HC 1369 Pub Companies

1. If the BBPA and IPC are now in dialogue and if so how this is progressing;

1.1 We believe that progress has been made, evidenced not least by a coordinated and agreed approach to the CGA Tenants Survey.

2. Whether the Pub Companies’ individual Codes of Practice are robust enough and whether the major pub companies have built upon the de minimis requirements of the BBPA’s Framework Code;

2.1 The Industry Framework Code of Practice (IFCoP) established minimum requirements for individual companies’ Codes of Practice (CoP).

2.2 Enterprise Inns (ETI), which first published a CoP in 1997, is one of the largest operators of leased and tenanted pubs in the UK and has always sought to ensure that its CoP provides industry-leading content and clarity. We believe that the ETI CoP meets or exceeds every requirement set out in the IFCoP.

2.3 Whilst all contractual terms are specified within the lease or tenancy agreement, there is a further mandatory requirement in all new agreements for both parties formally to confirm that they have read and understood the ETI CoP and to recognise that the CoP may be relied upon by both parties in any dispute.

2.4 "Both you and ETI will be required to sign a certificate to confirm that the terms and conditions of the Code are fully understood and, whilst your formal lease or tenancy agreement will always be the legally binding proof of the contractual relationship between us, this Code will have effect and may be relied upon by both parties in any dispute." – ETI CoP Introduction

2.5 Furthermore, ETI has issued the revised CoP to all existing agreement holders, making a clear commitment to be bound by the obligations set out therein.

3. If the Codes of Practice are being complied with;

3.1 ETI has appointed a senior manager whose exclusive duties are to ensure that ETI fulfils its obligations under the ETI CoP and that any complaints or concerns raised by individual tenants are addressed quickly, comprehensively and in accordance with the procedures detailed in the ETI CoP.

3.2 We understand that the British Institute of Innkeeping (BII) has reported no major breaches of the ETI CoP.

4. How the BII is policing the codes and whether this is effective;

4.1 As a pre-requisite to its publication, the ETI CoP was subjected to an exhaustive and effective accreditation process conducted by BIIBAS.

4.2 We are aware that a small number of individual complaints have been raised with BIIBAS. ETI has always responded promptly and comprehensively by providing the facts associated with each set of circumstances. We believe that no complaint has yet been upheld and that no material breach of ETI’s CoP has yet been identified.

4.3 The BII’s role extends further than simply policing CoPs and the availability of the BII Helpline has assisted individual tenants to find resolutions to disagreements or misunderstandings which are not CoP-specific.

5. The enforceability of the codes;

5.1 As addressed in question 2 above, ETI expects to be held to account for its obligations under the ETI CoP, clearly stating that the contents of the CoP may be relied upon by both parties in the event of any dispute.

5.2 At the date of this submission, ETI is not aware of any dispute where an alleged failure by ETI to meet its obligations under its CoP has been upheld.

6. If AWP machines are now being treated more fairly and tenants are being given a genuinely free of tie option;

6.1 There are a wide range of tie types and machine sharing arrangements within the ETI estate, including over 2000 agreements where there is either no tie or ETI receives no share of gaming income.

6.2 ETI’s assessment of a rental bid treats the tied tenant’s share of machine income in exactly the manner described in the IFCoP.

6.3 For many pubs, the level of gaming income is inconsequential and will have little bearing on rental bids. Where the tenant’s share of gaming income is significant, it is likely to have an impact on rental bids. RICS guidance clearly states that there should be no formulaic approach to the determination of rent and that, as with all valuations, it is the market that will determine price or rent.

6.4 Every ETI agreement negotiated since October 2010 has included the opportunity for tenants to elect for a free-of-tie option for gaming machines. No tenants have yet taken up this option.

6.5 We have now commenced a programme allowing existing agreement holders to negotiate a completely free-of-tie option for all gaming machines should they so wish.

7. The treatment of flow monitoring equipment;

7.1 ETI’s right to install flow monitoring equipment is clearly specified in each lease or tenancy agreement and procedures covering its use are specified in the ETI CoP, which complies in every respect with the IFCoP.

8. The advice being provided by BBPA to prospective publicans;

8.1 We understand that BBPA is working closely with BII, particularly in the vital area of ensuring that potential tenants are well informed and properly trained.

9. The effectiveness of the new RICS guidance on pub rental valuations and whether it provides clarity on the principle that a tied tenant should be no worse off than a free of tie tenant by defining what constitutes a countervailing benefit;

9.1 ETI’s CoP clearly states that ETI will follow RICS guidance, as updated from time to time. With the exception of one recent allegation which is now being considered by BIIBAS, ETI has not been made aware of any complaint by an individual tenant or professional advisor suggesting that ETI has not acted in accordance with RICS guidance. RICS has confirmed that it has not been made aware of any such incidence in relation to the actions of ETI or its staff.

9.2 RICS guidance makes no reference to the "principle" described and (at paragraph 6.9) explicitly states that there is no formulaic approach to the determination of rent. The guidance also makes it clear (at paragraph 7.21) that comparability between tied and non-tied sectors is problematic and that it is preferable to compare transactions relating to similar properties with similar lease terms.

