New Bill is not small beer: but will it mean smaller bills?
30 December 2014
On 19 November 2014 new legislation targeting the “beer tie” in pub tenancy agreements, along with a series of other key commercial terms for pub tenants and managers of leased pubs, was tabled. This came as part of the third reading of the Small Business, Enterprise and Employment Bill (“Bill”).
What does the new bill propose?
The key elements of the new Bill provision are that major pub-owning companies, defined to include those who are landlord of 500 or more pubs in the preceding six months (“PubCos”) will be required to offer tenants a “market-rent only” option on:
renewal of a lease, rent review or at the date five years from the date of the previous rent review;
notifying the tenant of or bringing about a significant increase in the price for supply of a certain product (which a new ‘Pub Code Adjudicator’, who will be charged with overseeing a new ‘Pub Code’, will be given the power to determine);
giving notice of a transfer of title;
the PubCo entering administration; or
an event outside of the tenant’s control and not predicted at the time of previous rent review.
PubCos will also only be able to let a particular brewery require that certain branded products are sold within its leased and tenanted pubs if tenants and leaseholders are free to purchase from any supplier they choose. The Pub Code will also prohibit PubCos from treating tenants exercising the “Market Rent Only” option any less favourably than those who do not.
Hostile hostelry businesses…
Whilst the Bill has been warmly welcomed by the Campaign for Real Ale (“CAMRA”), who believe it will help lessees and licencees offer wider choice and more competitive pricing for the benefit of consumers, PubCos have criticised the latest proposed amendments, which they argue could lead to widespread pub closures and job losses as operating companies feel the “squeeze” of reduced rental yields and commercial returns from tied tenant portfolios.
The latest legislative developments appear somewhat surprising, in that they convey the impression of a targeted approach to specific problems in the pub market. In particular, this seems to many observers notable given the Office of Fair Trading (which, effective as of Spring 2014, has been replaced by the Competition and Markets Authority) had concluded following its investigation into the industry (prompted by a ‘super-complaint’ from the CAMRA) in 2009 that there were no problems of sufficient significance to warrant a market investigation under the Enterprise Act 2002 or the exercise of its powers to sanction specific infringements under the Competition Act 1998.
The OFT had concluded in a report into its investigation findings in 2010 that pubs compete vigorously and offer consumers choice and value as a result. Furthermore, the OFT reported not only that strong levels of competition within the market prevented beer ties from becoming a device for inflating pub beer prices beyond competitive levels, but also that they had not prevented tied pubs from offering a wide choice of beers to consumers.