‘Police yourselves, vigorously or I will do it for you’ PCA warns pubcos

As reported by The MA,​ PCA Fiona Dickie fined Heineken’s pub arm £2m​ for “seriously and repeatedly” breaching the pubs code over nearly three years – a charge the operator is “actively considering” appealing. 

The first investigation by the regulator began in July 2019 after Star was suspected of breaching the pubs code by offering unreasonable stocking terms to tenants seeking to go free-of-tie.  

According to Dickie, the £2m fine, which will be paid to the Treasury, is based on the last 12 months' turnover from the whole Heineken UK group, including off sales through supermarkets and other retail outlets. 

She also revealed the industry regulator had reduced the fine to reflect the fact that Star needs to continue to support its tenants throughout the ongoing pandemic. 

As reported by The MA​, the operator of 1,900 leased and tenanted pubs recently extended rent concessions throughout November at a cost to the company of £2.8m​ – taking the operator’s total investment in rent reductions since pubs closed their doors at the end of March to £27.8m.

“A fine was necessary because Star was a repeat offender,” Dickie told The MA​. “It continued to force tenants who wanted to go free-of-tie to sell unreasonably high amounts of Heineken beers and ciders and it carried on doing this after repeated warnings from me that they had to put themselves on a compliant path.

“This would have impacted not just individual tenants but also operated as a deterrent from using the market-rent-only (MRO) option process and also some tenants will have settled on unreasonable free-of-tie terms,” Dickie continued. “So on top of the fine, I'm also requiring Star to go back to any tenancies agreed on non-compliant terms and put them right at no cost to tenants.” 

Since the introduction of the pubs code in July 2016, Star Pubs & Bars received 237 MRO notices, of which 205 were accepted and 32 were rejected.

Of these, 82 have been concluded by way of mutually agreed leased and tenanted deals, 27 have resulted in new mutually agreed free-of-tie terms while 81 negotiations have not yet been concluded. Additionally, one pub has been sold and nine tenants have departed.

Police yourselves

Dickie added the announcement marked an “important day” for the regulator and that she believed the investigation’s report to be a “game changer”.  

“This fine should act as a deterrent to any of the other regulated pub companies to deter them from breaching the code," she explained. "It shows I'm a regulator with teeth and I'm prepared to bite if necessary. 

“My message to regulated pub companies is to police yourselves, vigorously or I will do it for you, and that can be costly. 

“Our message to tenants is the regulator will stand up for their access to code rights if pub companies obstruct them, and it's important now more than ever they have all the tools at their disposal that parliament wanted them to have to enable them to negotiate the best deal for their pub."

Deserved outcome

The Campaign for Real Ale’s national chairman Nik Antona said he was glad the PCA had exercised its financial penalty powers for the first time.

“This is a good and deserved outcome for Star tenants – and a landmark moment for the pubs code adjudicator,” he explained. “We hope this will send a clear message to regulated pub companies that they cannot get away with breaching the code. 

“In this case, the PCA found repeated breaches of the code in multiple areas – we want to see further investigations from the PCA to make sure other regulated pub companies are complying.  

“The pub sector as we know it is currently under threat due to the ongoing coronavirus crisis, and lack of proper financial support from central Government. Pub companies need to be supporting their tied tenants through this, and at a very minimum this should mean fulfilling their basic obligations under the code.”

Forthcoming review 

However, Star Pubs & Bars’ managing director Lawson Mountstevens commented that he “fundamentally” disagreed with many aspects of the decision and was actively considering an appeal.

"This penalty is unwarranted and disproportionate and comes at a time when the entire sector is in serious financial crisis as we work around the clock to support our pubs and licensees to keep their businesses afloat," he said.

What’s more, the British Beer & Pub Association’s chief executive, Emma McClarkin, responded to the regulator’s decision with hopes the Government can iron out code creases in its forthcoming review.   

“All of the regulated pub companies are committed to the pubs code, both in word and spirit,” she said.

“However, we do believe there are issues and inconsistencies in the way the statutory framework is applied, including a lack of adequate guidance, which we hope the Government will explore in its statutory review.”