The two groups mentioned in the document, the British Institute
of Innkeeping (a training provider) and the Federation of Licensed
Victuallers Associations are not representative of all tenants
and are financially linked to BBPA members. It is highly questionable
as to whether they should be in a position to agree things which
might place new obligations on tenants.
11. The BBPA framework might only be changed
after consultation, but there is nothing in the document which
suggests that individual company codes of practice, of which the
framework will form a part, cannot be changed without consultation.
12. We are very concerned that as the framework
code of practice will absorbed into each company's individual
code of practice, there is a risk that companies will include
other onerous obligations on tenants as part of their codes. Lessees
will have to consider very carefully what they are agreeing to
and would be wise to seek legal advice before signing the new
codes of practice. However, if lessee refuses to agree to sign
the code of practice the landlord will not be obliged to fulfil
his obligations, which would undermine the effectiveness of the
BBPA framework still further. (repeat of earlier but worth leaving
in to reiterate this key point.).
13. We believe that any code of practice
should be fully independent. It should be mandatory on all pub
owning companies and not on tenants and should include meaningful
sanctions for those who breach it. The BBPA framework meets none
of these requirements.
14. Improving the training of people of
people entering the tied pub sector forms a key part of the framework
document. We agree that people should only enter any business
agreements once they have attained a good understanding of what
is required to run that business and a full understanding of what
they are committing themselves. For too long the BBPA and its
members have marketed their business model as a "low cost
entry" scheme. Experience and cost normally form sensible
barriers to entry to any normal, commercial sector.
15. However the Select Committee's report
highlighted that the major problems faced by tenants were due
to the imbalance of the relationships between pub companies and
their tenants not the knowledge and capability of tied publicans.
A focus on the training required for those entering the industry
seems to be a long way from addressing the key concerns of the
Select Committee which was the way in which pub companies run
their businesses. We say that training is important in any sector
but fear that it is being used cynically in this case as a distraction
from the main issues.
16. The problem that most tied publicans
face is that they enter an agreement with a pub company where
the implication is that agreement will be one of partnership.
Only when they have signed up to the agreement do they realise
that the power of pub companies to increase the price of tied
products almost at will, and to manipulate the rent valuation
system, means that their business becomes unviable. Pre-entry
training, honestly and comprehensively delivered, might persuade
some people not to take a tied pub, but it will not bring to an
end the power of pub companies to use the tie to increase their
profit from beer and other product sales after agreements have
been entered intoforcing once viable businesses into failure.
17. The requirements on pre-entry training
are of little value because the requirements can be waived at
the company's discretion. The criteria set down for waiving the
requirements, which are if the pub company believes that the potential
tenant is in a position to rely on their own judgement seems broad
enough to potentially include most new entrants into the market.
18. The framework sets out requirements
about the information pub companies are obliged to supply about
terms of business.
19. Pub companies are obliged to supply
a price list and to explain which products are tied and which
are free of tie, as well as the discounts which will be available
to tenants. These seem to be requirements which are so basic as
to be meaningless as it is difficult to consider how companies
could have a commercial relationship with their tenants without
providing this basic information .
20. The framework obliges pub companies
to price match like for like any insurance policies, which are
identified by the tenant/lessee.
21. We don't believe that this will prevent
pub companies overcharging for cover. Getting a comparable lower
quote will be difficult for tied tenants as brokers will know
that tied tenants are not free to purchase cover. There is also
scope for companies to make the requirements of insurance so restrictive
to make it impossible for tenants' to find cheaper quotes.
22. We believe that tenants should be able
to purchase their own cover with the only restriction that the
cover fulfils a number of basic requirements set down by the landlord
and that the landlords interest in the property is noted in the
23. The framework document states that pub
companies need to provide basic information about AWP machines.
The document sets out that details of how the landlord/tenant
share of the machine income will be assessed should be provided
to the tenant.
24. The fact that BBPA member companies
have not even being willing to consider getting rid of the AWP
tie, which can't be justified for any other reason other than
it affords pub owning companies the opportunity to extract more
income from their estates, is disappointing. It shows that pub
companies are unwilling to even make the smallest changes to the
relationships with their tenants which could in anyway improve
the fairness of the division of pub profits.
25. We believe that the machine tie should
be scrapped. This was the recommendation of both the Trade and
Industry Select Committee report in 2004 and the Business
and Enterprise Select Committee report last year. We believe,
that the AWP market is an area of the pub sector which believe
could easily operate in a free and fair way.
