Pub statutory code: Trade responds to market rent only option vote

By Ellie Bothwell contact

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Brigid Simmonds: 'I hope Parliament will rethink as the bill continues its progress'
Brigid Simmonds: 'I hope Parliament will rethink as the bill continues its progress'
Leading figures in the pub trade have responded to the new market rent only option for tied tenants in the pubs code. New Clause 2 was voted through by MPs yesterday following a passionate debate in the House of Commons.

Brigid Simmonds, chief executive of the British Beer & Pub Association​: “This change effectively breaks the ‘beer tie’, which has served Britain’s unique pub industry well for nearly 400 years. It would hugely damage investment, jobs, and results in 1,400 more pubs closing, with 7,000 job losses - as the Government’s own research shows.

“There are serious legal and competition issues which must be faced, as it rides roughshod over what are previously agreed contracts, and creates an unworkable, two-tier market.

“I hope Parliament will rethink as the bill continues its progress."

Simon Townsend, chief executive of Enterprise Inns:​ “The Government completed a thorough and extensive review of how best to enhance protection for tied tenants. As a result, it rejected the “market rent only” option as damaging to pubs, communities and the wider industry. Independent economic research, commissioned by the Government, found that a “market rent only” option would lead to widespread pub closures, significant job losses and reduced investment in the sector. This amendment is a disproportionate response which proposes fundamental change that is wholly contrary to the findings of the consultation, from which the Bill was drawn up.

“We continue to believe the tie offers the best operating model for the vast majority of our publicans and, as we made clear in reporting our Preliminary Results yesterday, we take a flexible approach to all our lease and tenancy agreements and the proactive management of our wider property portfolio. In light of yesterday’s vote we will continue to assess all options to safeguard the interests of both our publicans and shareholders. In the meantime we will monitor the situation closely and await the Government’s response to this unwelcome development.”

Punch Taverns​ released a statement saying the bill in its current form would “have significant adverse consequences for Britain's community pubs”.

It stressed the Government’s own research had predicted MRO would result in between 700 and 1,400 more pubs closing with 3,700 to 7,000 job losses. 

It added: “Furthermore, we believe that the amendment would be likely to have the effect of reducing pub investment, reducing consumer choice and exposing tenants to higher fixed rents, reduced levels of support and greater risk of failure. 

“Punch's view is that the amendment would lead to the creation of an unworkable two tier economic market and would be contrary to existing legal contracts and property rights.  It also runs contrary to the OFT's view when it considered a super-complaint from CAMRA in 2010 and concluded that tied tenants were able to compete effectively and that the commercial interests of pub companies and their tenants were aligned.

“We are currently considering the potential impact of the amended Bill on Punch, including the implications for our substantial pub investment program and our disposal plans.”

Geof Collyer, of Deutsche Bank​, said supporters of MRO should be “careful what they wish for”.

He added: “Around 1%-2% of licensees ask for a free-of-tie option each year from ETI. The vast majority appreciate the safer option of ‘low fixed plus turnover rent’, because it is better for cash flows. Breaking the tie in the way proposed by the above amendment will have significant consequences for the industry – which is why the Government rejected the concept when it was proposed back in June 2014. Its own analysis suggested that the MRO would accelerate pub closures and job losses.”

He concluded: “The MRO is against both UK Government policy and competition law here and in the EU, and we would expect the pub industry to appeal this amendment all the way through the courts. ETI also has the ‘nuclear’ option of converting into a real estate investment trust (REIT).”

John Allan, national chairman of Federation of Small Businesses:​ “This is a historic day for tied publicans who look forward to a more open and competitive marketplace. The freedom to stock a wider range of beers will provide a boost to local economies while giving consumers greater choice.
“We call on Government to support today’s decision and for all parties to back publicans in their respective 2015 election manifestos.”

David Forde, UK managing director of Heineken: ​“What the Great British pub needs most is sustained investment to improve standards and attract more customers.  If enacted, the Market Rent Only option would effectively break the beer tie, threaten vital investment and damage pubs.

"This year our Star Pubs & Bars business invested £18m to improve our pubs.  We know that with the right lessee, in the right pub, backed by the right investment our model benefits lessees, the community and us as Brewer.  These changes would threaten that partnership and make it more difficult for people to enter the market and own their own pub.  We urge Parliament to think again before this poorly thought out proposal becomes law.”

Tim Page, chief executive of the Campaign for Real Ale​: "Today’s landmark Parliamentary vote helps secure the future of pubs. CAMRA is delighted that, after ten years of our campaigning, MPs have today voted to introduce a market rent only option for licensees tied to the large pub companies - a move that will secure the future of the Great British Pub. 

"The Government was defeated by 284 votes to 269 with MPs from all parties voting in favour of a new clause to the Small Business Bill that will empower pubco licensees to choose between a tied agreement and a market rent only agreement that will allow them to buy beer on the open market. Allowing over 13,000 pub tenants tied to the large pub companies the option of buying beer on the open market at competitive prices will help keep pubs open and ensure the cost of a pint to consumers remains affordable. The large pub companies will no longer be able to charge their tenants prices up to 60 pence a pint higher than open market prices.

"This simple choice should spell the end of pubco licensees being forced out of business through high rents and tied product prices.

"Thank you to the 8000 CAMRA members and campaigners who lobbied their local MP to help make this happen and to those MPs that voted to support pubs. CAMRA are now urging the Government to accept the outcome of the vote."

Greg Mulholland, chair of the Parliamentary Save the Pub Group, who tabled the clause​: "This was a victory for people power, for commonsense and for fairness and a huge victory for hard pressed publicans and their customers. I thank all MPs who had the courage to listen to their constituent licensees, CAMRA members and campaigners who have been campaigning for years to end what CAMRA call the pub scandal.

"For too long, the large undebted pubcos have exploited their tenants and taken more than is fair or sustainable from pub profits, now the House of Commons has clearly passed the select committee option of a market rent option which will stop the pubco rip-off of hugely marked up beer prices and excessive rents. 

"Contrary to typically misleading and increasingly desperate statements from their pubcos and their lobbyists, this does not abolish the beer tie. It simply gives tenants the right, at rent review or renewal, to request an independent assessment of their rent and opt to pay that."

Adrian Bailey, chair of the Business, Innovation and Skills Select Committee and signatory to the new clause: “​Today was a great day for pub tenants and for parliamentary democracy. The MRO is the first step to releasing pub tenants from the shackles of a relationship with the Pubcos that was unfair to them, damaging to the industry and the communities it serves. However we must not assume that everything will suddenly come good. The BIS Select Committee will continue to monitor the application of the MRO and is fully prepared to take further action if is not adhered to.”

Tim Hulme, chief executive of the British Institute of Innkeeping:​ “The BII is the only industry body to represent individuals working at the front line in licensed retail and as such we support fairness and openness in all interactions between licensees and their landlords. We don’t believe individual operators should ever be disadvantaged financially by the tie agreement in place at their pub and we are pleased to see this important issue raised in such a public arena since the rights of small businesses such as pubs have to be protected.

“There is still some way to go in this particular debate but the future of the pub industry depends very much on co-operation between landlord and tenant so we hope all parties will play their part in ensuring pubs continue to thrive in future and that the entrepreneurs behind the majority of great pubs have an even playing field on which to compete.”

Related topics: Legislation

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