Small Business, Enterprise and Employment Bill

Written evidence submitted by Federation of Licensed Victuallers Associations (SB 74)

PART 4

THE PUBS CODE ADJUDICATOR AND THE PUBS CODE

The Following response to the Governments Small Business, Enterprise and Employment Bill is made by the Federation of Licensed Victuallers Associations which is a self employed Licensees association first established in 1992 administered through a Management Committee comprising of licensee members supported by a trustee body.

It is made in respect of Part 4 of this Bill regarding the Pubs Code Adjudicator and the Pubs Code specifically.

The current Industry Framework Code V6 (IFC) goes into great detail on the requirements of the actions of the Pub Companies towards their Tenants, negotiations which were being undertaken with the Pub Companies, by the FLVA, prior to the publication of the proposed statutory code (SC), to enhance and strengthen the voluntary code (VC) were at an advanced stage and some of these hard won undertakings would be well woven into the SC.

Our comments are therefore based upon what we believe are best practices of the current IFC and those benefits which were gained during negotiations and are not currently provided for within the proposed SC

Executive Summary and Recommendations.

· 1. We have previously sent submissions in respect of consultations into Pub Companies and Tenants and we are relieved that the initially proposed options of a mandatory free of tie and a " guest beer" option have been set aside.

· 2. The FLVA believe that there should be no substantive size differential between a Pub Operating Business (POB) which is captured by the SC and one which is not. The code should be all encompassing.

· 3. The Current roles of PIRRS and PICAS should be retained and there is a strong need for a Triage Service/Helpline to filter and assist Tenants and the Adjudicator in the working of the SC

· 4. There is a need for strong guidance notes, which should be further consulted on, from the Adjudicator to ensure that there is a culture of best practice and not lowest common denominator within individual POB codes, where produced. These guidance notes should reiterate the need and requirement for essential industry information such as benchmarking, in that it must be retained, detailed, and updated by the POB’s. Common and prescriptive timescales which are to be used and published by the POB in their codes should also be defined within these guidance notes.

· 5. The national wholesale price list for tied products as published by the POB should mirror, or be lower than the prices as published by the individual brand owners of the products concerned.

· 6. All agreements which have at their heart a tied beer supply arrangement should be captured by the SC including "Franchise" models.

FLVA RESPONSE

· 7. There is a need that there be one code for all companies which is readily available on company web sites and is distributed to all existing and new tenants. The SC provides for this, but only on the assumption that all POB’s are captured by the code. Very importantly the distribution as above should also encompass the audit statistics as detailed in the SC. This helps to make the code and a POB’s performance in relation to the code transparent to all. However the required complexity of the SC along with the resultant cat’s cradle of differing POB codes will require some form of interpretation to the layman to ensure a practical implementation of the proposed measures.

· 8. The threshold of Companies who are to be bound by the code should be minimal in number (say 10). In short what is good law and practice for one, is good law and practice for all in the industry. We hear of many cases where the smaller family brewer is as guilty of malpractice as the larger organisations. Indeed many of the difficulties we faced in the voluntary negotiations were due to the reticence of the smaller companies. This low number would also capture the potential sell off, of sections of an estate where potential new landlord practices should also be controlled to avoid malpractice towards the Tenant.

· 9. A code needs to be descriptive of the various styles of letting that are available and the specific implications of that tenure. We especially refer to the wholesale practice of contracting out of the Landlord and Tenant act 1954 which seems to be the method of choice of some of the larger pub companies. This practice removes from a tenant any rent review provisions that are included within the body of the SC. There was a will within the VC agreement to provide some form of" letter of intent" in line with the rent review provisions which would allow a contracted out tenant to have time to fully consider the proposals being made to them and be able to re-plan their personal circumstances if the circumstances dictated such. This voluntarily agreed practice should be captured within a new SC or guidance.

· 10. All styles of letting, both existing and new, which have a tied beer supply arrangement should be encompassed by the SC. This would capture Franchise agreements, profit share and any form of turnover related agreement. The one exception to this may be the Tenancy at Will (TAW) which would give the flexibility to keep a pub open in exceptional and unforeseen circumstances. The practice of a continual renewal of a TAW requires to be tightly controlled to avoid any sidestepping of the SC.

