Pub companies and tenants, and representatives of both parties, will now face a busy 54 days as they set about responding to the proposals, putting their own interpretations on answers to the key questions being asked.
The big issues in scope are: whether to establish a statutory code and an independent adjudicator; how the principle that ‘a tied tenant should be no worse off than a free-of-tie (FOT) tenant’ should be interpreted in calculating rents; whether a statutory code should include a mandatory free-of-tie option; and whether such a code should apply only to pub companies with more than 500 pubs.
The Government insists its key objective is to ensure tenants are treated fairly and that tied tenants are no worse off than free-of-tie tenants — the so-called Prime Principle. It is fixating on this because it has seen evidence of some pub companies “trying to retrieve their financial position at the expense of their tenants”.
It also voices concern that pub companies and their tenants are not starting from equal positions. Pub companies have better access to information and resources, better understand their pubs and the markets in which they operate, and can afford legal and surveyor fees more easily. The tie, says the Government, “gives an additional route of abuse and complicates the relationship”.
The consultation effectively proposes the value transfer of £100m of earnings from pub companies to tenants. Assuming the affected pub companies operate around 20,000 tenanted pubs (which makes the maths nice and easy!), that represents an increased share of profits of £5,000 per pub.
That said, Business Secretary Vince Cable has specified that he is not planning to abolish the beer tie for fear of disadvantaging the British brewing industry. However, a guest-beer option, use of flow-monitoring equipment and a mandatory FOT option for all tenants are all included in the consultation.
The last of these — the mandatory FOT option — is perhaps the most controversial of all the consultation’s proposals. The Government itself recognises that, as their business models are highly predicated on the ability to tie, this “could cause a major pub company to go into administration”, which would have unknown positive or negative implications.
It says: “The arguments for and against a mandatory FOT option are finely balanced and the Government does not, as yet, have sufficient evidence to say conclusively which of these positive and negative effects are most likely to occur.”
What we know is that, according to the Royal Institution of Chartered Surveyors, FOT leases are not currently popular. Among 1,399 Enterprise, Punch and Marston’s new leases granted in the past year, only five were FOT.
What we don’t know is whether this is because they are not consistently offered, because FOT rents are set punitively high to discourage take-up, or because incoming tenants prefer to operate with lower fixed costs and higher variable costs.
It’s all to play for, so ensure your view is heard by 14 June — whether directly or through your representative bodies. This is your chance to shape the future of the pub industry in a way that, hopefully, will ensure it survives and thrives for decades to come.