Coulson: OFT cops out of helping hosts escape the dreaded tie

It is understandable that those licensees who are feeling increasingly squeezed in the current economic climate are going to turn to the Government of the day for help and support.

They are also going to claim that they have been unfairly treated, and in this they sometimes gain the support of MPs.

But Government departments sing from a different hymn sheet, as proved by the Office of Fair Trading's (OFT) response to Tim Farron MP on his complaint about pubco ties and rents, now the subject of a new campaign.

The OFT, understandably, takes refuge in the strictly legal position of viewing the complaint from the perspective of competition law, and, in particular, the Competition Act 1998 and the well known and long-standing EC block-exemption rules so painstakingly examined in the Inntrepreneur dispute, but re-worked in a Commission Regulation in 1999.

Put simply, where there are exclusive purchasing obligations ("the tie") the OFT will look at the market share of the buyer (the pubco) in determining whether these may be anti-competitive. As no one operating company has anywhere near 40% of the overall market, which is what the Regulation fixes as the limit, then they do not feel that a competition issue arises.

However, the 1999 Regulation does give individual member states, such as the UK, a right to dispense with the block exemption "where access to the relevant market or competition therein is significantly restricted by the cumulative effect of parallel networks of similar vertical restraints implemented by competing suppliers or buyers".

This is where the OFT makes its key decision. They say: "We do not believe that there are currently grounds for doing so in cases such as this."

Contrast this with their position on the major clearing banks in the UK and their relation with customers. These banks are not individually in a monopoly, as with the pubcos, but their customers are in one sense "tied" to bank charges and banking obligations, and the OFT thinks that certain charges made by a number of different banks to their customers are unfair and they want the banks to reduce them. But in the case of the business relationship between the licensee and his operating company, all the OFT can do is to point to the necessity for careful thought and professional advice before entering into a tied tenancy or lease.

As a cop-out, this is at the top level. It is well known that the ability of a tenant to negotiate terms at the entry stage is severely restricted, and there is absolutely no chance of overturning either the extent of the tie or the rent obligations in any meaningful way, unless you are extremely lucky or in a special position.

The vast majority of tenants are on the same or similar lease terms in this respect. The only real advice that can be given at this stage is to take it or walk away.

Also, many of the current woes of tenants stem from factors that have occurred after they signed the original contract, and which the rigid and inflexible nature of tenancy agreements has made worse.

They are caught in a financial straitjacket from which there appears to be no escape.

But is this really a competition issue as such? The basic idea of the European legislation was to prevent foreclosure of a free and open market in goods and services, so that dominant companies could not overwhelm or force out incomers and "fix" prices and agreements.

This is very different from saying, as in the case of the banks, and as the campaigners would say, the pubcos: "You are all acting unfairly to your customers, and it is not justified. Change your practices."