Written evidence submitted by the Campaign
for Real Ale (CAMRA)|
1.1 As a consumer organisation with over 125,000
members, CAMRA remains concerned that unfair contract terms imposed
by the major pub companies on individual pub licensees are causing
substantial harm to the pub sector and therefore to pub-going
consumers, local communities and economic growth.
1.2 The result of the major pub companies continuing
to fail to establish a fair and genuine partnership with their
tied licensees will be the extinction of many thousands of pubs
and the jobs they support. Many thousands of tied pubs owned by
the major pub companies have steadily become economically unviable
business propositions due to chronic underinvestment from squeezed
licensees and the major pub companies who have taken on unsustainable
debts based on inflated asset values.
1.3 CAMRA's comments in this submission relate
to pub companies which control more than 500 tied pubs.
2. THE OFFICE
2.1 The OFT has repeatedly bypassed examination
of the contractual issues between tied licensees and the major
pub companies which were the primary focus of the 2004, 2009 and
2010 Parliamentary Inquiries:
"The OFT considers that issues regarding
the contractual relationship between pub companies and lessees
are matters for pub companies to address with individual lessees,
or are issues for industry and other relevant bodies and/or Government
2.2 CAMRA deplores the reluctance of the OFT
to consider these contractual issues. It is our contention that
unfair contractual issues and restricted competition damages the
ability of tied licensees to provide pub customers with excellent
pubs, excellent service and good value for money.
2.3 The OFT have recognised that:
"the use of restrictive covenants on the
sale of a pub has the potential to harm consumers. In particular,
the use of restrictive covenants can act as a barrier to market
entry for pub operators, which can limit competition within a
particular area, potentially leading to higher prices and reduced
choice and quality for consumers."
3. PUB COMPANY
3.1 On a positive note, CAMRA commends Enterprise
Inns, Punch Taverns, Marston's and Greene King for stating in
their codes that they will not use restrictive covenants on pub
sales. Admiral Taverns and Scottish and Newcastle Pub Company
(S&NPC) have not shown the same regard for the free market
and have reserved the right to use restrictive covenants. The
Government has now committed to consult on banning restrictive
covenants. CAMRA believes it is imperative that this ban is enacted
to prevent pub companies imposing restrictive covenants in future
in order to restrict competition.
3.2 The Framework Code of Practice requires Companies
to set out whether the company will allow a guest beer supplied
direct from a small brewer to be purchased outside the tie. The
Codes adopted by S&NPC and Marston's are silent on this point.
On the key issues of a free of tie option and a guest beer right,
the BBPA's Framework Code of Practice provides only the requirement
that companies should make their policy clear. This is a fundamental
weakness of the Framework. The BBPA argue that they cannot go
further due to concerns about competition law. Should the BBPA's
concern prove to be valid, this clearly highlights the need for
Government to put a free of tie option and a guest beer right
on a statutory footing if progress is to be made.
3.3 Enterprise Inns, Punch Taverns and Marston's
have included greater choice and flexibility for tied lessees
in response to the BBPA's Framework Code. Whilst these new options
are welcome, they do not improve the financial position of tied
pub lessees. This is important from a public interest point of
view as, unless tied pub lessees can gain firmer financial footing,
they will continue to lack the ability to invest in their businesses.
If tied pub lessees are unable to invest in the amenity of their
pubs, they risk being unable to survive (particularly in the current
economic environment) - leading to further pub closures and the
resulting community and consumer detriment.
3.4 In summary, whilst limited progress has been
made, the individual codes of the major pub companies have failed
to eliminate unfair and harmful trading practices by substantially
building upon the de-minimus requirements of the BBPA code.
4.1 CAMRA welcomes the efforts of the BII to
establish a system to attempt to resolve complaints, but we are
concerned that the organisation lacks adequate sanctions and resources
to effectively take on this role.
4.2 The latest information provided by the BII
states that five breaches have been identified, four of which
have been resolved and one unresolved.
Given the scale of problems facing the tied pub sector these numbers
are surprisingly low. CAMRA believes the reason for the low number
of upheld breaches is not a reflection of lessee satisfaction
a whole host of valid tied lessee complaints are not covered by
the Codes of Practice.
lessee awareness: 23% of existing businesses are not aware that
their company has a code of practice.
that the BII lack sanctions to effectively resolve disputes.
