Pub Companies - Business, Innovation and Skills Committee Contents

Written evidence submitted by the Federation of Licensed Victuallers Associations (FLVA)

This submission is made on behalf of the Federation of Licensed Victuallers Associations (FLVA) which is a members' organisation that has since 1992 looked after the business interests of self employed licensees and was a co signatory to the Framework Code of Practice. (FCOP)


1.  The FLVA accept the need for PubCo's to retain the beer tie subject to the points made in this document. In particular a more equitable split of the beer discounts available to the PubCo's. (paragraphs 23-28)

2.  The FLVA recommend a removal of the wine/spirit/mineral tie from all existing agreements. We accept this may need to be followed by an interim rent review reflecting the increased retail margins. The review should also recognise the current changed trading environment at the outlet in today's economic climate.

3.  The FLVA require a formal and transparent linkage between the wholesale prices enjoyed by the PubCo's and those offered to their tenants, insomuch that supplier "price increases" should only apply to the tenant at the same time and at the same price as those increases are levied on the PubCo concerned. Providing a true countervailing benefit.

4.  We recommend the FCOP rental treatment of tenants share of AWP income be implemented now across all existing agreements.

5.  The FLVA recommend a minimum licensee's profit return after rent of £20,000.

6.  We recommend the establishment of PubCo/tenant forums as a means of maintaining dialogue between business partners and discussing new initiatives or tied pricing arrangements. (paragraphs 17-20)

7.  A strict timeframe (12 months) for the implementation of 6 above.

8.  All pub owning companies should be expected to establish and hold their own discreet tenant forums at both a national and regional level on a three monthly basis. There should be no exemptions, all PubCo's who submitted a Code of Practice should follow this process.

9.  Within this submission we draw particular attention to the position of existing tenants. PubCo initiatives usually focus on new tenants and practices where such improvements have been introduced. We require greater emphasis on the plight of existing tenants. (paragraph 29)


Whether the PubCo's individual Codes of Practice (COP's) are robust enough and whether the major PubCo's have built upon the de-minimus requirements of the BBPA's FCOP

10.  The PubCo's COP's are welcomed, and are in the main being complied with, in particular the transparency brought at rent review. We believe that much of the code should be enshrined within the lease or via binding collateral deeds in existing leases ensuring continued adherence by the PubCo and any successors in the event of a sale, giving full opportunity of redress for the tenant if breached. With regard to de minimus requirement, we feel that this in general has not been built upon with minor exceptions.

Are AWP machines now being treated more fairly and tenants being given a genuinely free of tie option

11.  The removal of AWP income (where shared) from the divisible balance in the rent calculations is being adhered to and is a welcome move. However existing tenants are still penalised until the next rent review date. We recommend an immediate across the board adjustment to bring old calculations into line. We are however not averse to the principle of tied machines, there is an argument that large scale management of machine income can be beneficial to both parties. What must become transparent is that no "royalty" payment is received by PubCo's which could potentially distort machine rental.

The treatment of flow monitoring equipment (FME)

12.  We recognise the absolute right of the landlord to have the terms of the tie contained within the lease adhered to but the interpretation of FME results are still being used as the sole source of evidence of transgression with a charge first, validate later attitude. Unreliable registering of beer line cleaning, or the purported lack of it, calls into doubt the validity of the data used by which guilt is measured.

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

13.  The RICS guidance clarifies the point that the valuation process and procedure is the same for all sectors and should not result in a different approach to rent setting in one sector of the trade nor produce an "advantage or disadvantage" to another sector of the trade. This differs to the often voiced opinion that "a tied tenant should be no worse off than a free of tie tenant". The guidelines state that the landlord's share of the perceived divisible balance taken as rent is likely to be between 35%-65% dependent upon several factors, including supply and demand, terms of trading and quantum of profit. These factors would mean that the same pub, offered on more beneficial trading terms, would mathematically bring about a higher rent on free of tie terms. We would welcome the opportunity to expand upon the implication of this in relation to current tied non discounted agreements in the market place today in oral evidence.

14.  With regard to countervailing benefits, we agree with the RICS in that support services offering special, commercial or financial benefits are difficult to quantify as they represent differing values for tenants of differing experience. As such RICS guidance offers no help in this regard in rent calculation processes.

15.  The FLVA believe that as part of any rent calculation the establishment of an overreaching minimum level of retained tenant's income of £20k from the divisible balance within all rental calculations. Potentially indexed to the UK average wage statistics.

The creation of an industry benchmarking survey

16.  The introduction of benchmarking would be a welcome and useful tool in order to validate many of the assumptions made within FMT rent calculation models. However this will take time to produce. In the short term (12 months) a national data base of substantive rents could be assembled and made available by PubCo's via the BBPA for use by all.

