Written evidence submitted by the Fair
Pint Campaign |
Codes of Practice development of BBPA's Framework
The BBPA Framework and subsequent Company Codes do
not address the issues that are the root of the Select Committee
Inquiries, balance of the relationship, tenant profitability.
It follows the Codes are far from robust. No pubco has sought
to address the preliminary issues, of fundamental commercial importance
and as such minor developments on none essential issues are relatively
It should not be difficult for pubcos to comply with
the, relatively low priority issues addressed in the Codes. We
would not anticipate many Code breaches to be documented as the
Codes do not address the real priority issues. Most complaints
fall outside the Codes conditions.
We do not consider the BII to be a credible or effective
policeman of the industry.
The BII have no real enforcement or penalty powers.
Any apparent Code dispute resolutions are seen as a temporary
concession while under scrutiny.
No pubco has satisfied the previous Committees repeated
recommendations; to offer free of tie options.
Flow monitoring equipment;
The previous Committee have misinterpreted, or been
misled, into the false belief that the BBPA Framework Code adequately
seeks to reconcile the problems with flow monitoring equipment.
It does not, contrary to the Committees interpretation, there
is no inclusion of a mandatory requirement for additional evidence
above and beyond the data from flow monitoring equipment in any
accusation of buying outside of the tie.
The Committees interpretation of the BBPA Framework,
outlined in the BISC summary should be made a mandatory clause
within an enforceable statutory Code.
BBPA advice to prospective publicans;
There is no significant advice being offered by the
BBPA to prospective publicans. The BBPA do not represent publicans
and have no individual publican membership.
New RICS guidance
The guidance is a vast improvement on its predecessor,
if applied correctly the tied tenant should be no worse off than
if free of tie.
We are already witnessing wholesale none compliance
with the new RICS guidance by the pubcos. Even compliance on the
RICS guidelines alone would not inhibit the pubcos from adjusting
the price of tied products to compensate themselves for any lost
revenue as a result of rents being set fairly.
The creation of an industry benchmarking survey;
There is no industry benchmarking survey.
Complaints procedures and disputes mechanisms;
There is no effective and independent complaints
or dispute mechanism.
A dispute resolution system has been introduced by
the BII. By their own admission the BII do not claim independence,
they have no authority or enforcement powers and the resolution
mechanism is perceived as ineffective amongst tenants, demonstrated
by the limited take up. We do not believe the BII are the appropriate
organisation to fulfil this role.
Genuine free of tie options with an open market
No pubco offers a genuine FOT option in accordance
with the Committees recommendations.
Previous Committees have made it clear that a FOT
option with a huge unsubstantiated rent increase is not good enough.
An open market rent review under the RICS new guidelines is what
is required with a FOT option.
The BII have a pre entry training (PEAT) course available
on line, it takes about two hours.
We do not consider this adequately informs prospective
tenants of the type of pub leases available and what the options
mean in reality. Free of tie, tied pricing and tied agreements
are complex and business support and countervailing benefits if
available difficult to quantify and understand without individual
specialist expert advice.
1. The Fair Pint Campaign (FP) is a membership
organisation that campaigns for the interests of tied tenants.
FP has a membership of around 1,000 tenants, funded entirely from
2. FP provided written and oral evidence to the
Business and Enterprise and Business Innovations and Skills Select
Committee Inquiries on pub companies. We welcomed the Committee's
views that the balance of risk and reward between pub owning companies
("pubcos" including brewers) and tied tenants is unfairly
skewed towards pubcos and the fact that, despite bearing most
of the risk, tenants do not receive a fair share of the benefits.
3. FP is a founding member of the Independent
Pub Confederation. We endorse the IPC Charter. The collaboration
of tenant organisations and CAMRA is the first time a collective
and genuine voice has been given to publicans and consumers in
an industry which has for too long being dominated by the property
and brewing interests represented by the BBPA.
4. We believe that the agreement between the
BBPA, BII and FLVA to a Code Framework is a totally inadequate
response to the problems highlighted by the Select Committees,
and shows unwillingness by the industry to consider change which
would rebalance the relationship between tied tenants and pubcos
in any significant way.
5. The OFT's reasons for their rejection of CAMRA's
super-complaint showed that the Select Committee was correct in
its judgement that the OFT would not be able to scrutinize the
pub market in a satisfactory way. They have failed to understand
the industry and how the unbalanced relationship between tied
tenants and pubcos, highlighted by the Select Committee, leads
to clear tenant and consumer detriment.
