So we finally have the beginnings of a statutory code of conduct for Britain’s tenanted pubcos and an industry adjudicator to enforce it.
But has the government managed to pull off the seemingly impossible task of satisfying both pub tenants and pubcos? It clearly believes it has struck an appropriate balance: preventing further uncertainty for the sector, not damaging brewers’ routes to market, not impacting on pubcos’ economies of scale; and minimising pub closures.
It estimates that the introduction of the code itself will lead to a very-specific, mere 52 pub closures, far fewer than would be the case under any other option it considered.
Tellingly the pubcos aren’t complaining, and their share prices haven’t suffered. They’re not publicly celebrating this announcement (as that would be unseemly and provocative), but behind the scenes there must be great relief that the code does not include the things they feared most – namely mandatory free-of-tie (FoT), guest-beer or market-only-rent (MRO) options.
The government has bought the pubcos’ arguments that FoT would have caused some businesses to flee or significantly reduce their exposure to the tenanted sector, denying would-be licensees a low-cost entry into their pubs, and that a guest-beer option would have seen everyone opting for the highest-volume standard lager (rather than a range-enhancing local cask option).
Among the campaigners, CAMRA – politically astute and realistic as ever – has declared itself “delighted” with the outcome, despite originally asking for much more. The GMB and the Forum for Private Business have been less enthusiastic. But there has been little response yet from Greg Mulholland MP – the self-styled Pub Champion and pubco hater – who was last seen half way up a mountain in Ecuador. The clever money is surely on Mulholland and Adrian Bailey MP joining forces to submit amendments to the legislation, though probably to no avail.
Whether the wider membership of the Fair Deal for your Local campaign alliance now accept that they have won as many concessions as they are going to get from their lobbying activities, or now turn their attentions to the Labour Party in the hope of securing an election manifesto commitment to go further on pubco reform, remains to be seen.
As it stands, the statutory code will provide all tenants with “increased transparency, fair treatment, the right to request an open market rent review if they have not had one for five years, and the right to take disputes to an independent adjudicator”; and those tied to a pubco 500+ pubs will additionally benefit from the right to demand “a parallel free-of-tie rent assessment if rent negotiations for their pub fail”.
They can’t have that free-of-tie deal, but like in Jim Bowen’s Bullseye, they will be able to see what they could have won – and use it in their negotiations.
Other highlights include: confirmation of business-as-usual on flow monitoring equipment, which can continue to be used in enforcing the beer tie, but only if its data are supported by other evidence; and a mandatory free-of-tie option on gaming machines, to be paid for via adjustments in dry rent.
The government believes its statutory code will “rebalance the relationship between pub owning companies and their tied tenants” without resorting to radical options.
There are set-up and running costs, amounting to a couple of million pounds a year, equivalent to around £100 per tenanted pub – to be paid via a levy on pubcos in line with the number of pubs they own and/or the frequency with which they breach the code. Plus there will be the expense of the 4,200 expected annual tenant requests for parallel free-of-tie rent assessments (which will each cost the tenant £200 and the pubco £400 – total £2.5m). And the government still believes there will be a general value transfer from pub-owning companies to tenants where the current agreement is unfair amounting to tens of millions of pounds in total.
It’s too early to judge whether the government has got this right. Both the statutory code and adjudicator will be subject to reviews, initially after two years and then every three years thereafter. But whatever your position in the great pubco debate, here’s to the new system working well to the satisfaction of all parties – allowing everyone to concentrate fully and without distraction on improving and growing the pub trade for its customers and stakeholders alike.
That, much more than any government legislation, will be the thing that secures the future of Britain’s tenanted pub estate.
