Pub companies: Follow-to the Government Response

Written evidence submitted by the Department for Business, Innovation and Skills

PUB COMPANIES: A LEGALLY BINDING CODE

In advance of the oral evidence on Tuesday 6th December I would like to provide written evidence as to how the Industry Framework Code (the Code) will be made legally binding. This should be read alongside the Government’s response.

As the Government’s response made clear, I agree with the Committee that making the Code legally binding and therefore enforceable through the courts is essential. This is what a statutory Code would achieve and what the reforms the Government has set out will also achieve, though much more quickly. The Committee has stated "It is not yet clear how the Government will make these codes legally binding and more detail is needed for the Committee to properly assess the proposed package of reforms." I am therefore providing further details, which I would be happy to discuss further on Tuesday if desired.

As this is an industry-led rather than a statutory solution, it will not be for the Government to make the codes legally binding: instead this will be a matter of contract between the pubco and the lessee/tenant.

When looking at how the Code will bind pubcos it is helpful to distinguish between new and existing leases/tenancy agreements. In both cases the objective is to incorporate the Code into such agreements, so that non-compliance by a pubco with any of its provisions, would amount to a breach of contract.

NEW LEASES/TENANCIES

In this case, pubcos have committed to include in all of their new agreements from now on a clause that expressly incorporates the Code. The Code will be incorporated into all new agreements by way of a "Reference" in the primary lease/tenancy agreement.

EXISTING LEASES

Where dealing with existing agreements, the same opportunity for incorporation into a new contract does not apply.

Instead pubcos have committed to offer to enter into separate agreements with the lessee or tenant, promising to be bound by the Code. This will be an unlimited and open offer to all its existing tenants and lessees which can be taken up at any time whether or not it has been formally signed by the other party.

In cases where the tenant or lessee chooses not to sign up straight away, he could neverthe-less invoke the Code by making a complaint of non-compliance to PICAS or to the Courts. Such a complaint brings the IFC into effect through the actions of the complainant. Put simply, a complaint triggers acceptance of the offer by the pubco to comply with the IFC.

The major pubcos have committed to completing this by the end of the year and will be sending letters to all of their lessees informing them of this.

SALE OF LEASES

The BBPA has committed to ensuring that the Industry Framework Code makes clear that if a member has a lease which is to be sold to a company outside BBPA membership or without a company code that complies with the Industry Framework Code, that member will vary the lease (by means of a deed of variation) prior to the sale taking place, to ensure that the Framework Code continues to be legally binding on the new pubco.

I have attached a signed statement by Robert Howe QC, who provided legal advice to the BBPA on this issue, in which he makes it clear that in his opinion both new agreements and existing agreements are legally binding and enforceable. This advice has also been considered by Government legal advisers, who concur that taking such actions will make the Code legally binding.

Edward Davey MP

Minister for employment Relations, Consumer and Postal Affairs

5 December 2011

SUMMARY NOTE ON THE ENFORCEABILITY AND LEGAL STATUS OF THE

UK PUB INDUSTRY FRAMEWORK CODE OF PRACTICE

FOR TIED TENANTED AND LEASED PUBS

For the purposes of this analysis, it is necessary first to consider the position of

(a) New Leases/Tenancies, and then

(b) Existing Leases/Tenancies.

New Leases/Tenancies (L/T)

New agreements do not present a problem in principle:

The IFC can be incorporated into the L/T agreement by way of ‘reference’

It is possible that L/Ts may include a "disposition of an interest in land", in which case

they would need to satisfy s 2 of the Law of Property (Misc. Provisions Act), 1989.

S 2(1) requires that such contracts "can only be made in writing and only by

incorporating all the terms which the parties have expressly agreed in one document or,

where contracts are exchanged, in each".

But s 2(2) states that the terms may be incorporated in a document either by being set

out in it "or by reference to some other document".

The IFC can therefore be validly incorporated into L/T’s by reference, and will then be

enforceable under the L/T agreement.

In order to ensure that there is a mechanism to enable the IFC to be updated without

the need for individual variations of each L/T, the relevant clause should also refer to the

ability to change/modify the IFC and the contractual mechanism by which it is to be

achieved i.e. agreement and sign off by the relevant parties.

Existing L/T

Existing L/T do not make reference to the IFC. Incorporation of the IFC into existing L/T’s

would therefore require individual variations of each and every L/T, which would be

extremely onerous, inconvenient and expensive (for all parties).

To avoid this, the easiest way to give the IFC contractual effect with existing L/Ts would

be by way of a Supplementary Agreement

Ideally, to be signed off by both parties. Where a PubCo offers to agree the terms of the

IFC, and an L/T signs, confirming that he accepts, then that agreement to comply with

the IFC takes effect as a contract between the parties in the usual way.

However, even where the L/T does not sign immediately, the offer from the PubCo is a

"Unilateral Offer" or ‘Standing Offer’, which can be taken up by the L/T at any time

(Common Law - the ‘Carbolic Smoke Ball Company’).

The adoption of the ‘Supplementary Agreement’ does not necessarily have to be signed

by the T/L - if by his actions he is ‘deemed to accept’.

A complaint/reference to PICAS on the basis of non-compliance with the Code would

signify acceptance of the TIC by the Courts, because by invoking and relying on the Code,

the L/T was indicating that he accepted the offer by PubCo to comply with it (You could

not make a complaint by relying on something you did not accept).

Similarly, if in Court proceedings an L/T chose to invoke and rely on the IFC, that would

also constitute acceptance, giving the IFC contractual force.

In short: The Company makes an ‘UNLIMITED STANDING OFFER’ to its L/Ts to comply

with the IFC. This ‘Offer’ can be taken up at any time, so it is always open to the L/Ts to

rely on the IFC if they wish to do so.

Robert Howe, QC

20th October 2011