The news follows the Government publishing the long awaited second part of the pubs code consultation, which can be viewed here.
In part one of the consultation, published in early November, small business minister Anna Soubry said that the Government had decided not to proceed with a separate PRA mechanism in addition to the market rent only (MRO) option due to concerns it would prove too burdensome and time-consuming for pubcos.
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 MRO option.
But, writing in a foreword to part two of consultation, published today, Soubry said that following “genuine concerns from stakeholders” as well as comments from peers in a Lords debate last week, “our intention is for the MRO procedure to also deliver the effect of PRA”.
It argues that separate PRAs are not required because its core intention – comparison of a tied rent alongside a free-of-tie rent, in other words, parallel – will now be provided for within an integrated MRO process.
“These [rent offers] are available to the tenant ‘in parallel’ at the trigger points at which rent assessments and the MRO option are available”, it states.
“The Government is proposing that from the point of a tenant’s initial request, they will have the right to pursue the MRO option through a period of negotiation with their pub-owning business and through to considering the final recommendation of an independent assessor with no obligation to accept any MRO offer that is on the table.
“The tenant will also have the right to refuse the offer at any time; to terminate the MRO option process; and to remain tied if they so choose”.
However the consultation asks for views on whether this dovetailing of MRO and PRA is proportionate and deliverable.
MRO trigger
Soubry also called for views on the code’s definition of the rent assessment trigger for MRO after concerns were raised that, as drafted, it would mean large numbers of tenants would be denied the option. The draft clause stated a tenant would only gain the right to request MRO if there was a proposed increase by the pubco at rent review. Campaigners labelled this “wholly unacceptable”.
This consultation states: “This was not the Government’s intention. We would be greatly concerned if it were to be the practical effect of our draft pubs code regulations.” It calls for evidence of the extent to which the current drafting would restrict access to the MRO option at rent assessment.
The deadline for responses has been extended to 18 January 2016 in order to give the trade extra time to consider the proposals.
“Pubs are the lifeblood of so many of our towns, villages and high-streets, playing a vital role supporting our local economies. So it is important that they can operate in an environment that allows them to thrive. We must ensure that tied tenants are no worse off than free-of-tie tenants and that there is fair and lawful dealing between pub-owning businesses and their tenants. It is also important that these principles are delivered without placing undue burdens on business.
“Having extended the deadline of part one of the consultation, the two together will give pub tenants and breweries the opportunity to comment on proposals that will put the industry on the strongest possible footing. I want to hear from tied pub tenants, pub-owning businesses and their representatives, so that we can achieve a fair outcome. I urge them all to respond to this consultation and help us to put the right legislation in place.”
Anna Soubry, business minister
Soubry states: “We must ensure the new pubs code is fair and proportionate and can be enforced effectively. We must ensure that tied tenants of the largest pub-owning businesses will not be worse off than free-of-tie tenants and that there is fair and lawful dealing between pub-owning businesses and their tied tenants.
“Finally we must ensure these principles are delivered without placing undue burdens on businesses. I trust that the clarifications of our proposals in this document and the extension of the deadline for responses will make sure that you can help make this happen.”
Pubs code adjudicator
The second part of the consultation also lays out in more detail the powers available to the pubs code adjudicator.
The adjudicator will have the power to fine pubcos that breach the code a maximum of 1% of annual turnover – mirroring the approach of the Groceries Code Adjudicator. They will also have the power to investigate more widespread bad behaviour in the industry, if enough evidence came to light, and to impose sanctions if required.
Tenants will have to pay a fee of £200 to refer a case to the adjudicator, which can be refunded if the adjudicator deems appropriate. It will also have the power to order the tenant to pay the pubco’s costs subject to a maximum of £2,000, if it feels the case was vexatious or a tenant’s action were unreasonable.
Exemptions
The consultation also sets out the agreements that will be exempt from the code. These include:
• ‘Genuine’ pub franchise agreements – for example those where no rent is paid and tenants receive a percentage share of turnover
• Tenancies at will and short term agreements of up to 12 months in length
The consultation also gives more detail on repair and maintenance obligations, the type and timing of information available to tenants and the extent of protection when a pub gets sold to a company outside of scope of the code.
Reaction
Kate Nicholls, chief executive of the Association of Licensed Multiple Retailers, said:
“We welcome the publication of the second consultation on the implementation of the pubs code as this will help us assess the Government’s proposals in the round. The extension of the consultation deadline and the commitment to swift implementation in line with the statutory deadline will bring welcome clarity and certainty for operators.
"It is clear that the Government is listening, has recognised our call for legislation which is pragmatic and workable and that this is a genuine consultation. We very much hope that all sides will work together through the consultation process and focused on that as the vehicle for delivering regulation which is fair, proportionate and enforceable.”