With leased and tenanted, managed and free trade pubs all forced to close their doors for more than 100 days, the welcome assistance provided by Government has been more than matched in the leased and tenanted sector by significant concessions on rent by most pub-owning businesses, continued investment, and in support packages and professional advice to lessees.
At Star alone, two thirds of our licensees received rent reductions in April of between 50-75% as part of a comprehensive package of measures to support them through the pandemic, with a further third receiving reductions over 75%.
This support, which has continued even as pubs have reopened, will remain in place at lower levels until October – and clearly we are keeping that support under regular review depending on what the coming weeks and months hold.
Licensees more informed
The leased and tenanted estates of the larger pub owners are governed by the pubs code, currently subject to a statutory review which is expected to be published shortly.
The review will examine whether the new legislation is driving fair and lawful dealings between pub-owning businesses such as Star, and our tied tenants.
Importantly, the regulation grants licensees the right to exercise a market rent only (MRO) option, under which their rent is set at a market level and they are able to source and sell products from the open market.
The code has undoubtedly been successful in giving licensees more options, in helping professionalise and formalise processes and in driving higher levels of transparency across the sector.
By enhancing recruitment programmes for instance, we now have more informed licensees with the skills and capability to run pubs as highly successful businesses in their own right.
More informed licensees are also driving innovative new deals that may be tied or free of tie, but in which there is a keener appreciation of the trade-offs between the security offered by the tie, versus the higher risk and rewards available to free trade houses.
While the number of tenants moving to MRO leases is relatively small, many tenants have used the option to renegotiate existing leases under the tie. This again shows the durability of a diverse model which is proving to be good for our sector and ultimately consumers.
Code clarity needed
As with all new legislation, there are still some challenges, not least in the lack of clarity around what constitutes reasonable arrangements between MRO licensees and pub owners.
Too often this lack of clarity results in pub owners and tenants finding themselves in arbitration proceedings.
This is problematic for two reasons. Firstly, the pubs regulator, the pubs code adjudicator, is deferring to these arbitral decisions for interpretations of the code. This puts pub owning businesses in the near impossible position of having to deduce our market obligations from judgments designed to resolve specific disputes, not to establish regulatory precedent.
Secondly, the regulator is tacitly endorsing arbitration in the belief that it better allows the particular circumstances of every pub to be taken into account. While of course the circumstances of each pub will be different, this leaves the pubs code legislation vulnerable to subjective re-interpretation in every new hearing, an unsustainable situation where regulation becomes a moving target. It’s also a poor use of resources. Time spent in arbitration is money and investment lost to create thriving businesses.
The pubs code in England and Wales and the voluntary code in Scotland have undoubtedly strengthened the pub sector, introducing choice for licensees, transparency and greater accountability.
The Government’s review of the legislation must now provide pub owning businesses, and licensees, with greater clarity on the implementation of the legislation. That will allow all of us to focus on what we do best - getting back behind the bar to rebuild a vital UK industry at the heart of communities up and down the country.