TISC PN8 0405



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PN 08 of Session 2004-05

Not to be published
in full, or in part, in any form before
11.00 am on Tuesday 21 December 2004

Publication of Report

Pub Companies

The Trade and Industry Select Committee published its Second Report of Session 2004-05, Pub Companies, HC 128-I, on Tuesday 21 December 2004.

Launching the Report, the Chairman of the Committee, Martin O'Neill MP, said:

"We initiated our investigation amid concerns about the degree to which public house ownership was being concentrated in the hands of a small number of pub companies (pubcos) and the consequences this was having on their tenants and consumers. Our inquiry attracted a high level of interest, as evidenced by the large number of submissions to the Committee - in all, we received almost 400 memoranda. We are grateful to all those who contributed to our inquiry, especially the large number of tenants who brought their problems with their pubco to our attention. 

"On reviewing the market, we found that no one pubco or brewer held a dominant position in their respective markets and concluded that there were no competition issues in these sectors which required the attention of the Office of Fair Trading at this time. However, we are concerned that the national brewers retain a stranglehold on the distribution for beer. This is due not so much to the supply contracts the national brewers have with the pubcos but the distribution contracts pubcos have with national brewers' distribution arms. A barrier to entry such as this could be avoided if the link between brand supply and distribution were severed. We hope that the OFT will kept this issue under close scrutiny.

"One of the most common complaints registered by tenants concerned the exclusive purchasing obligation (beer tie) contained in most tenants' leases. Many of our witnesses felt that this forced them to buy beer from their pubco at higher prices than they could obtain from other sources. However, we were not convinced that the removal of the tie would necessarily benefit tenants. It is likely that pubcos, as property companies, would offset the loss of income derived from the removal of the beer tie by charging higher property rents. There is also a danger that splitting the wholesaling and property functions of the pubcos would only benefit the international brewers who currently control the national distribution of beer. Removal of the tie would enable them to supply all free-from-tie tenants with wholesale products directly. The international brewers would then have a virtual monopoly on the wholesaling of beer as they did, as national brewers, prior to the Beer Orders.

"The determination of public house rent levels is also a major source of concern for tenants. Pubcos argued that if tenants do not agree with their rent assessment, they should not have entered into their lease or accepted any subsequent rent review. We do not share this view. In the relationship between pubco and tenant, the tenant is in the weaker bargaining position. Pubcos should recognise that they have a responsibility to ensure they do not exploit their position of economic strength. All tenants should be treated fairly and rents should be reasonable and sustainable.

"While the majority of public house tenants may be happy with the service provided by 'their' pubco, it is clear from the large volume of evidence submitted to us that many tenants are unhappy with their contractual relationship with their landlord. There is considerable scope for eliminating the root causes of such disputes. All pubcos should be open with their tenants or prospective tenants about the way in which rents are calculated, about how the beer tie will operate in their particular circumstances and about what the contractual obligations are on both parties. A tenant should never be forced or choose to enter into an agreement without taking proper independent professional advice about the basis of the pubco's offer and the significance of the commitment they are asked to undertake. However, prospective tenants must take some responsibility in this by making themselves aware of the information available to them from a pubco or incumbent tenant before committing to a lease. They should never enter into an agreement without taking proper independent professional advice about the basis of the pubco's offer and the significance of the commitment they are asked to undertake.

"It would appear that the performance of the business development managers, employed by pubcos ostensibly to help their tenants, varies across the industry from excellent to dire. Some would appear to be more concerned with the policing of operations in the public houses under their supervision rather than the provision of genuine assistance to tenants.

"Many pubcos have adopted voluntary codes of practice which incorporate guidance from the British Beer & Pub Association on the granting and operation of leases. This should be a code of best practice and not a reflection of the lowest common denominator of behaviour within the industry, as any such lower standard would strengthen the argument of those who might call for a statutory industry code. The code of practice should cover areas such as rent reviews; the role of business development managers; fair and equitable complaint handling and dispute procedures; disclosure and the availability of relevant information; and the need to obtain legal and professional advice by prospective tenants. At this stage we do not think a legally binding code of practice necessary, but if the industry does not show signs of accepting and complying with an adequate voluntary code then the Government should not hesitate to impose a statutory code on it."