The availability and effectiveness of complaints procedures and an independent disputes mechanism

17.  The FLVA believe that there may be a need for such a mechanism should the current COP's not be embodied via the collateral deed mechanism (paragraph 10) Many disputes could be resolved before the need of such a formal procedure by the introduction of regional and national tenant forums. This would establish "in house" dialogue between the PubCo and a representative body of its tenants.

18.  We believe that the business partnership would be enhanced and mutual support given by the formation of Tenant/PubCo forums. We have advocated this for many years, and our officers have participated in, the formation of PubCo/tenants forums as a vehicle for constructive dialogue between parties. These have been at a national level where contentious issues have been resolved which were impacting upon the PubCo/Tenants business. A historic example of this was the Inntrepreneur Licensees forum in 1995. These forums could discuss the recalibration of existing rental/discount levels, repair obligations, operational issues, and new agreements, all being discussed prior to implementation. Current officers of the FLVA have undertaken such roles successfully in the past which brought about significant benefits to tenants. We would offer our support again to provide functional support to these forums thereby ensuring consistency of approach and representation across such forums. It would be perhaps for another body such as the BII (the industry's training & education body) to ensure these forums are representative.

19.  Improved beer tie arrangements can only be brought about on a PubCo by PubCo basis through the tenant forum approach.

20.  The avoidance of disputes and the commercial and tangible benefits achieved through forum discussion would assist in bringing about a fair and sustainable level of profitability to the tenant. This would allow tenants a better chance of remaining competitive against the managed and free trade sectors within the industry, whilst also establishing respectful lines of dialogue between business partners which are long overdue.

21.  It is in light of these points that we support the principal of a fair beer tie, whilst recognising that the terms of many current agreements have become imbalanced and distorted in favour of the PubCo's.

The availability of genuine free of tie options i.e. an open market rent review under RICS new guidelines, ability to buy beer from any source

22.  We are not aware of any genuine fully free of tie options being made available. Some packages we have seen are offering discount levels approximating to current free of tie discounts whilst the tenant remains tied for supply.

23.  We do not support the oft touted solution of a fully free of tie lease because of the following.

24.  The buying power of the pub companies is undeniable and there should not be an assumption that the current free of tie market discounts will remain to a solus operator. They will be replaced by discounts from the brewers in relation to the potential volumes of the individual tenants concerned, thereby putting them in an inferior negotiating position.

25.  Optimising his commercial terms with a brewer with regard to loan/discount arrangement may preclude a tenant from stocking other brewers products thereby limiting consumer choice and inhibiting market availability for smaller brands/guest beers.

26.  This flowback of profitability from the PubCo to the brewer, many of whom are non UK based, would be without any guarantee that this increased profitability would in any substantive way flow back into the pub. At present the potential exists for PubCo's to invest in tied pubs by way of capital schemes, share of repairing obligations and to fund business recovery programmes. Perversely this profit flowback to the brewers could further support other brewers customers through enhanced discounts i.e. supermarkets, thus bringing about further pressure to the community pub, with subsequently more pub closures.

27.  Any potential PubCo/tenant relationship would be commercially impracticable as the PubCo's would essentially become property companies with little shared interest in the trading entity of the pub. This would manifest itself in reduced investments in pubs, and a total emphasis by the emergent property company on rental return. Property companies operating free of tie leases would not be bound by the FCOP.

28.  PubCo's should offer supply contracts with a fair division of their discounts which consolidate prices, for say a three year period, with increases only in line with the PubCo's suppliers increases in cash terms.

The guidance on the types of pub leases available and what the options mean in reality to prospective lessees

29.  There are many new and varied options available to prospective tenants in today's market. Critically there are also a very large number of historic agreements where tenants are locked into leases with rental levels and profit margins at anticipated levels of trade/costs, which bear little resemblance to current day trading conditions. This is often due to circumstances outside their control ie the smoking ban and predatory supermarket pricing. These historic agreements and those tenants locked into them urgently need a similar level of focus as new entrants to the trade. This position has been exacerbated by the introduction of the new PubCo agreements on more advantageous rent/discount terms. PubCo's should not just be reactive to calls from tenants in distress but positively address their plight.

30.  Under no circumstances should any improvement of trading terms be fully negated by a subsequent rental increase. This would put the business risk wholly at the door of the tenant by transferring the benefit of improved beer purchase terms into that of a fixed overhead of rent.

31.  It is recognised that the freeing of the tie on wines/spirits/minerals would assist the partnership by delivering a better benefit to the licensee with little consequential loss to the pub companies.

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© Parliamentary copyright 2011
Prepared 6 October 2011