6. FP believes that developments in the industry
since the publication of the Business and Enterprise Select Committee
report strengthens the case for government intervention in the
sector. The major pub owning companies have shown that they are
unwilling to take any steps to significantly alter the balance
of risk and reward between landlords and tied tenants and have
used the time offered to simply seek ways to circumvent reform
under a veil of apparent compliance.
7. We believe that the Committee ought to repeat
its recommendation that Ministers refer the pub sector to the
Competition Commission with a view to freeing up competition in
the market by rebalancing the relationship between tenants and
pub owning companies including action to prevent companies being
able to use supply ties in an exploitive way.
8. The tied model in its current form does
not work and is in urgent need of reform. The only achievable
way we see to avoid a Competition Commission referral is to recommend
a mandatory, statutory Code, with genuine penalties for Code breach
and capable of independent enforcement. This Code should encompass
all the previous Committees recommendations most fundamentally,
a free of tie option with an open market rent for new and existing
tied tenants, and a guest beer right for all tied tenants, in
accordance with the IPC's Charter.
10. Since 1966, there have been at least 25 separate
inquiries, not one has given the tied model a clean bill of health,
all have allowed its continuation with reservations.
11. The operation of the tied model has been
deemed unfair by successive Select Committees, and by the last
government, all have concluded that reform is needed. The issue
was how that reform should happen, the debate now is whether or
not it has.
12. A Code of practice has never been the issue
and was only ever regarded as a way of introducing some of the
recommended and required reforms, to be effective it relies on
the key reforms being included in Codesthey are not.
13. FP have always felt that the Code route was
potentially dangerous, as the mere publication of them, without
the core demands of the Select Committee, may inexcusably be regarded
by some as sufficient.
14. Instead of implementation, the time offered
to pubcos and brewers by previous Committees has been used to
avoid reforms and reinvent their agreements, introducing annual
inflationary increases, often with no rent review or lease renewal
rights, offering no security of tenure, and effectively circumventing
the new RICS rental guidance. We have also seen the resurrection
of Minimum Purchasing Obligations (MPO) which require the tenant
to purchase a fixed amount of tied products every year and penalise
them on failure.
15. An annual increase in rent and/or obligations
to purchase a predetermined amount of tied products in a declining
market is a recipe for disaster. This recent evolution in agreements
is considered to be nothing more than an effort to avoid genuine
reform and outwit the Committees recommendations and RICS guidance
in an attempt to maintain the rent roll at the tenants expense.
16. Whether the Pub Companies' individual
Codes of Practice are robust enough and whether the maj or pub
companies have built upon the de-minimus requirements of the BBPA's
17. Previous Committees sought an industry agreed
Code. Influential organisations attended a mediation in an attempt
to reach a common agreement. The mediation failed, the BBPA Framework,
and individual Company Codes born from them, are not industry
18. Only the BII and FLVA agreed to the BBPA's
Framework proposal, both organisations derive income from the
pubcos. This income stream is perceived to be a potential conflict
of interest, jeopardising the organisations impartiality.
19. FP sought at mediation to ensure that the
BBPA Framework incorporated the previous Committees recommendations,
most particularly relating to the tie. The failure of the mediation
is indicative of the fact that the BBPA were not prepared to address
anything but the low priority issues thereby ensuring the "bar"
was set low. Individual company Codes would have little benefit
20. Whilst the issues of importance are absent,
even from an enforceable Code, tied tenants profitability will
not improve and they will continue to suffer abuse from dominant
pubcos who maintain the power of the relationship. Like their
predecessors the individual Company Codes are neither robust or
specific to the priority issues.
21. If the Codes of Practice are being complied
22. We would not anticipate many Code breaches
to be documented as the Codes quite simply do not address the
priority issues. We are aware of many instances where a complaint
has been made to the BII who have confirmed that they are restrained
from implementing a Code breach complaint investigation as the
issue falls outside the Codes jurisdiction.
23. The majority of complaints FP receive relate
to abuse, intimidation and profitability, none of which are breaches
as they are not addressed in any Code. The whole purpose of establishing
a weak Code is to maintain "usiness as usual" under
a veil of complicity, which in reality is meaningless.
24. Survey evidence will be put to the Committee,
through IPC and other member organisations, demonstrating that
Code requirements such as circulation of the Codes, mandatory
pre entry training (PEAT) and awarenesses of the pub independent
rent review scheme (PIRRS) are all well below the anticipated
25. How the BII is policing the Codes and
whether this is effective;
26. There is still considerable anxiety amongst
tenants that raising a complaint will encourage repercussions
from their pubco and many continue to suffer in silence. FP have
seen a huge increase in direct contacts from tenants feeling bullied
and intimidated but there is very little confidence that registering
a complaint would be anything more putting themselves in the firing
line. Many tenants seem to be aware that complaints in respect
of bullying or profitability are not Code breaches and that the
BII are powerless to enforce or penalise pubcos even if a Code
breach could be established.