9.3 In paragraphs 5.140 to 5.159 of its detailed response to CAMRA published in October 2010, the Office of Fair Trading addressed the complex issue of the relative costs and benefits of ownership for tied and free-of-tie tenants, concluding that whilst no simple formula could be applied, the overall costs were on balance not materially different.

10. The creation of an industry benchmarking survey;

10.1 ETI continues to engage with, and provide data to, RICS in order to establish a Pub Market Survey.

11. The availability and effectiveness of complaints procedures and an independent disputes mechanism;

11.1 The ETI CoP clearly sets out the procedures by which individual tenants may seek to address and escalate any complaints or concerns, including ETI’s support for the PIRRS to determine disputes at the time of a rent review.

11.2 Since October 2010, ETI has negotiated and settled 497 cyclical rent reviews. 4 have been determined by arbitration and 3 have been determined by PIRRS at the election of the tenants concerned.

12. The availability of genuine free-of-tie options ie an open market rent review under RICS new guidelines, ability to buy beer from any source; and

12.1 All new agreements since November 2008 have included free-of-tie options for wines, spirits and minerals, plus a range of flexible discount options.

12.2 Since October 2010, all new agreements have offered tenants additional options to be free-of-tie in respect of all packaged beers, ciders and FABs, a guest ale sourced from a SIBA brewer and gaming machines. There is also an agreement which allows SIBA brewers to be completely free-of-tie for all own-brewed cask ales.

12.3 Discounts available have been increased to a level which we believe equates to those which may be available to a free-of-tie operator.

12.4 All the above free-of-tie options are also available to existing agreement holders if they elect to negotiate a completely new agreement containing their choice of these options.

12.5 At the date of this submission, there are some 5,500 tenants with substantive agreements with ETI, excluding temporary or other short term arrangements. Within that core estate of pubs, the current status of free-of tie options is as follows:

o 878 free-of-tie for a guest ale

o 24 free-of-tie for all own-brewed cask ale

o 984 free-of-tie for all ciders

o 83 free-of-tie for all packaged beers, ciders and FABs

o 1,997 free-of-tie for all FABs

o 4,099 free-of-tie for wine

o 3,998 free-of-tie for spirits

o 3,909 free-of-tie for soft drinks

12.6 82% of all agreements offer discounts on beer purchases ranging from £50 to £155 per barrel.

12.7 Whilst a completely free-of-tie option is not specified within the ETI CoP, we will negotiate in good faith with any tenant who seeks a new agreement which is completely free of all supply ties.

12.8 At the date of this submission, ETI has 98 free-of-tie agreements, is finalising terms for a further 12 agreements on an entirely free-of-tie basis and is at various stages of discussion with approximately 300 agreement holders which may, or may not, lead to the parties entering into a new agreement on an entirely free-of-tie basis.

12.9 As is clearly specified in every agreement, an Open Market Rent Review of any existing and continuing agreement takes place at the time of a cyclical rent review. This may result in independent determination by arbitration, independent expert or PIRRS if the parties are unable to agree.

12.10 In negotiating a completely new agreement, terms may be agreed between a willing buyer and a willing seller, thereby agreeing an acceptable Open Market Rent for the premises. In such cases, no 3rd party determination is required.

13. The guidance from BII on the type of pub leases available and what the options mean in reality to prospective lessees. This includes free-of-tie, tied pricing and discounts as well as the business support countervailing benefits available.

13.1 We believe that the BII makes available good pre-entry advice and training for aspiring tenants.

14. Survey results

14.1 In the recent independent survey carried out by CGA on behalf of BBPA and IPC, 31% of the sample of existing agreement holders and 42% of the sample of new entrants were ETI tenants.

14.2 The CGA survey identified that 74% of existing businesses (increasing to 83% amongst new entrants) take advantage of the support and advice provided by their pub company, a response rate which is very similar to the 75% positive response in ETI’s own survey of all substantive agreement holders.

14.3 CGA also found that 79% of all existing businesses described their relationship with their Regional Manager as fair, good or excellent. ETI’s own survey of all substantive agreement holders (representing 88% of ETI’s entire estate) compares favourably, with 82% describing their business relationship with ETI as fair, good or excellent, rising to 83% when describing the relationship with their Regional Manager.

14.4 We believe these results demonstrate encouraging acknowledgement of the positive contribution of CoPs and evidence of improving levels of awareness and understanding of key elements of the business relationship.

15. Conclusions

15.1 We believe there is clear evidence within the ETI estate that the scope and content of ETI’s latest CoP, implemented in October 2010, has been widely accepted by the vast majority of ETI tenants. This clarity and transparency, combined with the extensive range of flexible commercial options that are available to all new and existing agreement holders demonstrates the positive impact of self-regulation in the UK pub industry and the continual evolution of the ETI leased and tenanted operating model in response to the demands of a rapidly evolving and extremely challenging and competitive marketplace.