Know the code
The code came into force on 21 July 2016 and applies to all pub-owning businesses with 500 or more tied pubs in England and Wales. It governs their relationships with tied pubs, but not with their managed houses or free-of-tie pub tenants.
It is intended to ensure tied pub tenants:
- Receive the information they need to make informed decisions about taking on a pub or new terms and conditions
- Have their rent reassessed if they haven’t had a review for five years
- Can request a market-rent-only (MRO) option to go free of tie and pay only a market rent in specific circumstances, including at a rent review or renewal of tenancy – an MRO-compliant tenancy can include a stocking requirement
This summer marks two years since the introduction of the Government’s fiercely debated pubs code.
Introduced in July 2016, the code has had a chance to bed in. However, tied tenants and pub-owning businesses continue to clash with each other and the pubs code adjudicator (PCA) over what it should be able to achieve. With disagreements over meanings and individual cases regularly becoming heated, changes to the code seem likely in the medium to long term.
At the heart of the code are the two principles of “fair dealing by pub-owning businesses (POBs) with their tied tenants” and that tied tenants “should be no worse off than they would be if they were free of tie”, according to the PCA.
The theory goes that pubs can cut drinks ties with the parent company, paying only rent and allowing them to buy drinks from any supplier they choose. However, the code has been criticised heavily by campaigners who say loopholes in the legislation give POBs the upper hand while tenants continue to suffer with poorer terms. They say the code is easy for big pubcos to deliberately misinterpret and pressure tenants to remain tied.
Under the code, pubs can ask for a market-rent-only (MRO) option quote at certain times, such as when rent is up for review, but the process of negotiation can drag on longer than tenants would like, causing deep frustration and the potential for mounting costs.
More recently, there has been debate over the publication of arbitration decisions to help clarify disputed areas of the code. In response to calls for transparency, the British Beer & Pub Association and the six large POBs have outlined conditions they want to see met before waiving confidentiality. They say there are commercial and confidentiality issues to be ironed out. Of course, tied tenant campaigners don’t agree.
Beer tie blamed for squeeze on pub turnover
Research from The Morning Advertiser and its sister publication MCA found a big rise in the percentage of licensees naming the beer tie as the key factor negatively affecting their turnover over the past 12 months.
The research, published in MCA’s Pub Market Report showed that 26% of respondents who have seen their turnover fall over the past year blamed the beer tie – a 16 percentage point increase compared to results from the 2017 report.
Read the full story here.
In May, tenants from across the country took their frustrations to Parliament Square to renew calls for a review of the code. Campaigners were joined by shadow business minister Gill Furniss in condemning the code as having failed to level the playing field for all tenants.
At the time, Furniss said: “We have seen bigger corporate chains exploiting loopholes in the code, all to the detriment of smaller local pubs. The code is not fit for purpose and the Government must urgently review it.”
Tied tenants such as Jenny Baish, who runs the Barley Mow pub in Theresa May’s constituency of Maidenhead with her partner Martin Hayes, say they have faced gruelling battles. For Baish, a tenant with Ei Group, the future of the code feels bleak. She says she has been fighting to go free of tie for two years.
“The code clearly does not work,” she says. “Lengthy delays and time wasting by the pubcos try to thwart the tied tenant from ever taking the MRO option.”
Baish adds: “MRO awards are not backdated, meaning we are disadvantaged massively every week that goes by. Now it has been two years with still no settlement. This can only prove the code is not working and can’t work without change, but the Government nor the PCA are interested in fixing it.
“The future is not looking very bright for the tied pub tenant until the Government changes this secondary legislation to make it work.”
This issue is something an independent report commissioned by the PCA, published in August 2017, appeared to support. At the time, the report found that businesses covered by the pubs code had made it difficult for tied tenants to exercise their MRO rights. It said POBs had done this by withholding information tenants needed to progress their MRO requests, offering tenants unreasonably high rents described as “bullish” by one independent assessor and failing to engage in meaningful negotiations, among other things. The report said the actions were “against the spirit of the code”. Pubcos hit back, saying the report was “one-sided, anecdotal and not evidence-based”.
However, PCA Paul Newby does not share Baish’s pessimism about MRO. He argues the code has begun to improve tied tenants’ experiences as it has taken root in the industry.
“We are not complacent, and there is always more work to be done, but we can point to the continued growth in the capability of the PCA office – with additional staffing, streamlined processes and significantly more information to support tied tenants accessing their pubs code rights,” Newby says.
The PCA office says it is continuing to work with pub owners and tenant stakeholders to gain agreement to secure a confidentiality waiver for arbitration awards to clarify understanding.
Deputy PCA Fiona Dickie adds: “We have listened to the concerns about the length of time taken to resolve disputes referred to the PCA for arbitration and introduced a range of new case management disciplines.
“These include tighter timetables and greater interaction with parties through case management conferences and oral hearings.”
Dickie adds that the speed of arbitration decisions is expected to increase in the next few months, with the number of negotiated settlements taking place at an earlier stage than before.
But it may be one step forward, two steps back as two POBs began judicial review proceedings in June over a PCA advice note for tenants. Ei Group and Greene King question the legality of the note published on the PCA website in March 2018.
As judicial reviews do not progress at speed, it may be a while before we know the impact on the code, if any. Currently, the note remains live on the PCA website.
A Greene King spokesperson tells The Morning Advertiser: “We are proud of the relationships we have with our partners up and down the country and from the outset have supported the pubs code and promoted it to our partners.
“As with any new legislation, there are questions and complexities that need clarifying and, two years on, this remains an ongoing process, with dialogue continuing between the PCA, tied pub tenants and pub-owning businesses for the benefit of all.”
Ei Group adds that the business has “worked hard over the past two years to support our publicans as they navigate what is a highly complex pubs code”.
An Ei spokesperson says: “We have engaged widely with all stakeholders, including the pubs code adjudicator, and will continue to do so with the clear aim of securing clarity and a successful outcome for our publicans, for Ei Group and for the wider pubs industry.”
The 'big six'
The pub companies covered by the code are:
Ei Group (formerly Enterprise Inns)
Star Pubs & Bars (Heineken UK)
A cross-party committee examined the pubs code earlier in the year, with the PCA stating in its evidence the code was on the up. At the Business, Energy and Industrial Strategy (BEIS) Committee session in June, the PCA said: “There is no doubt that we have been on a significant journey in the past two years.”
Newby and Dickie also highlighted introductory videos for tied tenants and statutory guidance. A fact sheet explaining what tenants should expect from their pub-owning company was published as recently as 22 June 2018.
Looking forward, there are hopes the Government will begin a proposed review of the code sooner rather than later.
Richard Harrington, minister for BEIS, said he would consider calls for a review into the pubs code to begin in early 2019.
The timetable set by parliament requires the review to cover a period from July 2016 introduction of the code to 31 March 2019.
Despite this, in a letter to the BEIS committee, Harrington has said he would take into consideration the committee’s suggestion to begin the review at the start of 2019 when finalising the timetable.
Baish and other publicans say a review needs to start before next year to avoid more frustration as tenants try to take up their MRO option.
Read a business development manager's take on the impact of the pubs code here.