27. FP do not consider the BII have been effective
in policing Codes as they lack credibility amongst tenants, whether
this is as a result of their perceived conflicts of interest,
there being financial connections with pubcos, or the reality
of their "paper tiger" status is difficult to assess.
28. Robust Codes, and the successful policing
thereof, go hand in hand and are both vital to the success of
any reforms. FP shared the Committees cautious welcome to the
BII's role in policing the Codes of Practice, they were the reluctant
choice from a limited and imperfect list of potential candidates.
The selection of a body to scrutinise a Code written by the people
who fund the same body does not seem to be an ideal starting point,
given the suspicion that exists and the problems faced by the
29. FP do not consider the BII to be a credible
or effective policeman of the industry. What is needed is something
that is mandatory and statutory, like a license to operate tied
and tenanted pubs. To obtain the license an individual company
would need to sign up to a Code encompassing the priority issues
of profitability and abuse of a dominant position, which is genuinely
enforced with real financial penalties by an unquestionable independent
30. The enforceability of the Codes;
31. The Codes cannot be effectively enforced
as they are not independent of the companies being regulated,
incapable of being rigorously enforced and upheld, and carry no
significant or effective sanctions for any breach of their provisions.
32. The only effective remedy will be a truly
enforceable, mandatory Code of Practice with access to independent
redress. The estate agency and grocery market provide effective
models for this type of government intervention.
33. If AWP machines
are now being treated more fairly and tenants are being given
a genuinely free of tie option;
34. Previous Committees have expressly sought
the removal of the machine tie. Neither the BBPA Framework or
any individual pubco Company Code has attempted to accommodate
this recommendation. FP consider this to be a clear example of
avoidance of an express and simple requirement.
35. There has been an "apparent" tentative
step to remove the AWP income from the divisible balance in rental
valuation but in reality, once again, the pubcos have simply sought
to present the illusion of concession whilst financially engineering
revenue from AWP income back in elsewhere.
36. No pubco has seriously offered free of
tie options. This was a basic and fundamental Committee requirement
and their failure to deliver reform is a clear indication of the
resistance to offer anything of real benefit to the tenants.
37. The treatment of flow monitoring equipment;
38. Contrary to the Committees understanding,
outlined in the BISC summary, the BBPA Framework does not adequately
seek to reconcile the problems with flow monitoring equipment.
The BII have confirmed there is no inclusion of a mandatory requirement
for additional evidence, above and beyond the data from flow monitoring
equipment, in any accusation of buying outside of the tie.
39. Some pubcos and brewers have sought to rise
to include the Committees interpretation in their Codes. One notable
exception would be Enterprise Inns, their Code simply requires
that, if suspected of buying out, the tenant should produce their
confidential trading information for inspection, failure to comply
may result in a fine with no additional evidence to support the
accusation other than the data from flow monitoring equipment.
Tenants are reluctant to disclose this confidential trading information
as it is typically used, inappropriately, as a basis for the assessment
of rent at review or lease renewal.
40. FP have been actively seeking intervention
and enforcement of the Weights and Measures Act 1985 by Trading
Standards authorities and many flow monitoring systems have been
tested in individual pubs. Whilst inaccuracy has been successfully
established as commonplace, no authority is prepared to act. The
Local Government Ombudsman is currently investigating at least
two Trading Standards departments in respect of their failure
to act where inaccuracies were established, and tenants possibly
falsely or unjustly fined, on the flow monitoring information
41. Flow monitoring equipment is not prescribed,
verified or stamped and as such only falls under the Weights and
Measures Act 1985 if proved to be "in use for trade".
In their "Comprehensive Guide to Flow Monitoring", Brulines
state openly that they are "
confident that the commercial
application of its equipment, as utilised by our customers and
as described in this guide, is not "use for trade" ie
measurements are not taken directly from the flow meter and applied
as fines or levies." We of course know this to be blatantly
misleading and I include in the Appendices invoices clearly demonstrating
that measurements from Brulines equipment are used directly to
calculate the fines (Appendix 1).
The flow monitoring dispute still rages and for good
reason, the fining of tenants provides a sizeable income for the
companies involved, documents from Brulines indicate the level
of fines since 2006 has steadily increased from £2.7 million
to around £10 million a year (Appendix 2).
