Compliance is not a choice

Lessons for the whole industry​

The investigation focused on Star’s use of stocking terms in its free-of-tie tenancies, but there are likely to be broader lessons here for the whole of the regulated sector.

Pub companies cannot simply ignore regulatory decisions, statutory guidance and advice, or fail to give tenants the benefit of the law as they understand it.

Star had accepted legal principles about its Market Rent Only (MRO) tenancy offers that I set out in arbitration awards, but it didn’t apply those principles in other relevant cases. Tenants, including those fighting about the same legal points in ongoing arbitrations, suffered as a result.

The pubs code is all about transparency, and when a pub company knows it has failed to comply with the pubs code it should be open handed about that to all tenants who might be affected. 

What is more, six well-resourced and sophisticated companies cannot expect to sit and wait for the regulator to tell them what they can and cannot do. The code requires them to police themselves, and they must be proactive in ensuring compliance across their estates. Although I should add that some pub companies are better at that than others.

Crucially every pub company must have a code compliance officer (CCO) who has the independence and authority to verify compliance within their company. They must not be restricted in doing their job by any conflicting commercial objectives or targets.

It is the CCO’s responsibility to understand what fair and lawful dealing means for their company’s code compliance and ensure its principles are consistently applied to all their company’s policies and processes.

During the investigation I found that the job description for Star’s CCO made it the employee’s responsibility to ensure the code is interpreted to the commercial benefit of Heineken UK. This was a significant breach of the code and I will be raising this with all the pub companies I regulate to ensure they understand this point.  

Structural barriers to MRO​

Parliament entitled regulated tied tenants to a reasonable free of tie option every time they have the right to renegotiate their rent under the pubs code, and to use that to get the best outcome for their business.

The investigation findings go right to the DNA of how pub companies must approach the MRO process. Their policies cannot amount to structural barriers that may discourage tenants from looking at or pursuing their free of tie option.

Pub companies should be rigorously following the PCA’s Regulatory Compliance Handbook which sets out the steps that they must follow when preparing every free-of-tie proposal.    

Game changer

I have described this investigation as a ‘game changer’.

It has demonstrated to the industry that its regulator can and will act robustly to protect tied tenants’ rights.  I have teeth and I am not afraid to bite. 

The regulated pub companies will be considering the outcome of the investigation very carefully and will perhaps be re-assessing their approaches to MRO and to code compliance in general.   

My message to them is that compliance is not a choice and I will ensure the code delivers Parliament’s intention.   

Equally importantly, however, the investigation should also give every tied tenant protected by the code the confidence that they have a determined and proactive regulator overseeing their code rights. And one who has shown that she is willing to act when there is evidence of breaches of the code.