Regulation seven of the pubs code covers situations where there has been an unforeseen change in the trade of a pub and enables a tied tenant to have their rent reassessed in order for it to remain viable.
While rents are reviewed every five years, the regulation states that when an ‘Event Trigger’ has occurred, the tenant can accelerate the review.
However, at present, the pubs code defines an ‘Event Trigger’ as one which “must be unlikely to impact all pubs in England and Wales”, meaning that large pub owning groups are able to claim that the Covid-19 pandemic should not be regarded as a trigger for early rent assessment.
As such, a group of MPs led by the MP for Batley and Spen and the Labour Party candidate for West Yorkshire Mayor, Tracy Brabin, has contacted small business minister, Paul Scully MP in a bid to amend the code.
Fronted by the Forum of British Pubs and the Campaign for Real Ale (CAMRA), the campaign to reform regulation seven calls for the code to allow an accelerated rent review to be invoked by an event that has the capacity to affect all pubs, such as the ongoing pandemic.
“It is clearly in the country’s interest for pubs currently impacted so badly by the Covid crisis that they may well not open again, to have the opportunity of a rent reassessment right now,” founder of the Forum of British Pubs, Dave Mountford, explained.
“But the conditions set out in regulation seven of the 2016 pubs code give the pubcos the ability to reject this.
“In conjunction with CAMRA we are seeking an immediate amendment to the regulation so that Covid is regarded as a ‘trigger event’ which could well save many of the 10,500 tied tenant pubs in our communities.”
MPs backing the amendment include former Labour Party leadership candidates Clive Lewis MP and former shadow foreign secretary Yvette Cooper MP.
Working to help the sector survive
However, in July 2020, the pubs code adjudicator clarified that Covid-19 could not "in and of itself" be a trigger event is because it, and the Government’s closure order in March last year, applied to all pubs in England and Wales and therefore failed one of the pubs code's trigger event conditions.
Whats' more, in response to calls to reform regulation seven, Emma McClarkin, chief executive of the British Beer & Pub Association, said: "It’s also important to remember that pub operators have subsidised or cancelled over £156m in rent since October 2020 and more throughout the crisis.
"This is evidence of the strength of the leased and tenanted pub model. A model which has survived the ups and downs of hundreds of years and is now working to help the sector survive through the Covid-19 crisis.”
The letter in full
We write regarding regulation seven of The Pubs Code 2016, under which a tied establishment might seek a rent review should an unforeseen event occur that reduces its level of trade over a continuous period of 12 months.
The British pub is one of our oldest and most cherished institutions; yet for years it has been in peril. 25% have closed since 2001, reaching a rate of 18 a week in 2018. The Covid-19 pandemic has made this situation even worse, with pubs losing months of trading during the lockdown periods.
Whilst we welcome the financial support provided to pubs over the past year, many pubs in our constituencies have contacted us, concerned that they will still not be able to reopen when restrictions are finally lifted.
Over a year of repeated lockdowns, the business of running a pub has become unprofitable, yet the rental agreements held by the large pub-owning businesses have not changed to reflect this fact, and routine rent reviews are held only every fifth year of the contract. Regulation seven of The Pubs Code 2016 should have addressed this problem, as it enables a tied tenant to request a rent assessment should an unforeseen “trigger event” occur, which decreases the level of trade continuously for a period of 12 months.
However, whilst regulation seven should have allowed every tied pub in England and Wales to have its rent reassessed due to the impact on trade of the pandemic and lockdowns, it is impossible to invoke due to the caveat that the 'trigger event' must be 'unlikely to impact all pubs in England and Wales'. Clearly, the current crisis does.
Therefore, what should have been the lifeline for 10,500 tied pubs across the country is no more than a bad insurance policy, one which never pays out no matter how deserving the claim. By simply removing this one line, tied pub tenants could pay rent proportionate to their current turnover, and would stand a fighting chance of achieving profitability during the incredibly difficult months ahead.
Without this one simple amendment, we fear that thousands of pubs will never be able to repay the extortionate rent unfairly accrued during Covid-19. Estimates from last year suggest that a quarter of UK pubs may not survive this pandemic, and for the ones that do, the Treasury and taxpayer will pay the cost for keeping them afloat, as Government grants have to cover these disproportionate rent bills.
Today (22 March), the Forum of British Pubs – with support from CAMRA – has launched a new campaign called 'Reform Regulation 7' to coincide with the current review of The Pubs Code 2016. We would be most grateful if you would follow this campaign, listen to the concerns of pub tenants across the country, and come back to us with your comments on this important matter.
Tracy Brabin MP
Member of Parliament for Batley and Spen