42. The National Measurement Office, have clarified
the position of beer flow monitoring equipment in relation to
the Weights and Measures Act 1985, the system is not prescribed,
verified or stamped. Tests were undertaken but the NMO have drawn
no conclusions and have importantly not accredited the system
as accurate or fit for purpose.
43. FP agree that the Committees interpretation
of the BBPA Framework addressing flow monitoring should be made
a mandatory clause within an enforceable, statutory Code. The
system should not be in "use for trade" as defined in
the Weights and Measure Act 1985.
44. The advice
being provided by BBPA to prospective publicans;
45. Other than a modest document on the BBPA
website very briefly outlining the agreements available there
is no apparent advice being offered to prospective tenants. The
BBPA have no tenant membership and arguably are not the appropriate
body to be providing advice to prospective publicans given their
clear and undeniable relationships with pub owning companies.
46. 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;
47. We consider the new guidance has sought to
clarify a number of issues and it is a vast improvement upon its
predecessor. There are clauses within the guidance requiring the
valuer to consider the hypothetical tenant as if they were free
of tie and reflect that in the rental assessment and examples
of countervailing benefits have been listed.
48. The effectiveness of the new RICS guidance
relies upon its implementation. The RICS are not in a position
to take disciplinary action against non surveyors and this is
seen as a fundamental flaw. Individual Company Codes, in the main,
contain a requirement to follow RICS guidance but already we are
seeing non observation of its contents.
49. We are aware of several ongoing rent review
and lease renewal negotiations with various pubcos, none appear
to be making reference to the RICS guidance particularly in respect
of the tenants bid. We are aware David Morgan of FP proposes offering
a detail submission in this regard which will substantiate our
50. It has recently come to our attention that
Enterprise Inns, having little faith in the ALMR benchmarking
findings, conduct their own benchmarking surveys. Under the newer
Enterprise Inns agreements, lessees are required to agree to open
book accounting. The appointed accountants undertake the benchmarking
surveys. The results of these surveys demonstrate that, even within
the Enterprise Inns estate, costs as a percentage of turnover
are practically exactly the same as the ALMR's findings, 42% for
pubs turning over £3,000 a week. The October 2010, survey
is attached in Appendix 3, the net of rent overall cost is shown
in red. You will also note that tenants of pubs turning over <£3,000
a week are earning -£41 a week, a loss of over £2,000
a year. The average, £3,000-£6,000, sees tenant earnings
at just £9,000 a year (£163 a week).
51. To quantify the importance of ignoring the
benchmarking, I attach in Appendix 4 two calculations, one is
taken directly from the Enterprise Inns 2011 Interim Accounts,
seeking to demonstrate their average tenant earns an estimated
£35,000 (plus a notional £10,000 benefit for living
above the pub). The other calculation uses exactly the same figures
changing nothing but the costs to the appropriate benchmarking
52. By simply adopting the appropriate average
costs of 42%, instead of Enterprise Inns unsubstantiated 35%,
the tenant earns £10,680, not the £35,000 claimed. This
corroborates the Committees survey findings from the BEC 2008
that 67% of tied tenants are earning less than £15,000 a
53. We have seen no evidence of transparency
or openness during review negotiations and we are already seeing
evidence of systematic non recognition of the new guidance. On
an optimistic note, we consider the apparent refusal by some to
follow RICS guidance demonstrates that, if adopted properly, it
may have the desired effect and deliver the required adjustment
to falsely inflated tied pub rents.
54. FP foresee wholesale non compliance with
the new RICS guidance if no mandatory clause within an enforceable
statutory Code exists. As long as the new guidance continues to
be ignored or manipulated the problems of false, over inflated,
rents will continue unhindered into the future.
55. The availability
and effectiveness of complaints procedures and an independent
56. The BII has recently introduced a dispute
resolution service. FP representatives have acted as advisor's
to tenants at informal mediation with some degree of success,
however, we very much see this as reluctant participation by the
pubcos under the spot light of scrutiny.
57. As there is no complaint procedure of
dispute mechanism with any enforcement power requiring the participants
to comply with the genuine third party findings an effective mechanism
58. 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;
59. The BESC 08 stated quite clearly the only
way to effectively "test" the fairness of the tie was
to offer a genuine free of tie (FOT) option, which allows tenants
to purchase beer in openly competitive market, from any source,
at a fair and reasonable rent.
60. Select Committees
& government presented a clear message to the industry on
what is requireda FOT option with a huge unsubstantiated
rent increase is not good enough. An open market rent review under
the RICS new guidelines is what is required with a FOT option.
