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

Supplementary memorandum submitted by Simon Clarke


  Thank you once again for inviting me to submit evidence for your consideration and allowing me the opportunity to speak as a witness in the recent Committee hearing.

  1.  My previous submissions contained a "Personal Introduction" and I am assuming you would rather I avoid any repetition in this regard.

  2.  Miss Kirkbride raised questions (Q207 & 208) which I consider require embellishment in order to satisfy her own mind and perhaps the minds of other Committee members.

  3.  Where I refer to "pubcos" I refer to any pub owning company, including brewers operating a tied business model.

  4.  The pubcos themselves claim that the disadvantages of being tied are outweighed by the purported "countervailing benefits" they offer, it follows that if this were true the tenant would be no better off being free of tie than they would being tied and therefore no tenant would implement the choice of being free of tie.

  5.  If a tenant were to take up the choice offered, then the deed of variation to a lease should be accompanied by a rent review to the open market rental value reflecting the revised lease terms. The pubcos claim that this rent review would result in higher rents and therefore, if they are to be believed, one could conclude they have no financial benefit in maintaining the tie at all.

  6.  Miss Kirkbride indicates "…we do not go after other people's private business practices." (Q207). In practice, we do go after other people's private business practices in many ways, both by ensuring they operate legally, within parameters set out in documentation eg leases and contracts, and fairly, through legislation (eg Unfair Contract Terms Act).

  7.  The historic tied business model, whilst flawed in other ways, was operated to ensure brewers could distribute their product, it was never initiated as an unregulated, mandatory purchasing agreement allowing the supplier of tied products to dictate price increases at will, to any level and at any time.

  8.  The pubcos have purported the existing model is fair. We do not require a change to a fair model. We do dispute the pubcos interpretation of a fair model and wish to ensure the model is fair on both parties, landlord and tenant, and does not continue to be the root cause of so many pub closures.

  9.  Hand in hand with the tied model comes a responsibility to ensure fairness to the tenants on whom the restriction is imposed.

  10.  By offering tenants a choice of tie the landlords would have a genuine incentive to ensure that the benefits they offer, on a discretionary basis, are sufficient to outweigh the burden of the ties they wish to enforce.

  11.  If the pubcos, properly offered the above then they would have nothing to fear from offering a release, or relaxation, of the tie to their tenants, as none would take up the offer.

  12.  If a tenant is faced with the unpleasant discovery that their pubco are taking advantage of their position of power then legal action is invariably the only option, an option that all too often is outside the tenants reach as they have, at the time of realisation, already been bled dry of financial resources to fund such an action.

  13.  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.

  14.  Miss Kirkbride is partially correct in her final statement (Q209) if the pubcos did deal with the first bit they would not have to deal with the second, as no tenant would implement their choice to go free of tie. The very existence of the second bit ensures effective and relatively swift policing and enforcement of the first without the necessity for legal redress.

  15.  The reason I say "partially correct" is that the "first bit", to which Miss Kirkbride refers, is the current proposal from the BBPA, outlined in their heads of terms for a revised code of practice. Their proposed code barely scratches the surface of the previous BESC report recommendations. The "first bit" should encompass all the BESC recommendations, not just a few easier options, and that is far from being offered.

  16.  In total there were 25 BESC recommendations. If we consider the entire industry response to the Report, 18 recommendations (by my count) remain untouched in any shape or form. In reality the pubcos and BBPA have fully addressed none of the issues raised in the BESC Report. Instead, once again, the pubcos have merely given the impression that the industry is capable of self regulation by "promising" to partially address the less substantial recommendations. There has been no demonstrable change for tenants since the BESC Report was published and those minor changes currently proposed will do nothing to alter the current status quo. Just like post TISC 2004, and as we have seen in the banking community of late, self regulation generally means no regulation at all.

  17.  The existence of a free of tie option would encourage continued efforts by pubcos to ensure they are offering a fair and reasonable exchange with their tenants to effectively reimburse for the detrimental effects of the tie.

  18.  The Committee may recall that the pubcos have long argued that the tie is liked by the majority of their tenants and is only disliked by a noisy minority. To offer a free of tie choice to tenants was a BESC 08/09 recommendation and was born from the differing opinions in this regard. The absence of any proposal to implement this recommendation does rather suggest that the pubcos may have misled the committee in this matter and that the "noisy minority" were correct all along.

21 December 2009

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