Pubs code: a year on

By Fred A'Court

- Last updated on GMT

Major milestone: a look back at the pubs code a year after its implementation
Major milestone: a look back at the pubs code a year after its implementation

Related tags: Pubs code, Tenants, Arbitration, Pca

It is now a year since the pubs code was introduced but neither the trade, nor consultants and legal advisers negotiating deals between breweries and pubs, or pressure groups, seem to be celebrating.

Trade organisations have largely kept their heads down on what has become a highly contentious issue, consultants and legal advisers are bogged down in, as yet, unresolved cases under the new system, and pressure groups are ramping up a rhetoric of protest over failings in the system. 

The code was set up to make the whole tenant and pub company agreement more transparent, and to give tied tenants the right, in certain circumstances, to move to a free-of-tie tenancy market-rent-only (MRO) option available to 12,000 tenants in 500 English and Welsh pubs, owned by a total of six pub groups.

The pubs code adjudicator (PCA) Paul Newby rules on disputes. Since last July, he has accepted 151 referrals for arbitration up to 25 May, the last date for which figures are available. This has been described as a very high workload for one person and is reflected in a slow and low settlement rate.

Asked if the code was working, Michael Erridge of MDE Pub Consultants said "yes and no". It is working, he said, but only in the way that MRO is being used as a lever to achieve a deal. This works by tenants making an equivalent level of savings but not directly through a MRO deal itself because some of the rents being asked for are, he said, astronomically high and vastly inflated.

Some deals, he said, are still not resolved since last August and only four have been settled.

Numerous complaints

There have been numerous complaints about the slowness of settlements and the types of deals that are being done under the year-old code, despite the PCA saying the system is robust and working.

That, however, is not what anyone other than the PCA seems to be saying. On the contrary, there are calls for Newby to get others in to help out with the task of speeding up arbitration.

There are also protests that different, sometimes short-term, deals are being done.

Mark Brown, a partner with drinks, hospitality and leisure legal specialists Freeths, said “I have seen all sorts of deals being done.”

He labelled the PCA set-up a system of attrition that is not working properly. “It’s enabling large pub groups to wear down tenants and do deals that would not be done otherwise.”

Chris Wright of the Pubs Advisory Service claimed some of the deals being done under the new code amounted to horse trading, with a number of short-term, non-renewable agreements that leave tenants babysitting a pub while landlords work out what to do next.

Brown has called for the appointment of other people to arbitrate, leaving Newby to concentrate on enforcement of regulation. Asked whether such a system was likely he said: “I have absolutely no idea. It’s not happened to date.”

In a briefing paper co-authored by Brown called The pub code a year on – why change is urgently needed​, Freeths said: "Some of the tactics that are being used by some can, at best, be described as heavy-handed and against the spirit of the code. We have seen use of obstructive tactics designed to increase tenants' costs. Draft leases with clauses for which there is no justification under the code (or elsewhere) are not going to help anyone.

"The longer the offending behaviour continues, the greater the risk of further legislation being enacted – which limits, restricts or even abolishes the trade tie."

Wright says the current code and adjudication system is neither easy to use nor clear to understand.

Freeths agrees. Acknowledging that some of the issues are controversial – and will remain so – its report says that further guidance is needed from the PCA on a range of issues including more precise definition of a pub, what exactly a product or service tie is, a review of stocking agreements, and whether a newly agreed MRO should be "the pointlessly expensive mechanism of a new lease proposed by the pub-owning business, or the clean and simple deed of variation".

While these arguments, and more, continue, the main trade bodies contacted for their views on the code largely failed to defend it or, indeed, put up any comment at all.

Chief executive Brigid Simmonds said: “While MRO deals are being agreed, the success of the legislation should not be judged on the number of MRO agreements.

“Feedback indicates that the MRO option is also being used by tenants in negotiations, to look at the risks and rewards of the various business options and many tenants have subsequently agreed a new tied deal.