61. Some "purported" FOT options
are currently available. In reality, none satisfy the BESC recommendation
and government requirement, a genuine FOT option, essentially,
has to come with an open market rent.
62. The options being touted fall in to two basic
categories, and both amount to attempts to hoodwink the Committee,
government and naïve prospective tenants coming into the
63. FOT pricing options, such as
Punch Taverns are now offering are simply a PR spin, a clever
use of the emotive words "free of tie" which are, in
reality, temporary discount schemes in exchange for a rise in
rent. Fundamentally, these are not FOT, the tenant is still
obliged to purchase from the pubco. Under these agreements
the pubco still achieve a profit margin due to their buying power,
this is valuable to the pubco and the opportunity for the tenant
to remove it, with a genuine FOT option and open market rent,
is what would redress the balance of bargaining power between
the landlord and tenant. The main feature of a genuine
FOT option is the ability for the individual tenant to police
their tied relationship with their pubco. If the tenant is able
to exit an abusive relationship, then the pubco will be discouraged
from bad behaviour and encouraged to promote a relationship that
truly benefits both parties to the agreement. The Committees test
of the "fairness" of the tie but an impossibility under
the FOT pricing schemes.
64. A few agreements are FOT in exchange for
an annual fee compensating the pubco for lost revenue and therefore
saving the tenant nothing. These agreements allow the tenant to
acquire products from any alternative supplier but typically offer
tie release only on limited products. Full release offers, on
all products, are few and far between and are offered only in
return for an unsupported increase in rent, an annual tie release
fee. Most full releases that do exist are temporary, like the
Marston's, "Ultra Advance" agreement, this is a "bolt
on" agreement to the tied lease and lasts for only three
years. The tenant has no right to renew the temporary release
65. Enterprise Inns say they offer FOT options
but only with an entirely new agreement. In practical terms,
Enterprise typically offer release on certain low volume sales
products to fully tied tenants (like wines, spirits and minerals).
An option to be FOT on all products, including beer, is not available
other than on extremely rare occasions (Enterprise Inns have only
94 out of their estate of over 6,700 on completely FOT agreements).
FP are aware of no existing tenants that have been offered any
form of FOT option on all products. Any tenant wishing to relax
their tie would be required to agree a new lease agreement. Enterprise
Inns new agreements are significantly more onerous than existing
agreements containing, for example, inflationary increases, minimum
purchase obligations and open book accounting.
66. A genuine FOT option could quite simply be
offered in the form of a deed of variation to existing leases.
67. FP do not consider there will be any significant
interest in any of the "new" options as they do nothing
more than seek to give with one hand whilst taking back with the
other, in an attempt to offer the illusion, to the next Select
Committee, of compliance with the genuine FOT option recommendations,
whilst failing to address the key requirement, an open market
rent established in accordance with the RICS guidance and, failing
agreement between the parties, determined by a third party (arbitrator
or independent expert).
68. FP would deter any tenant from accepting
any of the supposed FOT offers currently available from any pubco
or brewer. Put simply none of the offers increase tenant profitability.
69. In evidence presented to BESC 2008, the Committee
were faced with two irreconcilable pictures of the industry. The
pubcos claimed that their tenants preferred the tie and would
keep it, if offered genuine FOT options. FP claimed the higher
costs imposed by ties meant that lessees were at a disadvantage
to free of tie competitors and that, if offered, most tied tenants
would take the FOT offer if it were accompanied by an open market
70. The pubcos have now dropped their line of
argument in this regard, falling back on their last line of defence,
and the perhaps finally the truth of the situation. The recent
admission by Roger Whiteside that "It (going further than
the FOT pricing) would put the business model into serious
jeopardy if that were to happen overnight.". The implication
being that what is being sought is an immediate abolition of the
tie. This is not the case. The proposal is for a fair option implemented
over a phased period (on letting, at rent review or lease renewal),
its very availability would encourage pubcos to offer a fairer
tied agreement and a more cooperative relationship if they wished
to maintain the benefits of their buying power.
71. FP believe that the compromise of a genuine
FOT option with an open market rent is a bare minimum standard
requirement if the industry is to recover from its spiral of decline.
Without the option, there will be nothing to improve the tenants
profitability and abuse and intimidation will continue unhindered,
in an entirely foreclosed and anti competitive market. Pubcos
will only be obliged to offer a competitive tied agreement if
they are forced to offer a genuine FOT option.
72. 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.
73. The BII have a pre entry training course
available on line at the cost of £20, it takes about two
18 June 2011