Tenancies & Leases Guide: The pubco-tenant relationship

The pubco-tenant relationship has dominated the news of late. Phil Mellows assesses the situation.

The 2004 Tenancies & Leases Guide is published in the shadow of the most intensive government scrutiny of the tied house system for a decade and a half. A Trade and Industry Committee investigation into the business relationships between landlords and tenants has already heard angry licensees accuse the major pubcos of arrogance and bullying and squeezing them between high rents and high beer prices.

The mainstream media has picked up on the story, launching into the pubcos and spuriously promising readers cheap beer if the tie is outlawed.

The two giant companies at the centre of the investigation, Enterprise Inns and Punch Taverns, are saving their comments for their formal presentations to the committee.

But they, along with other tenanted and leased groups, must be worried about what the politicians will come up with.

Enforcing fair dealing between landlord and tenant is one thing. Interfering with the tied house system quite another.

The tie is at the very heart of the business model offered by pubcos and brewers. Ending it will throw the whole industry up into the air.

But could the system be fairer to tenants? Every pubco will tell you that they want each of their pubs to be successful businesses.

"The tenant running the pub has to make a living," says Avebury Taverns managing director David Myers. "The individual tenant, the landlord and the brewers all have an interest in the success of the pub. It won't work otherwise."

He admits that in the early days of the long lease tenants may have been over-rented. But he now believes that, more often than not, if a business fails it fails because of a lack of financial controls at the sharp end.

"We can't legislate for a tenant spending money on a holiday when they should be paying the VAT," he says.

It sounds harsh but Avebury, along with most companies in the sector, these days see themselves as a source of expertise, support and advice for the independent publican. There is also an incredibly wide choice of agreements available to people coming into the marketplace and pubcos are getting more flexible all the time - the new Punch deal being a case in point.

There are also a variety of pubs to choose from, mostly community houses but also food-led country pubs and high street bars. For David Myers all the bad publicity is a sign that perhaps the industry should be shouting about its successes more.

"The system doesn't work in every case, of course," he says. "But we're good at talking ourselves down in this industry. There are huge numbers of success stories and an awful lot of tenants are happy."

Worrying time for regionals​

Regional brewers will probably be saved from anything so drastic as an axing of their tie. But even a loosening of the tie, for instance the introduction of guest beers, still has many worried.

"We wouldn't survive without the tie and we want our tenants to believe the tie is good for them," says Andrew Younger, who heads the tenanted estate at Hall & Woodhouse. "The tie works very well, especially where pubs are near the brewery and customers become very loyal to our brands.

"But we're not complacent about treating licensees fairly. If the deal gets out of balance we'll look at it."

Stephen Oliver at the Union Pub Company wouldn't be too bothered if legislation forces brewers to offer "foreign" beers - his company already does. "But it could become a problem if somebody else's beer became the best-seller in some of our pubs. That will throw the whole model out," he said.

Landlords offer licensing support​

Nine out of 10 tenanted and leased pubcos are helping their licensees with the costs of licensing reform, a survey has revealed.

Implementation of the 2003 Licensing Act, now expected to come into force during the latter part of 2005, is likely to cost between £500 and £1,000 per pub, and tenants will be relieved to know they can expect at least some support from their landlord.

The survey was carried out by Union Pub Company managing director Stephen Oliver, in his role as Midlands chairman of the British Beer and Pub Association (BBPA).

"At a time when the relationship between landlord and licensee is under scrutiny again, licensing reform offers us all an opportunity to work in partnership with our tenants," said Stephen. "This survey shows most companies recognise that opportunity."

Twenty BBPA members, representing a cross-section of the tenanted and leased sector, responded, and Stephen presented the results at a recent British Institute of Innkeeping seminar in Oxford.

Seventy per cent of companies intend to contribute to the cost of the premises licence, and an additional 20 per cent will make make other funding available.

Two-thirds say they will offer "complete support" to their tenants during transition with the remainder giving "some support".

Most pubcos have already made progress towards meeting the demands of the new Act, despite the fact that the guidance has only been agreed in the last couple of weeks.

Half communicate with their tenants on licensing reform on a regular basis, and another 39 per cent "occasionally".

Seven out of 10 have already made contact with local authorities over the licensing policies that are likely to be put in place.

"This forms the most comprehensive picture yet of what we're all doing to help customers through the biggest change in licensing for over 100 years," commented Stephen.

"The overall picture is one of widespread assistance by brewers and pub companies for their tenants and lessees. For example, nearly three-quarters of companies are undertaking the complete re-licensing of the premises on their licensees' behalf.

"There is a wide variety of funding being offered. Companies are often helping with fees, schedules and plans but, like us the Union Pub Company, asking tenants and lessees to pay for the two licences."

Case Study: King Edward VII, Birmingham​

It's a busy life as a licensee, all right. In the four years she has run the King Edward VII in Birmingham Lisa Dunne (pictured top)​ has fought a three-year battle to keep the pub open, had a baby - and turned the place into a thriving business.

"When I took on the pub it was on a Compulsory Purchase Order from the council which wanted to knock it down to make a bus lane," she said. "Not only did I want to prove myself in the pub trade, but I also wanted to do something for the community."

So Lisa organised a petition with more than 15,000 signatures as part of a "God Save the King" campaign and the 101-year-old building was saved from demolition.

Having secured the pub's future she has worked with landlord Punch to develop the business agreeing a joint investment of £350,000 to refurbish the lounge and bar and build a new kitchen plus eight letting bedrooms.

"It's been hard work, but I have great staff, family and friends to help me - not to mention business support from Punch."

Have a look at which pubco is offering which deal - click here​ for our full listings.