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

Examination of Witness (Question Numbers 80-99)



  Q80  Chairman: To me the obvious solution is to make the code a statutory one.

  Mrs Simmonds: I have never been in favour of a statutory versus voluntary code. I think you will find that a statutory code provides less information and a lower standard than a voluntary one. We have come up with a voluntary system that has real teeth in the form of the BII which will be able to pick up cases where companies do not follow exactly what is required by their codes.

  Q81  Chairman: Mr Darby, you are an operator of pubs. From your point of view what would be the effect if you were kicked out of the BBPA?

  Mr Darby: If we were outside we could have a code of conduct, but clearly because the BII and BBPA are linked we would not have a BII-accredited code. Over the past few months one of the great outcomes of everything that has been going on in the industry is that the extent to which prospective tenants and lessees now investigate whether or not you are the right pub company to join has absolutely gone up another gear. Underpinning all of this is that if one is to be a successful pub company that attracts the best tenants and lessees one will have to pass muster with those individuals. If Marston's Pub Company or any other does not have a competitive, fair and transparent code of practice I am convinced that as time goes on it will be at a commercial disadvantage. Why would I go to a pub company that did not have an accredited code of practice and therefore certainty of protection?

  Q82  Chairman: One striking feature of the survey that informed our report was that the majority of publicans chose their pub because they wanted to be in that pub or community; it was not the pubco they chose. Do you suggest that what has been a driver of the industry will change; if so, how?

  Mr Darby: There must be an absolute change in the industry. Having been in the industry for only a year, we must reach a position where people take on pubs because first and foremost they make a business decision, not an emotional one. We have a part to play in this; we have been responsible for appointing these people to pubs and so we are part of the problem. We are trying to solve that problem going forward. I do not want somebody to take on a pub for emotional and not business reasons. All of the evidence is that after the event the relationship rapidly sours. I do not really care whether somebody who comes to a pub knows it well and has drunk in it; I want the individual to look at the prospective P&L, take individual advice and be trained by the BII to understand what he is letting himself in for. Then we can talk about whether or not it is still the right pub for that individual. That is where the mistakes have arisen. Too many emotional and not enough commercial decisions have been made.

  Q83  Chairman: One view is that some of the big pubcos are not motivated by those kinds of thoughts at all. Perhaps the people who owned them intended to flog them in two or three years and long-term decision-making was not part of their thought processes; for Marston's and small family breweries it clearly is. The idea was that they were in it for short-term gain, the mountain of debt then grew and their business model failed and we are dealing the consequences of it.

  Mr Darby: Whether one views it as a benefit or disbenefit, the result of the spotlight being shone on this industry is that the issues that need to be attended to are absolutely in open forum. If one is a company that is not being run in a sustainable and effective way that will present one with all sorts of business risks going forward. I will not enumerate that any further because it would be inappropriate to do so, but it is no different from you or me trying to get a mortgage on the basis of a bad payment record. We will struggle to get a mortgage. If we are to be trusted by both customers and the people who back us we must prove that we have long-term, sustainable businesses.

  Q84  Ian Stewart: Critics of the analysis you outlined earlier about a voluntary versus statutory code would say that the former approach has not worked up to now. This morning you have presented to the Committee an analysis which says that the new system will work. Do you accept that the voluntary nature of it, even though it may be mandatory, will not carry as much weight in court as a statutory code which would have a deterrent effect?

  Mrs Simmonds: We have taken advice on this issue. We are absolutely certain that if those agreements are signed by both the lessee and pub company they would be effective. For example, I was responsible for the "Good Practice Guide on Planning for Tourism". It is not a planning policy statement as DCLG would understand it but it has been taken into account in countless appeals because it is there as guidance. I believe that the same situation would apply here. The fact that those agreements exist and are signed by both parties would be clearly taken into account by any court of law or arbitration panel.

  Q85  Chairman: I suggest that following this session you send us a note about the legal consequences of the code. We can study that in detail rather than pursue it in this evidence session. It is a very important point that I want to hear about in a little more detail.

  Mrs Simmonds: Certainly.

  Q86  Mr Wright: You have already mentioned that your members will be signing up to the new RICS code. How will it be done? Will it be done verbally? Will they sign a document? Will it be legally binding?

  Mrs Simmonds: We need to differentiate between the industry code and the RICS guidelines on the setting of rents which is exactly what it is. Perhaps I may explain a little how the PIRRS scheme works. One has a group of chartered surveyors who have been recommended by the organisations that are part of PIRRS, that is, the FLVA, the ALMR and the BII. That group of people will be available to lessees if they wish to take up PIRRS. We have already had two examples where that has been taken up and three cases where the matter has been settled before it has got that far.

  Q87  Chairman: We are not talking about PIRRS at this stage; we are distinguishing between the BBPA code and the RICS guidance.

