The tie that binds

It's understandable that many licensees see the tie as some malicious device invented by landlords to make their lives as painful as possible.

But it didn't start out that way.

The origins of the brewery tie lie in the simple fact that in the past brewers saw owning pubs as a way of guaranteeing a certain volume of beer sales. Most brewers began as farmers. They owned land with pubs on, and a landlord-tenant kind of arrangement with the publican was a natural solution.

The point was to shift beer - their beer. So as part of the tenancy agreement the licensee was 'tied' to their products. In this context the principle of the tie was uncontroversial. What else would you expect a brewer to do? Plus rents were minimal. The landlord was happy as long as the pub kept beer volumes up.

Then, in 1988, a different kind of tie came in. Grand Metropolitan, which owned the Watneys brewery, launched the Inntrepreneur lease. Grand Met was soon to exit brewing, so the tie in this 20-year agreement was seen more as a way of generating an additional profit stream through the margin the pubco could make by buying beer cheap and selling it dear to the lessee.

Beer orders

Following the 1990 Beer Orders, when the big brewers were forced to sell off 11,000 pubs, the new independent pubcos that sprang up adopted a similar model. Without a substantial profit from, effectively, wholesaling beer the finances for these companies do not add up. As they argue, if the tie is abolished, rents would have to soar to make up the shortfall.

So when going into any lease or tenancy agreement a licensee needs a proper business plan that demonstrates you can make it work financially, and you have to weigh up the impact of the different kinds of tied agreements on that.

Watch out for ties that go beyond beer and cider to wines, spirits, soft drinks and even machines.

Consider what you can get outside the tie. Food has become an important profit stream for most pubs. But don't dismiss the chance to buy supplies through the pubco - if you are an inexperienced caterer you may need its help with menu development.

Sometimes the problem of the tie is presented as one of choice. In reality the lessee of a major pubco these days has a wide portfolio of drinks to choose from, including local ales.

If you go with a regional brewer your choice certainly will be much more restricted. But most licensees who are with a regional brewer are there because serving those beers gives their pub a clear identity, a kind of branding, which is central to the business.

Support is something you must include in your calculations. If the tie seems onerous, don't just ask - demand - that the landlord reciprocates by giving you what you need in terms of advice and expertise.

In these difficult times that can be worth a lot.