The Government now proposes a statutory code, written by civil servants, not the pubcos and brewers, with an independent adjudicator to oversee fairness and ensure that tied licensees are no worse off than if they were free of tie.
There still seems to be confusion over what ‘free of tie’ means. Free-of-tie operators can acquire beer and other products from any source; they can shop around in the open market. Tied operators are obliged to acquire beer and other products at an inflated price dictated by the company to which they pay rent.
The original concept of the tied model was that higher product prices are compensated for by a lower rent that balanced the disadvantage, leaving operators in no better or worse position than if they were free of tie. Sadly, as most of us know, tied rents do not fairly reflect the high product prices.
The Government aims to reduce the opportunity to exploit licensees and increase their share of a pub’s profits. It is to produce a statutory code, which, at least in part, will be based on the findings of its consultation.
This is a chance for all to participate and will include the question of whether tied licensees should be given the opportunity to break their tie in exchange for a rent-only option set by the market, leaving them free to buy cheaper products on the open market — a free-of-tie option. This is not a property ownership swap or the enforced sale of the pubcos’ or brewers’ freehold ownership.
A free-of-tie option means a tied licensee will be able to choose to stay tied, paying more for beer than the open-market price in exchange for a low rent that fairly reflects the higher product price or, if the rent doesn’t reflect that disadvantage, they may opt to be released from the obligation to purchase beer from their pubco or brewer. Other than that, the terms of the lease or tenancy should largely remain the same.
Most pubcos and brewers claim their tied rents balance the higher tied product prices. All the free-of-tie option seeks to achieve is that licensees are able to monitor that claim themselves and opt out if it proves untrue. Ironically, the existence of such an option ensures that the tied agreements can continue to exist if operated fairly.
We will be encouraging everyone to assist in the consultation process.
Simon Clarke is licensee of the Eagle in Battersea, London and founder of Fair Pint.