  Mrs Simmonds: We need to distinguish between the two. The RICS guidance is for chartered surveyors wherever they deal with the matter; the industry code is for pub companies.

  Q88  Mr Wright: The previous witness gave evidence about the RICS national benchmarking scheme. In your submission you make clear that it is not part of the pub company's role to disclose commercial information. Does it mean that you will not work with RICS on its benchmarking scheme?

  Mrs Simmonds: The pub companies are absolutely committed to provide the right information. Whether it is the ALMR benchmarking or, as the RICS said, some other system we will provide the information to make sure they have the best information on which to base the rent setting.

  Q89  Mr Wright: That would be so even if you determined that it was commercially sensitive? That has always been a get-out for other industries; it is said that the information is commercially sensitive and so it cannot be provided.

  Mr Darby: You touch on the key point here. Like other members of the BBPA we would be willing participants in a benchmarking survey as long as the information was clearly ring-fenced and kept confidential. For those of us who are publicly-listed companies margin performance is a critical part of the perception of our business. If we are to input market-sensitive information we should have the confidence that it will be protected and kept confidential. There are all sorts of other ways in which we contribute data. For example, we contribute market data to the BBPA in a way that is ring-fenced and secure so that nobody can see individual data. If that kind of protection is provided there will be no issue about participating.

  Q90  Mr Wright: I go on to the question of upward-only rent reviews that have been abolished since 2005. Existing lessees are entitled to comfort letters. What status would they have in court? There is a degree of scepticism that they will not be binding in terms of any past contractual obligations. Will these comfort letters bear the test of time?

  Mrs Simmonds: Again, we have taken legal advice on it and I am happy to share that with the Committee. We are absolutely clear that side letters are legally binding. At the end of the day the lessee also has the choice of having a deed of variation but both would be applicable and are available.

  Q91  Mr Wright: Why not just change the terms of the contract at the lessee's or lessor's expense so it is clear and unambiguous that upward rents are a thing of the past?

  Mrs Simmonds: Upward rent reviews have been a thing of the past since 2005. It must be made absolutely clear that even if you have an RPI lease your rent can go down as well as up obviously depending on the market. If one is concerned that the rent has been set incorrectly that is where the PIRRS comes in.

  Q92  Mr Hoyle: Mr Darby, you appear to be the man who has come to cleanse the industry; you are telling us that you are the good guy on the scene.

  Mr Darby: I try to be.

  Q93  Mr Hoyle: Mrs Simmonds, what do you think you are? Are you the bad part of the industry or will you be part of the good side of it?

  Mrs Simmonds: I hope I shall be part of the good side in encouraging all my members to work with the scheme.

  Q94  Mr Hoyle: Do you agree with the RICS forum report that in principle the tied tenant should be no worse off than a non-tied tenant?

  Mrs Simmonds: I think we need to look a little at where this originated. That form of words was used by the European block exemption and was dropped in 1988 as being inappropriate. It was designed to talk about the market as a whole, not individual premises. The important part is that the rent arrived at must reflect the price you pay for the beer and the benefits arising from that particular agreement. Therefore, if the pub company offers marketing and security—whatever funding it requires—all of that is put into the mix.

  Q95  Mr Hoyle: Is that a "yes" or "no"?

  Mrs Simmonds: The answer is that we will completely abide by the RICS guidance when it comes out, so it is "yes".

  Q96  Mr Hoyle: Mr Darby?

  Mr Darby: The BBPA code makes very clear that in terms of rent-setting it will abide by the guidelines set by the independent organisation which at the moment is RICS. Therefore, if RICS in its latest guidelines in the industry forum next year comes up with a methodology for the calculation of tied versus non-tied benefit, which is a complex issue, we will be bound by the code to follow those guidelines.

  Q97  Mr Hoyle: If you are the new BBPA person on the block why are you trying to get RICS to change its mind?

  Mrs Simmonds: We are not trying to get them to change their mind.

  Q98  Mr Hoyle: You have not put any pressure on them?

  Mrs Simmonds: We have had some discussion with them, but as the BBPA we have put absolutely no pressure on the RICS on anything that is to be put in its code. We will work with RICS to help them to understand our sector better but we have not put any pressure on them.

  Q99  Chairman: Perhaps I may quote something sent to me a few days ago on this issue: "The pubcos are hopping mad and are trying to wriggle out with the usual old `countervailing benefits' routine, but as RICS said if there are any beneficial or onerous terms in the relationship they are only taken at valuation if they are agreed between the parties and explicitly included in the lease." Apart from "wriggle out", which is a pejorative term, the conclusion seems to be absolutely sound intellectually.

  Mrs Simmonds: The independence of RICS is absolutely vital to this process. We will abide by whatever they come up with in their guidance. I can promise you that we have put no pressure on RICS.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2010
Prepared 4 March 2010