Draft pubs code battle begins

The first part of the code consultation was published last week by the Department of Business, Innovation & Skills (BIS) with a number of surprises for both tenant and landlord sides, including the removal of PRA. PRAs are a breakdown of rents and earnings under tied and free-of-tie models, designed to show tenants whether they would be better off staying tied or taking the market rent-only (MRO) option.

In the consultation document, the Government states there is “no need for PRA” because its implementation would “impose significant additional burdens”.

“The right to request MRO in the circumstances required by the code will already deliver the principle of ensuring that the rent assessment procedure leaves an existing tied tenant no worse off”, it states.

There is little understanding among campaigners as to why this mechanism has been cut from the draft code.

Leading pubco reformist Simon Clarke warned that its removal greatly dilutes the code’s aims. “This tells me that either the officials didn’t get it or they got it and were not able to get the new ministers to understand it, or that the new ministers didn’t want to do it,” he said.

However, the British Beer & Pub Association welcomed the removal of PRAs.

Chief executive Brigid Simmonds said: “There is a large amount of detail to be studied in these proposals, but I do welcome that the Government appears not to be proceeding with PRA, which we always argued strongly would be too costly and complex to operate.”

Clarke disputed the point that PRAs were overly burdensome, claiming it was simply a different calculation using the same available pub data. “I can teach a monkey to do a PRA,” he said.

Other shock clauses include the fact that MRO can only be triggered when there is a proposed increase at rent review, something which Save the Pub Group chair Greg Mulholland MP labelled as “utterly disgraceful and wholly unacceptable”.

The consultation also proposes a MRO waiver for “significant” investments. Pubcos have argued that the introduction of MRO would have a “chilling effect” on investment in tied estates because of the uncertainty of whether a tenant would choose to go free-of-tie, meaning they could not recoup their cash.

The BBPA said: “We also welcome proposals to allow for an MRO waiver in return for a significant capital investment. More than £200m is invested by BBPA members in their leased and tenanted pub estates, each year. It is essential that this investment continues.

“We will be responding in detail because we do need to work very closely with BIS and tenants’ representatives to make the legislation work in practice.”

The Government is understood to have set up a number of meetings with trade groups, civil servants and relevant ministers. Campaigners hope this signals a willingness to make changes to the code, including the reintroduction of PRA.

A BIS spokesperson said: “We believe the draft code takes a proportionate app-roach. We are keen to hear the views of interested parties.”

Why parallel rental assessments (PRA) didn’t make it

Proposals for PRAs were originally included in the legislation as the then government’s preferred alternative to a means of delivering the principle that a tied tenant should be no worse off than a free-of-tie tenant.

Following responses to its 2013 consultation, the Government decided to go down the MRO route “and not rely on an artificial construct as would be the case with any form of PRA”.

It states that requiring pubcos to provide both PRA and MRO assessments “would add complexity to the operation of the code and would impose significant additional burdens”.

“For these reasons of cost, complexity and proportionality, the Government has decided not to pursue the discretionary power to introduce a separate PRA procedure with the pubs code”.