Pubco power inquiry: recommendations

The Morning Advertiser provides you with a summary of the recommendations made by the Business Skills and Innovation Committee inquiry into pubco power.

BBPA Code of Practice​

"We have grave doubts about the industry's willingness to do enough voluntarily to prevent statutory or regulatory intervention."

The report calls for the "BBPA to engage with the IPC as a matter of urgency" and criticises previous BBPA and pubco codes for not being "sufficiently robust". It states pubcos' "history of evasiveness" meant a critical response to the new Framework Code was required. It also expressed disappointment over the delay to the publication of the BBPA code.

Assignment of leases​

On the topic of lease assignments, the committee felt the Framework Code of Practice "represents a step in the right direction". It called for both the BBPA and lessee organisations to "ensure that the history of lack of trust and intimidating behaviour by pub companies does not magnify disagreements on this issue and undermine the Framework Code".

Training and professional advice​

The Committee welcomed clauses on training and professional advice in the Code which will "greatly assist newcomers to the industry", as well as protecting experienced licensees from having to undertake training when taking on a new lease.

Regional and family brewers​

News that the BII will work to advise smaller pubcos and family brewers on the new Framework Code was also welcomed, but the report called for the BII to closely monitor costs of compliance for these smaller firms. The report also calls for a removal of upward-only rent review clauses from leases via a deed of variation, paid for by the pubco.

AWP machines​

"Removal of the AWP income from the divisible balance is a belated step in the right direction. To take 50% of profit as part of the machine tie and then 50% of the remaining profit as part of the divisible balance is totally unacceptable." The report calls for pubcos to offer tenants the choice to be free of tie on AWP machines as it would "demonstrate goodwill at little if any cost to the pub companies, as lessees will freely chose to retain the tied machines".

Flow monitoring equipment​

The report also concludes that the accuracy of flow monitoring data remains a "highly contentious issue". It recommends that Government, through the National Measurement Office, "urgently clarifies the position of beer flow monitoring equipment in relation to the Weights and Measures Act 1985. Such equipment must be included under the Act for calibration and verification purposes".

Conclusion on the Framework Code​

"The new Framework Code of Practice appears to be a modest step in the right direction." But it calls for major pubcos to treat this as "an absolute de-minimus requirement" and to significantly build on it with their own Codes.

The BII's role in policing the codes​

The report calls for "real impartiality rather than notional independence" from the BII, adding that no body set up to monitor pubco compliance with codes can be partially funded by pubcos. The BII needs to show it "has the necessary authority and impartiality to be effective as a policeman for the industry" by June 2011. Otherwise the case for Government intervention would be "very strong".

Enforceability of the Codes​

The report states that unless the BBPA "can prove beyond doubt" that the codes are legally binding, the only solution would be to incorporate them into leases.

Timings for change​

The report concludes that while the codes of practice are moving in the right direction, they are "not yet in place". Any delay from the BBPA beyond June 2010 which is not accompanied with a justifiable reason, will not be acceptable, and the BBPA, not individual pub companies, will be held responsible for delays.

RICS guidance on pub rental evaluations​

The improvement to RICS guidance, including lessee representation on RICS working group, was welcomed. "However, the acid test of its success will be the extent to which the new guidance provides clarity on valuations and the principle that a tied tenant should be no worse off than a free of tie tenant".

Benchmarking​

Steps taken to widen the ALMR's benchmarking survey and by RICS to develop a more open and transparent method of comparing and assessing rents were welcomed, but the BBPA was heavily criticised. "The same cannot be said of the BBPA which has appeared to resort to resistance, obfuscation and hostility. We appreciate the fact that there are 'complexities' in the pub sector but the BBPA has had long enough to overcome these problems." A deadline for an update from RICS about creating a national database of trading information was set for June 2010.

RICS Code of Practice​

The report calls for the BBPA and its members to endorse the RICS Code of Practice for valuing pubs and enshrine it into the BBPA Framework Code of Practice and individual company codes.

General dispute resolution​

"Profundly concerned" that no effort has been made for an independent dispute resolution mechanism for general complaints about pubcos. BII should consider extending PIRRS to deal with general complaints.

Choice to go free of tie​

Offering lessees the option to go free of tie is only way to judge fairness of the tie. In the meantime BII should make it clear on its website what options are open to potential licensees. BII should list the prices tied pubcos charge and discounts available in the free trade on its website. The OFT should monitor prices being offered to lessees.

Conclusion​

"The industry must be aware that this is its last opportunity for self-regulated reform. If it cannot deliver this time, then government intervention will be necessary." It has until June 2011. Government must monitor situation and keep the possibility of a Competition Commission inquiry firmly on the agenda. The serious imbalance of power between pubcos and tenants is a "deep concern". It added: "The pub industry has been found wanting now on two occasions by committees of the House of Commons. If it fails to deliver on its promises by June 2011, it should be in no doubt what the reaction will be".