Parallel rent assessment provision in pubs code 'could be unlawful', claims BBPA

Tighe was giving evidence on the second day of a committee examining the Small Business Enterprise and Employment Bill, which includes the Government’s proposals for a statutory code. Association of Multiple Retailers chief executive Kate Nicholls, Campaign for Real Ale head of communications Tom Stainer and Fair Pint campaigner Simon Clarke also gave evidence.

In its response to its consultation on the pubs code, the Department for Business, Innovation & Skills outlined that pub companies with 500 or more tied pubs would be required to offer parallel tied and free-of-tie rent assessments to potential or existing tenants if they request them when they are considering taking on a pub tenancy or at the time of their regular tied rent review.

It said: “A tenant would have the right to request this parallel free-of-tie rent assessment once the parties had been unable to reach agreement on a tied rent offer following a period of negotiation. [...] The new adjudicator will give tenants confidence that if the parallel rent assessment provision is not properly implemented, then they can seek redress from a truly independent third party.”

'Unlawful'​

Speaking about whether the bill would deliver the intention of tied tenants being no worse off than free-of-tie tenants, Tighe said: “To try and use [parallel rent assessments] as a basis to arbitrate on rents we think would be very problematic and get the adjudicator into very difficult situations, and it would probably be unlawful in the extent of European law as well.”

Following the committee meeting, Tighe told the Publican’s Morning Advertiser​ that the Government needs to provide more clarity around whether the assessments could be used as a basis for arbitrating rent, rather than just for information purposes to help tenants with their negotiations.

“To justify Government intervention in a market it has to be demonstrated that there’s some kind of market failure under European competition law. And if the Government was to potentially enforce pub operators to hand over more of the income they earn from the pub to tenants there would have to be quite a strong public interest test to justify doing that under human rights law,” he said.

“But the tie has been found to be a perfectly legitimate business model and the OFT (Office of Fair Trading) has said there’s no competition concerns in relation to the tied model.”

He added that the existence of these laws was one of the reasons why the Government decided not to implement a market rent only option, as lobbied for by anti-pubco campaigners.

More on parallel rent assessments​

• Tighe said there could be “between 3,000 and 5,000 rent events every year” based on parallel rent assessments if the adjudicator sets rents on an individual basis, and these would be “very difficult in themselves to produce”.
• Nicholls said: “Ideally [parallel rent assessments] would come about as part of the negotiation between the pub company and the lessee, so you would have that kind of information available rather than being required to get it when you go through an adjudicator only when your rent negotiation has broken down, which is how I read the current bill and code. If the bill works properly and you correctly apply the provisions of the code as it’s currently drafted and you apply RICS guidance correctly, you will deliver better rents and better situations for tied lessees. There should be no need for each case to go to the adjudicator If you’ve got 3-5,000 cases going to the adjudicator, we as an industry are doing something very wrong.”

Costs of statutory regulation​

• Tighe: “At the moment companies pay £5 per pub towards funding self-regulation. The cost under the adjudicator as set out in the consultation would be £95 per pub, plus all the costs of compliance.”
• Stainer: “£5 per pub figure suggests the current system is fairly under-resourced. That’s why it’s not operating in the way it should do. We’d argue that £95 per pub is a very modest amount of money to deliver the benefits for both licensees and pub companies and customers as well.”
• Clarke disputed the idea of a compliance officer, compliance reports and surveyors passing on rent valuations leading to an additional cost burden. He said: “There’s been four years of regulation so it seems to be there must be a compliance officer already. The code is not asking them to employ a full-time member of staff to undertake that role. And if they’re not breaching self-regulation, the compliance reports should be short and sweet.”

Core/enhanced code​

• Clarke: “It is important the 500 cut off is 500 pubs, not 500 tied pubs, even though the code only applies to the tied pubs. You could end up with a situation where a company owns 10,000 pubs but has no statutory regulation at all.”