4.3 The fundamental weakness of the BII's BIIBAS
scheme is evident in the way in which it is communicated to lessees
through Codes of Practice. This is demonstrated by the following
extract from Enterprise Inns Code of Practice:
"In the event that you continue to believe
that we have failed to adhere to our responsibilities or obligations
under this Code, you may submit a complaint in writing, providing
full details of the circumstances of your grievance, to BIIBAS.
They will pass this information to us and use their good offices
to ensure, as far as possible, that there are no misunderstandings
or personality issues that are standing in the way of a more fruitful
dialogue between us."
4.4 The BIIBAS scheme would be substantially
more effective if pub companies committed to abide by the outcomes
of the process and the presence of the scheme was more effectively
5. ROYAL INSTITUTE
SURVEYORS (RICS) GUIDANCE
5.1 CAMRA welcomes the publication of new guidance
by RICS and commends RICS for including licensee representatives
as part of this process. The principle that tied tenants should
not be worse off than if they were free of tie is not specifically
stated in the new guidance. However, if properly interpreted and
implemented, the guidance would in most cases ensure that this
was the case.
5.2 The principal concern now is not the guidance
itself but moves by the major pub companies to disregard the new
guidance when setting rents. In the vast majority of cases there
is simply no mechanism to ensure the correct assessment of rents:
a pub company issues a new lease agreement, whether to a new lessee
or existing lessee, the rent is determined on the basis of negotiation
and not on a calculation produced and certified by an independent
chartered surveyor. Lessees will usually enter these negotiations
without the assistance from a RICS surveyor and are therefore
at a clear disadvantage.
new style leases have replaced provision for periodic rent reviews
with annual inflation increases thereby avoiding the need to apply
the RICS Guidance.
calculations continue to be carried out by Pub Company representatives
who are not themselves qualified surveyors and are therefore not
bound by RICS Guidance
5.3 CAMRA remain unconvinced that the major pub
companies have the will to correctly implement RICS Guidance as
doing so would likely result in substantial rent reductions. Additionally,
we are alarmed at the re-emergence of Minimum Purchasing Obligations
which mean that tied licensees will face a penalty should sales
all below a certain level. This appears to be an attempt by the
pub companies to protect themselves against the end of upward
only rent increases and the potential long term consequences of
fairer rents in line with RICs new guidance.
5.4 CAMRA believes that it would be highly beneficial
for RICS and RICS qualified surveyors to have a much greater involvement
in the calculation of pub rents.
6. FREE OF
6.1 No major pub company has begun or has committed
to begin a process of allowing tied lessees the option to become
free of tie accompanied by a formal rent review process carried
out in accordance with RICS guidance.
6.2 Speaking at a meeting of the all-party Parliamentary
Save the Pub Group in June 2011, Simon Townsend, Enterprise's
chief operating officer, said:
"I will go straight to the nub of the issue.
We have not included the availability of a completely free-of-tie
option within our code of practice"
6.3 In order to avoid potential instability within
the major pub companies, CAMRA would be supportive of the major
pub companies phasing in genuine free of tie option over a five
year period. Regrettably, the major pub companies have refused
to even entertain this prospect.
6.4 Punch Taverns has introduced "free of
tie pricing options".
This offer is in reality not a free of tie option as the lessee
still remains tied to buy beer and other products from Punch Taverns.
The offer allows tied lessees to commit to a higher rent (decided
by Punch Taverns) in exchange for a discount on tied products
which Punch Taverns assert is in line with free of tie prices.
6.5 Enterprise Inns has provided free of tie
options in exchange for payment of an Annual Release Fee. Because
the Annual Tie Release Fee is not a form of rent it is open to
Enterprise Inns to set this at an arbitrary level. The following
extract from the Heads of Terms Enterprise Inns provide to lessees
"You can, however, choose to be free of tie
on some or all of the following categories: one guest cask conditioned
beer sourced from a SIBA brewer and dispensed from one hand pump,
packaged beers, packaged ciders, flavoured alcoholic beverages,
wines, spirits or minerals in exchange for payment of an annual
Tie Release fee for each category released."
6.6 Marston's has introduced a free of tie agreement
called "Ultra Advanced". This allows their lessees to
become fully free of tie in exchange for a fixed charge. This
fixed charge is calculated to be the equivalent of the money a
lessee will save by being free of tie. The fixed charge is not
part of the agreed rent.