26. The document states that companies'
codes of practice need to describe their policy with regard to
opportunities for improvements and refurbishment and the implications
for rent, but sets out no obligations about what these polices
ought to be.
27. The requirement simply lays out the
legal principles which are clearly accepted in property law. It
is not a concession. Even at the present time, with the BBPA promising
changes, Fair Pint continues to receive evidence of BBPA members
trying to "land grab" at rent review, regardless of
the law and regardless of the clarification that has been issued
recently by the RICS.
28. Companies will be required to develop
a protocol setting out the terms under which flow-monitoring equipment
may be installed and any further prima facie evidence available
Protocol on Flow Monitoring Equipment.
29. Annex A to the document (not printed
here) sets out in general terms what pub company protocols
on flow monitoring equipment could contain. These are only suggestions,
as there seems to be no requirements for protocols to address
each of the issues or requirements about how companies should
go about ensuring fairness in the use of such equipment.
30. The Select Committee's report and a
report conducted by an independent laboratory for Fair Pint have
made it clear that the accuracy of flow metering equipment is
questionable. Despite the claims of pub companies, it was made
clear that the flow meter could not distinguish between beer and
water used to cleanout lines.
31. The BBPA's members use flow monitoring
equipment as evidence for where a breach of the tie is suspected
and to levy charges on tenants. We believe that this use of the
equipment falls under the definition of use in trade and therefore
should comply with weights and measures legislation with its accuracy
being certified by Trading Standards. If not it should be removed
from tenants' premises or used only for information purposes for
the operation of the premises by the tenant.
32. Pub Companies should acknowledge the
fact that leases do not give them the power to levy fines on publicans
for alleged breach of supply contracts. Charges should not be
taken from tenants' bank accounts in contravention of the rules
governing the Direct Debit scheme. Oral and written evidence to
the Committee confirms that the Brulines system is certainly inaccurate,
possibly unlawful and certainly being used to intimidate pub tenants.
33. The framework sets out obligations for
landlords to provide basic information about the pub premises
and the obligations under repairing leases, but this is meaningless
as the obligations go no further than things that competent landlords
would be expected to provide anyway.
34. The document describes the role of the
RICS in drawing up guidelines for rent assessments. Surprisingly,
the document seems to seek to place obligations on RICS which
is not a party to the agreement.
35. The agreement states that the rental
assessment ought to be based on the law and that the tenant ought
to be told how the rent is assessed. We believe that it is reasonable
to assume that rent assessments should be carried out in a lawful
way and that basic information ought to be supplied to lessees
in any case. Therefore, this is no change from the status quo
36. In response to the 2004 Trade and
Industry Select Committee report, pub companies promised to update
their codes of practice to ensure the assumptions used in rent
calculations where realistic, but, as the Business and Enterprise
Select Committee discovered in their report last year, this didn't
happen. The lack of sanctions to this framework means that there
is every reason to believe that these promises will be not be
The position of AWP income in rental valuations
37. Whilst the fact that the code of practice
makes it clear that AWP income ought to be above the divisible
balance. This would end the totally unfair practice of
38. Tenants being forced to surrender up
50% of the AWP profit to their landlord as part of the machine
tie and 50% again of that remaining profit given that the income
is included in the divisible balance. We believe that the only
fair way to deal with AWP income is to end the machine tie entirely,
which was the recommendation of both the 2004 Trade and Industry
Select Committee and the Business and Enterprise Select Committee
Taking account the cost of tied products
39. The framework creates an obligation
on companies to use the relevant tied price for products when
assessing the fair maintainable trade and the divisible balance,
should ensure that rent assessments take account of the cost of
tied beer when assessing rents. However, the lack of detail on
how other costs are calculated means that rent assessments will
still be open to manipulation. The agreement makes no mention
of the principle that the tied tenant should be no worse off than
a free of tie tenant. This should be the legal basis for assessing
tied rents and has been accepted by the RICS. The failure to include
this principle in the framework to be adopted as part of pub companies'
codes of practice leaves the possibility open for pub companies
to overcharge for rents. This will mean that tenants will have
to bear the cost of dispute resolution by a Chartered Surveyor
if their pub company chooses to ignore this principle.