“If some feel the PCA cases seem ‘stuck in the system’, this is in all probability a reflection of the statutory nature of the process; all parties are keen to see the outcome of the PCA decisions and identify established precedents that will provide clarity going forwards.”

Confusion and delay

The Campaign for Real Ale (CAMRA) has "demanded" that ministers act to deliver a change of approach from the PCA following "12 months of confusion and delay".

CAMRA’s national chairman Colin Valentine said: "A healthy pub sector that delivers for consumers is dependent on ensuring that pub tenants are able to secure a fair deal from their landlords.

"Too many great pubs have been lost because of sky-high rents and inflated wholesale beer prices.

"The Government demonstrated its understanding of the problem by bringing in the pubs code. Now it must act to ensure its will is carried through – before we see another year go by with many more pubs lost to their communities forever.

“We welcomed the introduction of the pubs code and have always wanted to give Paul Newby a chance to succeed in his role as adjudicator.

"The chaotic circumstances surrounding the introduction of the pubs code a year ago meant that the code’s introduction was always going to be challenging, but we are disappointed that more progress has not been made.

"The need for an effective pubs code has been clearly demonstrated in the first year, with over 150 pub tenants bringing forward arbitration cases, but it is evident that the arbitration process is taking too long and costing too much."

Major milestone

Commenting on the one-year anniversary, Newby said it is a "major milestone for this new law that has brought significant change to the pubs sector".

“Parliament has given new rights to the tied pub tenants of the largest pub-owning businesses. Over the past 12 months, interest in the code has been high and I am pleased that tenants have been exercising their rights," he said. 

“As the first PCA, it is my responsibility to ensure that the code delivers its important rights and protections for tied tenants. I am committed to providing fair, accurate and timely information to tenants about their code rights, and access to effective and impartial redress when things go wrong. 

“At all times I have gone, and will go, where the evidence takes me when arbitrating, investigating and enforcing the code."

Newby has now published his first annual report covering the initial nine months of operation on the PCA website, which describes the work to set up the PCA office, engagement with tenants and other stakeholders and progress on arbitrations up to 31 March.

On Wednesday (26 July), he will also be publishing updated figures showing the impact of the pubs code over the past year. 

"This release will include information on the number of enquiries received by the PCA helpline over the past year and the number of cases referred to the PCA for arbitration," he said.  

"For the first time I will indicate the proportion of referrals that relate to each pub-owning business as the figures have reached a point where I am confident we can protect the confidentiality of individual cases.

“This first-year data contains significant figures and shows the sector is engaging robustly with the new law.

“I know that there are concerns within the tenant community about the way the code has operated and some frustration over the time that arbitrations can take to resolve. But the PCA must deal with all cases in an impartial and lawful manner. To do otherwise would simply increase the risk of legal challenge with the inevitable consequence of greater delay and cost. 

“But as that new law beds in, cases are completed and key issues determined, I am confident that I will be able to report further progress in the coming year.

“Year two of the code will be another busy year, but I am convinced that it will also be when the pubs code comes into its own and demonstrates the tangible benefits and real options it gives to tied tenants.”

Too early to tell

Kate Nicholls, chief executive of the Association of Licensed Multiple Retailers, added: "It is too early to tell whether the code as a whole is working as we have no real adjudication cases coming to conclusion in the first year to be able to make that assessment.

“The fact that, one year on, we have no meaningful cases heard shows that the process and procedure is not working as effectively and smoothly as it could.

“Legislation was drafted hastily and implemented alongside cases being heard. The absence of guidance and clear interpretation on some points means that there has been a lengthy and frustrating delay for tenants.

“What we are​ seeing in certain cases is a greater willingness among pub companies to enter into dialogue and provide much better information and in many cases better tied deals 

“If this is to be a success we need clear and detailed guidance on the crucial and common legal points which have bedevilled MRO cases to date.”

Related topics: Legislation

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