Pub Companies - Business, Innovation and Skills Committee Contents


Written evidence submitted by the Campaign for Real Ale (CAMRA)

1.  INTRODUCTION

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 OF FAIR TRADING (OFT)

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 to consider."[13]

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."[14]

3.  PUB COMPANY CODES OF PRACTICE

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.  ENFORCEMENT OF COMPANY CODES OF PRACTICE

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.[15] 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 but rather:

—  That a whole host of valid tied lessee complaints are not covered by the Codes of Practice.

—  Low lessee awareness: 23% of existing businesses are not aware that their company has a code of practice.[16]

—  A belief 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."[17]

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 communicated.

5.  ROYAL INSTITUTE OF CHARTERED 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:

—  Where 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.

—  Many new style leases have replaced provision for periodic rent reviews with annual inflation increases thereby avoiding the need to apply the RICS Guidance.

—  Rent 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 TIE OPTIONS

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".[18] 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 is below:

"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."[19]

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.  CONCLUSION

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.
Expectation OutcomeProposed Remedy
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 codesAccreditation - 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.

June 2011



13   Office of Fair Trading - CAMRA super-complaint - OFT final decision - October 2010 p129 Back

14   Ibid. p131 Back

15   http://biibas.bii.org/Compliance Back

16   BBPA/IPC Licensee Survey Back

17   http://biibas.bii.org/_uploads/companies/codeofpractise/1-code-of-practice-booklet.pdf p.23 Back

18  http://www.punchtaverns.com/Punch/Corporate/Media+Centre/Press+releases/Recent+releases/New+lease+agreement+offers+free+of+tie+pricing.htm Back

19   http://www.enterpriseinns.com/Applicants/Documents/RPL%20HOT%20Oct%2010.pdf Back


 
previous page contents next page


© Parliamentary copyright 2011
Prepared 6 October 2011