40. We welcome the removal of upward only
rent clauses, but we believe that these clauses should be removed
by deed of variation rather than simply a pledge not to enforce
it. In this way tenants can be sure that the arrangement will
be binding on a pubco's successors in title. It has come to our
attention recently that some pubco leases include provisions whereby
only the pubco can initiate a rent review. It is meaningless of
pubcos to offer an end to upwards only rent reviews if the effect
of other clauses that are not amended is that a rent review does
not have to take place at all.
41. We believe that RPI indexation should
also be removed from leases. Apart from the exceptional period
last year, RPI tends to increase. The increase in general consumer
prices is totally unrelated to the performance of pub businesses.
We believe that all rents should be allowed to rise and fall depending
on an accurate assessment of the profitability of the pub and
the application of the principle that tied tenants should be no
worse off than if they were free of tie.
42. There is nothing in the agreement which
makes it clear that when rents are set the costs of running a
pub should include the right of tenants to earn a salary from
their pub businesses or the right for them to pay a salary to
a manager if they don't run the pub themselves, the cost of either
being rightly deductible from the divisible balance.
43. The framework document states that the
pub company will provide a shadow profit and loss account in all
good faith based on reasonable assumptions and drafted by a properly
44. There is a lack of clarity about what
responsibility the pub company bears if the assumptions used by
the pub company turn out to be inaccurate.
45. We welcome the suggestion that tenants'
attention ought to be drawn to benchmarking reports. Whilst this
might help some inexperienced tenants, this information is already
freely available to all tenants.
46. The document states that the same kind
of profit and loss account should be provided at rent reviews
and lease renewals, as well at the commencement of new tenancies.
However, as explained above a clear outline of the assumptions
used for setting rents were promised in response to the Trade
and Industry Select Committee Report in 2004, but this didn't
seem to change the behaviour of pub companies and the way in which
they set rents.
47. We welcome the fact that the document
makes it clear that rent review clauses will be capable of upward
and downward reviews. However, the document isn't clear that this
should mean the removal of RIP indexation in rent reviews, which
are upward only rent review clauses in all but name.
48. The pledge to ensure that goodwill is
disregarded in line with RICS guidance and most contractual arrangements
is welcome, but this is a basic requirement which should be accepted
already. This is not a concession.
49. We have welcomed the principle of the
PIRRS scheme, but it is important that the scheme is fully independent
and has the trust of tenants.
50. The fact access to the PIRRS scheme
will be made available to tenants is welcome, but we are concerned
that the PIRRS scheme is already being subverted by pub companies
with the addition of a new appeal mechanism which pub companies
can use if they are unhappy with the outcomes. The current drafting
in relation to the PIRRS scheme makes it clear that the pubco
will retain an option to revert to arbitration if unhappy with
the outcome of the PIRRS scheme but that would not be an option
for the tenant. See below:
22. Irrespective of the terms of the lease
the landlord grants the tenant/lessee the right to elect for a
referral to the PIRRS scheme and agrees to be bound by the expert
valuation delivered through the PIRRS scheme. This will not remove
the right to arbitration but the tenant/lessee will waive such
a right if the option to refer to the PIRRS is taken.
51. The idea of the PIRRS scheme is to give
quick and affordable resolution for tenants who are in dispute
with their landlords. We are concerned that the new powers of
pub companies to appeal findings against them will means extra
costs for tenants and many will be unable to afford to challenge
52. The framework sets out a number of examples
of business support which can be available to tenants, such as
access to training, licensing advice, business management advice,
brand promotion, maintenance of dispensing equipment, outlet promotion
and signage, procurement benefits, rating advice. A footnote to
the document makes it clear that these are just examples and pub
companies are not bound to provide the support listed.
53. In most cases the support has to be
paid for and could be purchased on the open market at a lower
cost. Some of the examples of support are available to free of
tie tenants at no cost from drinks suppliers who are keen to market
their products in pubs.
54. We believe that so called countervailing
benefits cannot be counted as such unless they are agreed explicitly
to by the landlord and lessee as part of the lease, and the value
of the support is quantifiable. In most cases, examples of support
are of little value to tenants or are actually onerous conditions
especially where publicans are obliged to purchase suport from
their landlord which is freely available elsewhere.
55. The document sets out the requirement
that company codes will establish as protocol for dealing with
requests for assistance from any competent tenant or lessee arising
from business difficulties beyond their control.
56. Most pub companies already include this
in their codes of practice, but it is still very difficult for
tenants to access meaningful support in these circumstances. The
requirement sets out no obligations for companies to provide support
or any definition of what a competent tenant might be. This gives
pub companies plenty of leeway to ignore these requirements.
