A question of disclosure

Round two of the Trade and Industry Committee inquiry into the pubcos found they were not alone in facing a rough ride. Daniel Pearce reports.

Are too many licensees going into the trade with their eyes closed? Are they asking for the advice they need? Are the pubcos giving this advice or are they hoodwinking tenants by not disclosing vital information? These issues were at the heart of the second session of the Trade and Industry Committee inquiry into pubcos.

After licensees put the case for the prosecution last month, this was the first chance for the pubcos to put the case for the defence, through the Association of Licensed Multiple Retailers (ALMR) and the British Beer & Pub Association (BBPA).

And the MPs on the committee - or at least the few who were present at the session last week - had their claws out.

Some of the strongest criticism came from the committee's chairman Martin O'Neill, Labour MP for Ochil. "We're talking about someone putting their financial security on the line - why are they being treated in such a shabby manner by the pub companies?" he asked.

But the licensees' representative Tony Payne, chief executive of the Federation of Licensed Victuallers Associations, also came in for some harsh - and many felt unfair - criticism for not having done enough to force the pubcos to give up more ground by asking them to disclose more information in the past.

Punch Taverns and Enterprise Inns are expected to come in for tougher treatment when they take to the floor in Portcullis House next Tuesday, July 20.

Giving evidence, Mr Payne agreed that tenants needed more details on sales and the property before signing a contract with a pubco. "More information should be made available to people taking over the lease - but they have got to ask for it," he conceded.

"Certain companies do offer pre-contractual surveys - we would like to see them written into the agreements," he said.

However, he, along with other speakers, said he supported the beer tie, as if it were abolished, tenants would see their rents increased to enable the pubcos to recover their losses.

But he said the tie should offer a fair deal with rents reduced where licensees are not getting a fair return and a fairer share of discounts.

This brought the discussion to the core of the issue. Roger Berry, Labour MP for Kingswood, Bristol, asked how tenants could possibly know if they were getting a fair deal if the pubcos were not forced to disclose confidential financial information.

"When a licensee has a problem the company should be prepared to sit down with him," said Mr Payne. "I would like to see the pubcos looking more at the bottom end of the market. People with big pubs getting big returns don't need so much help, do they?"

The ALMR also wishes to preserve the tie - or "partnership" as its chief executive Nick Bish has it. But he underlined that pubcos are currently discussing more flexible arrangements with licensees and that free-of-tie leases are also available, as well as freehouses.

ALMR chairman Alex Salussolia, managing director of Glendola Leisure, agreed that tenancies and leases offered the most cost-effective way for licensees to enter the business. "The entry cost of going into freehouses is very high - so it does preclude the smaller tenants from going into this model," he said.

Mr Salussolia said it would be unrealistic to expect pubcos to show their buying prices, but conceded they should be more transparent with their profits. "Then the licensee can look at it and judge whether he is making a fair share or not," he said.

What then of self-regulation, which Mr O'Neill said would be a preferable option to legislation? Nick Bish said a new code would would remove any flexibility between landlord and tenant.

Mr O'Neill prompted laughter in the meeting room during his closing comments,when he described evidence from the BBPA as to why pubcos should take a share of AWP machine profits as "the most feeble thing I have ever heard".

The MPs will be able to draw wider conclusions next week.

Under examination​

The inquiry is examining the relationship between pubcos and their tenants. Key issues include:

• The beer tie
• The link between wholesale beer prices and the rents pubcos charge to tenants
• Pubcos' margins, with relation to prices paid by pubcos to breweries and those they charge their tenants
• The difference between the pubcos' prices to tenants and the free market price
• The basis on which pubcos' tenants rents are set - and their impact on tenants.

'Tide turning in licensees' favour'​

Mike Bell, tenant of The Portobello Gold, a Unique pub in west London, was present at the evidence session - and believes the tide is very definitely turning in favour of licensees.

"There were only five MPs there out of the 11 on the committee, but they were the ones who had something to say, the ones who know what's going on.

"Tony Payne had a rough ride, and I don't believe the Association of Licensed Multiple Retailers should have even been in the room as it didn't have anything to say.

"The Federation of Small Businesses got a much better reception at the first session. I think it was wrong, though, to say beer could be 40p cheaper as people are against cheaper beer now because of binge drinking. I don't want customers who are just looking for the cheapest beer anyway.

"The whole thing has to be about transparency. I believe the beer tie could very well go, and we could see a shake-up of a major sector of the economy."

The BBPA: 'the market is working well'​

Rob Hayward, chief executive of the British Beer & Pub Association (BBPA), took some of the heat off the pubcos by pointing out that it was not only pub operators which imposed upward-only rent reviews.

The seasoned campaigner - and former Tory MP - pointed out that a similar arrangement applies at the BBPA's own offices in Vauxhall, south London, where the association's landlord is the Department of Health.

Mr Hayward directed further questions on rental agreements to the pubcos.

Asked whether pubcos were doing enough to help ailing tenants, the BBPA's director of beer and leisure, Dr Martin Rawlings, said: "The value of the pubco is dependent on the value of the pub - a successful tenant makes a successful pub company."

Why then, asked Sir Robert Smith, Lib Dem MP for West Aberdeenshire and Kincardine, were so many people "spitting blood" at the pubcos?

"There are 33,000 tenancies and there might be 1,000 complaints," replied Dr Rawlings. "There are some who always struggle and some who don't follow best practice. "That is not to say the market doesn't work, it is working well for other parties," he said.