by Brendan Coyne
The BBPA has reacted angrily to the publication of the Pubs Code, slamming the proposals as "unworkable" and warning that they would lead to further pub closures.
The new rules set out rules around market rents only (MRO) options, allowing tenants to request that ties be cut with breweries and pubcos to just the market rent of the building. The Code states they can now do this even if their rent is not increased.
The Code also sets out the threshold of drinks price increases that would allow them to trigger a MRO offer (3% for beer, 6% for alcoholic drinks). It sets maximum penalties for pubco misbehaviour (1% of group turnover). Significantly, it also sets out rules for major investment that would allow pubcos to sidestep market rent only rules as 200% of dry rent. That level of investment would then stop MRO offers for a maximum of seven years.
Those rules would put significant power back in the hands of tenants, but pubcos and brewers warned of unintended consequences. While the BBPA largely represents brewers and pubcos, chief executive Brigid Simmonds (pictured) claimed even small independents may suffer high compliance costs as a result of the new rules.
According to the BIS response, the principle changes outlined by the department are:
- To remove the proposed restriction that the MRO option should become available only when an increased rent was proposed but to allow it regardless of the level of rent proposed
- Deliver the effect of a Parallel Rent Assessment to enable tied tenants to consider a free-of-tie rent offer alongside a tied rent review proposal
- Refine and improve the basis on which a ‘significant price increase' would be calculated for the purpose of triggering an MRO option
- To change the basis on which a ‘significant price increase' would be calculated for the purpose of triggering an MRO option
- To cut back the weight of information requirements on pub-owning businesses in ways that would still offer similar protections to tied pub tenants;
- Conditions for allowing an exception to the right to an MRO option in exchange for a significant investment in the tied pub through an agreement between the pub-owning business and tied tenant - including the minimum size of such an investment and the maximum period for the exception
- The maximum length of short agreement which should be exempted from most Pubs Code provisions (12 months); and which provisions should still apply to these short agreements
- The definition of those tied pub franchises which would be exempt from some parts of the Code
- To make some Code provisions non-arbitrable: relating to the role and duties of compliance officers and the training of business development managers
- Issues about the level of fees and charges and also the financial penalty following an investigation by the Pubs Code Adjudicator.
Simmonds blasted key aspects of the Code as "unworkable" and called for "an urgent meeting with Ministers to discuss" them. She slammed a lack of transitional arrangements before the new rules come into force.
"The public consultation closed on 18 January and with six weeks to go before implementation on 26th May, we are now told that there will be no transition and that tenants who have a rent review due between 26 May and 25 November will have to be offered a Market Rent Only agreement," said Simmonds.
"This is despite the fact that the existing Industry Framework Code requires lease rent reviews to commence at least six months before they are due. Some 40% of the 800 plus reviews due over the next six months have already been completed.
"When the Groceries Code was introduced there was a six month's transition between adoption and the need to act on it, and the same should apply to the pubs legislation."
Disruption aside, she said there would be no time to train staff to ensure compliance with new legislation, with tenants also affected.
"They will need to be briefed, trained and advised on the new legislation. The adjudicator will also need to produce guidance, advising publicans of their rights under the new code. None of these important actions can reasonably be expected to take place smoothly, without a sensible transition period," Simmonds argued.
She said the BBPA had many concerns over the Secondary Legislation, chief among which was the rules around investment waivers.
"The proposal that the waiver for investment can only be entered into where the investment is at least 200% of dry rent (e.g. £50k rent and £100k investment) and for a maximum of seven years is unworkable," said Simmonds. "This puts at huge risk much of the £200 million capital invested each year by pub companies in their tied pubs and will ultimately lead to further closures."
"In one company, 80% of their pub investments last year were under 200% of dry rent and, for example, a recent £400,000 investment in an ailing community pub in Newcastle will never happen again as it would not pay back within seven years."
Simmonds said even new market entrants would suffer.
"For very small entrepreneurs wanting to own their first pub, it is very disappointing that the government is looking to impose the statutory code elements of the legislation, such as the extensive compliance and information requirements, on them if they buy a pub from one of the large companies. The cost of compliance will be considerable."
Outlining the government's response to the consultation, BIS minister Anna Soubry had acknowledged that it might not be universally welcomed.
"I have had to take some tough decisions, and I am certain that parties on different sides of the debate will find they disagree with some of the conclusions," she said.
"However, it is my job to strike a balance which ensures that tied tenants of the largest pub-owning businesses are no worse off than free-of-tie tenants, that there is fair and lawful dealing between pubowning businesses and their tied tenants and that all this takes place without placing undue burdens on businesses."
"I hope all parties will agree that, on balance, this package of measures works to the benefit of our pubs sector and represents a fair outcome for all."