57. Surprisingly, this section seeks to
impose obligations on tied tenants who are not party to the agreement.
The agreement is between the BBPA, the BII and the FLVA. These
bodies only represent a small proportion of tied tenants. We do
not believe that this agreement should place obligations on publicans.
58. The framework seeks to impose a new
duty on lessees when the wish to assign their lease. The intentions
behind this is to ensure that all entrants to market can be said
to have demonstrated an understanding of how tied pub businesses
work. However, the requirements on the assignor will come at a
cost. This has the effect of skewing the economic imbalance between
tied tenants and pub owning companies yet further against the
interests of publicans as their freedom to leave the sector by
assigning their leases will be restricted.
59. The document requires that the assignor
must ensure that the assignee has complied with pre-entry training
and has obtained qualified professional advice. Whereas the document
allows pub companies to ignore these requirements at their digression,
it is unclear that assignors will have the same rights.
60. The proposals conflict with contractual
obligations and common law. The landlord has an obligation not
to unreasonably withhold or delay license to assign. The current
view of the Court is that once a proper application for license
to assign has been received then the landlord should give a decision
in days rather than weeks. It will only be reasonable to withhold
consent for reasons recgonised readily in the Court or stipulated
in the lease. If the license is withheld unreasonably then the
tenant may apply to the Court for a declaration and the damages
may be awarded against the landlord if the tenant has suffered
a loss due to the landlord's unreasonable delay.
61. The document states that pub companies
will have to provide an early breakdown of dilapidations to lessees
who are seeking to assign or surrender their lease, and advise
whether fixtures and fittings will be purchased.
62. This seems to be a pretty basic requirement
and it should be expected that this would happen as a matter of
course. There are no requirements on pub companies to ensure that
calculations of the cost of dilapidations are fair and reasonable.
63. Current experience in the market shows
that pubcos may be inappropriately seeking to use the assignment
process, and the necessity for them to give consent, to secure
works to the premises that would not be considered in law to be
dilapidations. Where the original term of the lease is seven years
or more and three years remain unexpired the tenant can seek relief
against the effect of an interim schedule of dilapidations.
64. The document states that companies will
set out how it will deal with any request for surrender of leases,
but sets out no requirements about how the companies should go
65. The framework states that company codes
will have to set out provisions and commitments governing the
competence and future progression for BRM/BDMs. However, it sets
out no requirements about what these ought to be.
66. Companies will be obliged to have a
procedure to deal with complaints and an mechanism to deal with
disputes. In most cases companies claim to have these mechanisms
already. There are no details about what these procedures ought
to be and whether they will be independent.
67. In the same way, the document states
that codes of practice will set out the role of BRM/BDMs and the
support and professional guidance they will provide, but there
are no further requirements about what kind of support this might
68. Companies will be obliged to make their
"policy on restrictive covenants clear". This is meaningless
as there are no requirements about what company's policies should
be or for them to provide any explanation of their policy.
69. There is a requirement that company
codes of practice should explain procedures for complaints and
dispute resolution and states that resolution of complaints should
be at a higher managerial level than the initial decision. Most
pub companies already have a mechanism for complaints to be taken
to regional managers, so this requirement is simply describing
what most companies claim to do anyway.
70. It is clear from the document that the
there will be no effective sanctions and no independent dispute
resolution mechanism for complaints from tenants.
71. The framework states that the adoption
of codes by each company "provides an adequate procedure
for the resolution of differences". This is clearly not the
case as the mechanisms within existing codes of practice have
been shown to be inadequate in dealing with disputes.
72. The framework does set out a mechanism
for lessees to complain to the BII if they feel that they have
not being treated fairly by the mechanisms within the company
codes. It explains that the "BII or the FLVA will pass on
this information to the company concerned and use its good offices
to ensure, as far as possible, that there has been 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."
73. It is therefore clear that there will
not be any effective mechanism for dealing with disputes between
companies and their tenants. Given the instances of bullying and
intimidation in the relationships between companies and their
tenants highlighted in the Select Committee's report last year,
it is highly unlikely that the a tenant would complain to the
BII or the FLVA. This is because it would mean having their identity
exposed to the company they are complaining about in the knowledge
that neither the BII of the FLVA has any sanctions at its disposal
if the company wishes to ignore the complaint.