The Department for Business, Innovation and Skills (BIS) has recently announced its intention to create a statutory Code of Conduct to regulate the relationship between pub companies and their tied tenants.
BIS has concluded that the voluntary code agreed at the end of 2011 has not been sufficiently effective, and that statutory regulation is required. Whilst it states that it considers the tied tenancy to be a valid business model where it is not abused, it clearly considers that such abuse has continued to take place despite the operation of the voluntary code.
Operation of the Code
The Code will have two levels, a ‘Core Code’ that will apply to all tied tenants, and an ‘Enhanced Code’ that will apply only to pub companies owning more than 500 tied outlets. BIS say that one of the main aims of the Code will be to ensure that the tied tenant should be no worse off than the free-of-tie tenant.
The ‘Core Code’ will provide tied tenants with:
- increased transparency
- the right to request an open market rent review (if they haven’t had one for 5 years)
- fair treatment
- the right to source gaming machines otherwise than through the landlord
- the right to take disputes to an independent adjudicator.
BIS will consult further on the detail of the rather broad brush outline above, and in particular how to provide that tenants can require an open market rent review in certain circumstances such as the pub company significantly increasing drinks prices.
The ‘Enhanced Code’ will require pub companies with more than 500 tied houses to offer both tied and free-of-tie tenancies to new tenancies and to existing tied tenants at the time of their review. The intention is that this right would arise if the parties have been unable to reach agreement on a tied rent offer, and the tenant would have to pay the adjudicator £200. The aim is to incentivise the landlord to ensure its offer for tied tenants is equivalent to that to free-of-tie tenants, by giving the tenant such rights, and to incentivise tenants not to refer cases to the adjudicator that have no merit, by imposing a fee.
Micro-businesses are excluded from the Code, but will be able to opt into the Core Code on a voluntary basis. It is not clear at this stage what the threshold will be to qualify as a micro-business in this context.
The Code will be overseen by and independent adjudicator, which will have wide powers to:
- enforce the Code, including the power to impose fines and other sanctions
- arbitrate disputes
- investigate systemic breaches
- provide advice on the interpretation of the Code.
The adjudicator will be funded by a levy on the pub companies based on the number of outlets owned, the current estimate being around £90 per pub.
What has not been included?
BIS has decided not to include a number of elements that were originally under consideration, including:
- giving tenants an automatic right to require a free-of-tie tenancy – BIS had concerns this would cause uncertainty in the sector and thus affect investment in it.
- a right to have a guest beer in the Code – BIS felt this would risk undermining the whole tie concept with unscrupulous tenants choosing for example best-selling draught lager rather than the occasional real ale the provision would be aimed at.
- abolishing gaming machine ties altogether – as noted above, tenants will be entitled to source gaming machines on a tied or non-tied basis.
- exempting ‘franchises’ from the Code – BIS felt that there was a significant risk that pub companies would re-label their tied tenancies as franchises to avoid the Code.
This article is © Endeavour Partnership LLP 2014 and may not be reproduced without our express permission.
This article is a general summary and should not be relied upon in the place of seeking professional advice in respect of any specific situation.
No responsibility can be accepted for any actions based on the information in this article.