Pubcos may yet make a mockery of ministers

There were two main issues at the beginning of the select committee inquiries into pubcos, both leading to an imbalance of risk and reward between landlords and tenants — the rent and cost of tied products.

Rent was addressed by the RICS (Royal Institution of Chartered Surveyors). Pubcos and brewers with a voice on the working group acted fast to change agreements to cut out reference to the new guidance for rent valuation.

The latter is an indication that the guidance may have achieved its goal, in closing the loopholes that previously allowed over-inflation of rents.

Sadly, the new agreements, outside the Landlord and Tenant Act, offering no security of tenure and subject to annual inflationary increases, instead of open market rent reviews, totally bypass the new RICS guidance. False inflation of rents will continue unchecked in those new agreements, with no remedy.

The effect of the tie remains untouched, although recent changes to the Competition Act 1998 may change this. Office of Fair Trading draft guidance defines agreements such as beer ties on a pub as potentially anti-competitive and, therefore, unenforceable.

Leases allow for a rent review in the event of a change in legislation. If the tie is unenforceable, the parties could have a rent review to open market rental value. But the possible increase in rent would not outweigh the pubcos' lost income from profits on tied products.

In order to gain on the swings what they lost on the roundabouts, the pubcos may begin valuing the 'special commercial or financial advantages' (SCORFA). The tie was exempt from anti competition laws because pubcos offered SCORFA as 'countervailing benefits' for free in exchange for the tie. With the amendments to law this may have changed and valuation of 'services' may now be permitted.

SCORFAs, not contained in the lease, are incapable of valuation, but they may be contained in the new codes of conduct. If these are legally binding, then, if the pubcos lose the tie, they will have successfully made a mockery of ministers and may simply continue to demand the same over-inflated income from formerly tied pubs through charges for services. The detrimental effects of these charges will not be reflected in rental valuation as reference to the RICS guidance for fair, sustainable rents are excluded from the new pubco agreements.

Tenants who have not signed codes are in an enviable position of a future, free-of-tie, with a fair and reasonable open market rent review.

All that the Independent Pub Confederation originally asked for!

Clarke is licensee of the Eagle in Battersea, London​