· 11. The wording of the requirement for a prospective tenant to prove completion of Pre Entry Awareness Training (PEAT) prior to the discussion of terms requires to be "water tight" in order that the negotiations are transparent and are as fully understood as is possible. General terms of the letting should be provided at the initial meeting.

· 12. The same safeguards as required in 5 above should also be required in respect of the preparation of business plans, legal, property, financial and rental advice.

· 13. Industry benchmarking data, as provided for within the SC proposed content for an FMT profit and loss statement, needs to be enshrined within the legislation. Whether the SC itself or the Adjudicators guidance notes to the POB is the correct home, is for debate, but this essential indicator to a prospective tenant must be retained and annually updated by POB’s.

· 14. The provision of a Parallel FOT rent assessment may in practice be problematic in the format as proposed within the FMT Profit and Loss statement. We believe this to be the case because any defined SCORFA benefit is specific to an individual Tenant at a given point in time and may be open to many and varied interpretations, as indeed will be the benefit of having a fully kitted out and operational Public House on a given site. The basic RICS principle of the landlords share being between 35% to 65% of the Divisible Balance encompasses all and takes into account these and many other principles when deliberating on a market rent. Even a slight move towards the lower end of this scale would be obviously advantageous to the Tenant and would balance the test of a tied pub tenant being no worse off than a free of tie pub tenant.

· 15. Any information which may be used by a 3rd party in a determination of a rent should be shared.

· 16. Sufficient information to allow a Reasonably Efficient Operator (REO) to understand the business into which he is entering should not only provide known issues effecting the business or property, purchased volumes of product but should also provide a detailed inventory of Tenants fixtures and fittings and practices relating thereto at the onset and conclusion of an agreement.

· 17. Assignees of agreements should also be provided with the same information as new prospective Tenants to enable them to understand the nature of the business which they are purchasing. (albeit that the inventory will form part of the purchase price of the Business from the assignor)

· 18. There is a need for specific time scale for POB’s to respond to a request for assistance from a Tenant where they are experiencing business difficulties which are beyond their control.

· 19. The practice of" Licences to Alter" and "Consents to Alter" need to be fully defined especially in respect of any future rent review provisions whenever any Tenant led capital investment takes place. Again this could be placed within the SC or the Adjudicators guidance.

· 20. Company funded capital developments must provide detailed implications in respect of Rent and Tenants fixtures and fittings. E.g. write off/purchase.

· 21. Both the property and financial implications of a "put and Keep" agreement should be highlighted via a schedule of condition at the onset of an agreement and the financial implications are to be reflected within the FMT Profit and loss calculations as detailed within the SC.

· 22. POB’s should undertake that the National price list as required to be published by them for tied product supply should provide for the fact that their Wholesale selling price be no more than the brand owners Wholesale selling price of the relevant product and that subsequent price increases should be made in the same cash quantum as the increase to the POB by the same brand owners.

· 23. Dispute resolution provisions as provided for within the current IFC namely PIRRS and PICAS should be at the very least replicated within the remit of the Adjudicator. The existence of these current bodies is every bit as important, if not more so, than the individual cases which go before them. They have proved to be an invaluable tool to the FLVA and can be used by an individual Tenant during negotiations and the enhanced powers that the adjudicator will have in respect of a SC transgression will further bolster their usefulness. The affordability of such schemes to the Tenant must also be retained.

· 24. The user friendliness of PIRRS/PICAS must be retained and the potential reticence of an individual tenant to approach a government official or department either because of lack of knowledge or a working understanding of the SC or an individual POB code must be overcome. Whether this is at the initial interview stage or as an existing Tenant. There needs to be some form of "triage" which identifies the potential issue and assists in balancing the risk and reward for a new Tenant and guides an existing Tenant towards an acceptable and defensible course of action. This "helpline" will be of double benefit in that it will act as a filter before the Adjudicators direct involvement, as does the current existence of PIRRS/PICAS, and can also flag up to the Adjudicator where there would appear to be a routine transgression of the SC by any individual POB. This could facilitate an early investigation by the Adjudicator prior to the publication of POB code audits.

· 25. The practice of wholesale "contracting out" of the landlord and Tenant 1954 act should not circumvent the best practice of a rent review procedure as outlined within the SC

November 2014