Pub Companies - Business, Innovation and Skills Committee Contents


Written evidence from licensees Unite the Union

With reference to the Business, Innovation and Skills Committee's call for evidence, we are pleased to be able to submit the following:

BACKGROUND

Unite is the largest trade union in Britain and Ireland with 1.5 million members, it is a union which stands up for equality and fairness for all. We are concerned over the total lack of equality and fairness operated within the pubco model, it is not acceptable and should not be tolerated in a modern society, it appears archaic and dictatorial. Unite is proud to be a part of the steering group for the Independent Pub Confederation and fully supports the recommendations and findings of the Business and Enterprise Committee report of 2008-09 and the Business, Innovation and Skills Committee report of 2009-10.

SUMMARY

It is imperative that a mandatory, statutory code now be enforced on this industry. The pubcos have consistently failed to sufficiently address issues and recommendations. It is evident that self regulation and self policing are not working to the benefit of this industry. The mandatory, statutory code must include:

—  A genuine free of tie option with an open market rent review, following RICS guidance.

—  Compliance with RICS rental valuation guidance.

—  A guest ale right for those who choose to remain tied.

—  Removal of the AWP machine tie.

1.  The pubcos were investigated in 2004 by the Trade and Industry Select Committee, they were not given a clean bill of health and were found to be wanting, recommendations were made by the Committee. In particular we note:

—  there was a need for an inexpensive and efficient system of arbitration or alternative dispute resolution to resolve disputes without imposing legal costs on either side (21);

—  pubcos should advise their tenants of the average discounts they receive when purchasing beer from the breweries, how this compares to the free market discounts available and how much of their discount they are passing on to their tenants (22);

—  the AWP tie should be removed (23);

—  there should be clear guidelines for the rental valuation process and tenants should be provided with a comprehensive breakdown of how their rent was calculated including detail of the profit assessment and how the specific requirements of the lease conditions had been interpreted by valuers (24);

—  the profit assessment should form an addendum to leases, with any subsequent review, to ensure transparency (25);

—  Upward Only Rent Review (UORR) clauses should be removed from leases (26);

—  the industry should develop a nation-wide register of rent reviews (27); and

—  pubcos should support their tenants in attending training courses (28).

The main recommendation for an updated Code of Practice (COP) was accepted by the industry. The BBPA drew up a revised Framework Code of Practice which was published towards the end of 2005.

CONCLUSIONS

21.  PIRRS has been set up, albeit six years late, for rental arbitrations, however considering that according to the BBPA survey 56% of existing tenants and 56% of new tenants were not even aware of PIRRS, this can hardly be called a resounding success. BIIBAS is concerned with Code of Practice breaches, however the COP's are weak and ineffectual and do not cover the myriad of problems encountered by lessees, we are concerned that the BII do not have the authority or teeth to deal with the pubcos. There is no satisfactory or effective dispute resolution service for other disputes which fall outside of rental or COP disputes.

22.  some pubcos may advise their tenants of the discounts they receive, however they have failed to advise of the differentials between tied pricing and FOT pricing and how much of their discount they pass onto their tenants. The pubcos have claimed this would breach commercial sensitivity, we do not agree with this and maintain that the difference between FOT and tied pricing and the discounts earned by the pubcos and the discounts received by the tenants remains one of the more important issues.

23.  The AWP tie remains in place and remains abused by the pubcos with the machine income still being taken into account when rental bids are made, this is not an acceptable practice.

24.  Tenants are still not receiving a comprehensive breakdown of rental calculations as highlighted in the BBPA survey.

25.  Profit assessments and subsequent rent reviews do not form an addendum to leases.

26.  UORR clauses still form part of leases, whilst they remain on the contract the pubcos can and will enforce them to the naive or uninformed.

27.  There is still no nation-wide register of rent reviews and considering the NDA's in PIRRS rent reviews remain shrouded in secrecy.

28.  Considering 22% of new entrants did not partake in PEAT shows a certain lack of willing on the training issues.

It is concerning that the BBPA drew up a revised Framework Code of Practice in 2005 and in 2009 were having to revisit and improve. The 2005 Framework Code of Practice clearly failed miserably in addressing the imbalance in power between landlord and tenant.