6.7 The remaining major pub companies appear
not to have taken any steps to amend their core lease offerings
to provide some kind of free of tie offering to all their lessees.
6.8 The survey commissioned by the BBPA and the
IPC reports that of existing tied licensees only 9% have been
offered any changes to their existing agreements showing that
there is limited penetration of these new lease options which
in our view do not go anywhere near far enough.
6.9 There is unlikely to be substantial interest
in these new options, even if proactively marketed to lessees,
as any concessions on the tie are fully counter-balanced by requirements
for an unsubstantiated increase in rent or an unsubstantiated
Tie Release fee. Hence, there is currently no "genuine"
free of tie option accompanied by a rent calculated under the
RICs rental guidance for pubs.
7. GUEST BEER
7.1 The previous Government established a clear
expectation that the pub companies should voluntarily provide
a guest beer option to those lessees who choose to remain tied.
Guest beers have only been offered by Punch Taverns and Enterprise
Inns and only then in exchange either for a higher rent or payment
of a Tie Release Fee.
7.2 The failure of companies to provide tied
lessees with the option to stock one guest real ale of their choice
without financial penalty is hugely disappointing to consumers
denied choice, small brewing companies whose growth prospects
are limited and the tourism industry which would benefit from
wider availability of local beers. A guest beer would also provide
a modest boost to licensee profitability and pub companies would
also receive some benefit from more sustainable pubs. Small brewers
would also benefit through increased market access.
8.1 In 2004 the Trade and Industry Select Committee
recommended that if the pub companies failed to accept and comply
with an adequate voluntary code then the Government should not
hesitate to impose a statutory code. CAMRA urges the committee
to recognise the clear failure of the pub companies to accept
and comply with an adequate Code and to recommend that the Government
introduces a statutory code without delay.
8.2The following Chart highlights where the major
pub companies have failed to fulfil the expectations of them and
CAMRA's proposed remedies.
|Offer lessees a tie/non tie option accompanied by an open market rent review in line with RICS new guidelines.
||Failed - No pub company has offered existing licensees a free of tie option accompanied by an open market rent review.
||A statutory requirement for each pub company with 500 or more tied pubs to provide each of their tied lessees with a free of tie option. This free of tie option must provide for the lessee to insist the rent is determined by a Chartered Surveyor in accordance with RICs guidelines.
|Offer lessees a guest beer option (John Healey MP - Community Pub Action Plan)
||Failed - Offered only by two companies and only in exchange for a higher rent or Tie Release Fee
||A statutory requirement for each pub company with 500 or more tied pubs to provide every tied lessee who chooses to remain tied with the right to sell one guest real ale purchased on the free market without any accompanying financial penalty or obligation.
|Upward only rent review clauses should be removed by a deed of variation
||Failed - pubco's have not removed upward only rent review clauses by deed.
Emergence of new leases replacing rent review provisions with RPI increases.
|A statutory requirement for pub companies enforcing a tie to comply with a code of practice that requires them not to enforce upward only rent clauses
|The major pub companies to treat it (BBPA CoP) as an absolute de-minimus requirement and to significantly build on it with their own Codes.
||Failed - no pubco has gone significantly beyond the very basic requirements of the BBPA Framework code.
||A statutory requirement for pub companies enforcing a tie to comply with a code of practice providing a free of tie option, guest beer option and no upward only rent clauses.
|BII to accredit and enforce codes||Accreditation - Passed - BII has successfully accredited codes based on whether or not they comply with the BBPA Framework Code.|
Enforcement - Failed - BII lacks the authority and powers to enforce the codes. Where the BII confirms a code breach the BII suggests to the company concerned that it re-examines the case. If the company still does not resolve the complaint the BII's only sanction is to list the code breach on their website.
|A review of whether the BII is sufficiently independent and well resourced to enforce codes of practice or whether a new organisation is needed.|
A review of the sanctions that would be required to enable effective enforcement of the codes.
Office of Fair Trading - CAMRA super-complaint - OFT final decision
- October 2010 p129 Back
Ibid. p131 Back
BBPA/IPC Licensee Survey Back
18 http://www.punchtaverns.com/Punch/Corporate/Media+Centre/Press+releases/Recent+releases/New+lease+agreement+offers+free+of+tie+pricing.htm Back