Supplementary written evidence submitted
by the Independent Pub Confederation
In submitting its original written evidence to this
inquiry, the IPC focused on answering the questions posed by Government
in its response to previous Committee Reports: namely, have the
representative bodies and individual pub companies responded in
full to the Committee's recommendations set out in 2009 and 2010;
and, are those commitments being implemented in full.
It was clear from the two oral evidence sessions
held by the Committee in June and July 2011 that significant and
substantive problems remain. The IPC remains of the view that
the core of the problem is the content and weakness of the Code.
Current requirements and accreditation are all about transparency
not fairness and clear commitments given to predecessor Committees
are not translated into specific, measurable obligations.
A weak, vague and poorly drafted Code is incapable
of being adequately enforced. The joint IPC/BBPA Survey highlights
significant problems with compliance as a result. With questions
remaining about the Code's legal enforceability and an insufficiently
robust enforcement mechanism, the self-regulatory response falls
far short of the Committee and Government's expectations.
Despite unprecedented scrutiny, the modest steps
that have been taken to date taken have failed to deliver any
meaningful reform in the commercial relationship between landlord
and lessee.
The status quo is not an option: further action is
now required. The IPC is pleased to respond to the Committee's
request for further information.
COMPREHENSIVE REFORM
The IPC does not believe simply putting the current
inadequate Code on a statutory footing, tweaking its provisions
or amending the enforcement mechanism, will be sufficient to deliver
a free and fair market. To be effective, any intervention at this
stage will need to be comprehensive and address all aspects of
the current system.
To protect both existing and new lessees, reforms
are urgently required that strengthen:
1. the content of the Code;
2. the mechanisms for enforcement; and
3. the redress of grievance to guarantee that
the major pub companies take their responsibilities to their tenants
seriously.
Anything less than demonstrable action in all three
areas will continue to frustrate the aspirations of the Committee
for this industry.
CODE CONTENT
The IPC considers that many of the problems lessees
face under their tied arrangements arise from and are exacerbated
by the poor drafting and content of the Code; in particular, its
failure to address the fair share of economic benefits arising
from the tied arrangement.
We remain of the view that the most effective way
to deliver reform would be for companies with 500 or more tied
pubs to be obliged to offer a genuine free of tie option and offer
a guest beer option to those remaining tied—and we have
expanded on this below.
In addition, there are other ways in which the Code
could be strengthened eg machine tie, rental valuation variables
and comparables, flow monitoring, debt handling, dilapidations
and procedures for leaving a property. Moreover, it is vital—to
avoid the current confusion over interpretation of the RICS Guidance—that
that body is actively engaged in drafting any clauses in this
area to ensure that the obligations are clear and enforceable.
We note the differing interpretations put before
the Committee on the question of whether a tied tenant's position
vis a vis a free of tie tenant. IPC were content that, with the
participation of its representative, the new RICS Guidance was
sufficiently clear on this point—namely that a correct interpretation
and application of its Guidance should ensure that a tied tenant
should be no worse off than a free of tie tenant.
We fully accept the RICS position that the Guidance
is a technical document and intended as a tool for chartered surveyors.
The spirit and intention of the guidance, however, should be clear
to ALL readers and as such as would suggest that the Committee
seek further clarification from the RICS on this issue and if
necessary make a recommendation that Guidance is amended to put
this matter beyond all doubt.
ENFORCEMENT
Similarly, it is not enough to simply strengthen
the code and rely on the BII to enforce it with the limited remit,
resources and powers it currently has at its disposal. We continue
to have reservations about the ability of the BII to act as effective
policeman rather than umpire.
A stronger regulatory framework could include proactive
compliance spot checks and offer the power of censure. Moreover,
it may be possible for cases where the tenant remains dissatisfied
with dispute resolution outcomes can be referred to mediation.
This would make all BIIBAS outcomes legally binding on the parties
as part of a mediated settlement.
Finally, lessees must have access to an independent
means of redress which encompasses all aspects of the commercial
agreement, not just rent.
MANDATORY FREE
OF TIE
OPTION
We remain of the view that the only way to deliver
a free, fair and transparent industry is to allow the market to
speak. The introduction of a legally enforceable requirement for
companies with more than 500 pubs to include a free of tie option
and guest beer provision will ensure individual agreements are
exposed to market forces when they come to be reviewed, renewed
or when new leases are created.
The IPC wishes to make absolutely clear that it is
not opposed to the tie and is not seeking its abolition or outlawing.
We accept that tied agreements—particularly traditional
tenancy arrangements operated by brewers—deliver real and
material benefits when operated correctly and that they will continue
to play a valuable role in our sector.
The IPC is advocating an evolutionary, not revolutionary
approach, with free of tie agreements being offered only at next
rent review period, renewal or, in the absence of review, after
a fixed period of time (three or five years) and thereby allowing
companies time to respond and amend their practices.
Moreover, the fact that the option will only be available
at rent review, renewal or at the creation of a new lease, together
with the availability of a de minimus provision for companies
with fewer than 500 outlets means there will be an automatic exemption
for all regional and family brewers and traditional tenancy arrangements.
The IPC considers that this single measure will ensure
that pub companies work hard to deliver real benefits to their
lessees and ensure that they really do "earn the tie".
If pub companies embrace change and deliver real benefits to their
lessees, then it is likely that few will exercise the option but
it is the one single action which, if taken, would deliver a free,
fair and transparent market for all tenants and lessees.
IPC RECOMMENDATIONS
The IPC would like to see the industry work together
as much as possible to make further progress but reluctantly has
concluded that this is unlikely to happen on a voluntary basis.
Previous attempts to discuss meaningful reform along the lines
recommended by Government have failed due to the BBPA's belief
that competition law precludes them from discussing pricing and
exclusive purchasing arrangements.
The IPC therefore believes that the Committee and
Government's aspirations for and expectations of the sector—the
introduction of a free of tie option, with open market rent review,
and guest beer provision for certain companies—will be best
achieved by means of a Statutory Code.
Reform along the lines recommended by the IPC would
deliver real and meaningful benefits to the industry as a whole,
to individual lessees, pubgoers and the communities in which tied
outlets are located. Decisive action now to reinvigorate the sector
through the introduction of choice, competition and market forces
will give small businesses the freedom and flexibility not only
to survive but to thrive and will be deregulatory in effect.
As the measures in a strengthened Code would only
come into effect at rent review, renewal or the creation of a
new lease, reform would be gradually and, as previously noted,
the key commercial changes would be restricted to companies above
a certain size. This will minimise any potential disruption or
additional cost to the sector and we do not believe would have
an adverse effect on business viability.
The placing of the Code's provisions on a statutory
footing whilst retaining and enhancing a self-regulatory enforcement
and introducing a new redress mechanism such as the Property Ombudsman
will minimise the impact on the public purse.
The IPC would be pleased to discuss these options
further with Committee members and officials as required.
29 July 2011
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