2.  In 2008 the Business and Enterprise Committee re visited the 2004 TISC hearing, it is clear that they did not expect to have to examine the industry from first principles rather than a simple check on the implementation of the TISC recommendations.

—  Transparency—The Committee found that it was unacceptable that tenants were not being shown a breakdown of how their rent was being calculated (Para 45), they also recommended that there should be industry guidelines on the average costs of running a pub (Para 47).

—  Trading History—Pubcos entering a commercial relationship with a new lessee should be required to share all the information on a pub's trading history with them (Para 54).

—  Comparables—A system must be put in place to allow lessees to assess whether their rent is fair and in line with similar businesses (Para 58).

—  Rent reviews—If rental is linked to RPI it should be done in a way which enables reductions when appropriate (Para 75).

—  The Beer Tie—If the interests of the pubcos operating a tied system and their lessees were truly aligned, one would expect that pubcos would want a system in which the combination of rental costs and beer costs enabled their lessees to supply beer at a price which was competitive with other pubs. This does not seem to be the case (Para 87).

—  Enforcing the tie—However we believe that where a measurement device is used to police this, it should be properly calibrated and subject to external verification. If necessary the Weights and Measures Act 1985 should be amended to ensure this (Para 98).

—  AWP Tie—In 2004 the TISC concluded that "in our opinion, pubcos do not add sufficient extra value from their deals to justify their claims to 50% of taking from AWP machines. We remain unconvinced that the benefits of the AWP machine tie outweigh the income the tenants forgo and we recommend that the AWP machine tie be removed". That conclusion remains valid (Para 103).

—  Benefits of the pubco tied model—Moreover the attraction of low cost entry should not be overstated (Para 115).

—  Business support—TISC found that "the performance of business development managers (BDM) varied across the industry from excellent to dire". That conclusion remains valid. Moreover, some of our evidence suggests that this culture is not limited to BDM's but can reach further up a company (Para 120).

The BBPA have re-written their Framework Code of Practice.

CONCLUSIONS

Para 45—It is clear that this has not been sufficiently addressed.

Para 47—There is still no industry guidelines acceptable to both parties.

Para 54—It is clear from the BBPA survey that the pubcos are still failing to supply trading information.

Para 58—There is no system in place.

Para 75—There is no system which allows for reductions in RPI rents.

Para 87—It is clear that the pubcos and their tenants remain unaligned.

Para 98—It remains clear that there is not sufficient or quantifiable proper calibration or external verification.

Para 103—the AWP tie remains in situ for a substantial number of tenants and remains abused by the pubcos with the AWP income being taken into account in rental bids.

Para 115—The attraction of low cost entry remains over stated.

Para 120—Bullying and intimidation remain rife and still is not restricted to just the BDM's and does reach further up the companies. Financial support is still not being offered to those who need it.

We maintain that the 2010 BBPA Framework Code of Practice does not address the core issues of contention between landlord and tenant and completely fails to address the imbalance in monetary gain for input. The Framework Code of Practice will not produce an equitable, fair and balanced relationship between landlord and tenant. It is imperative that a mandatory, statutory code now be enforced on this industry. The pubcos have consistently failed to sufficiently address issues and recommendations. It is evident that self regulation and self policing are not working to the benefit of this industry.

RECOMMENDATIONS:

Mandatory, statutory code to include but not be restricted to:

—  A genuine free of tie option with an open market rent review, following RICS guidance. This would ensure that the industry does police itself.

—  Compliance with RICS rental valuation guidance. To prevent circumnavigation by the pubcos.

—  A guest ale right for those who choose to remain tied. To help the small and microbrewers and to aid competition.

—  Removal of the AWP machine tie.

FURTHER RECOMMENDATIONS

An independent dispute resolution service to tackle disputes between landlord and tenant, these disputes should not be restricted to rental or COP disputes.

The Weights and Measurements Act 1985 requires amendment to include beer monitoring equipment.

The industry must ensure that it agrees on and delivers guidelines on the average costs of running a pub.

The industry must ensure that it delivers a nationwide register on rent reviews and rental levels, to ensure honesty and transparency.

The removal of UORR clauses to prevent abuse.

20 June 2011



 
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Prepared 6 October 2011