What Just Happened?
MPs have been debating the details of a new bill in parliament called the Small Business, Enterprise and Employment Bill.
The bill is wide ranging and includes details such as measures to help small and medium businesses, guidelines for public sector procurement, and crucially a section titled "The Pubs Code Adjudicator and the Pubs Code".
These are the headline points of the original proposal for the pubs section of the bill:
Campaigners believed these changes didn't go far enough to help tenants of the big PubCo companies and Liberal Democrat MP for Leeds North West Greg Mulholland tabled an amendment to the bill that tightened controls on the PubCos and would free up the tenants.
MPs voted for the amendment by a majority of 25, including members of government defying the three line whip that had been issued by Michael Gove.
What Does it Mean?
Traditionally a beer tie for a pub could be a good thing, essentially the cost of entry for the tenant would be low and the rent would be kept artificially low, in return the pub would only be able to sell beer bought from the PubCo who would add on a percentage to regain their losses from the rent.
Unfortunately as the PubCos massive debts forced them to squeeze every last drop of income out of their assets, many of the successful pubs in their portfolios were seeing their rents skyrocket to unaffordable levels during rent reviews and the price of their beer could be double what the pub could purchase it for on the open market forcing many publicans at seemingly successful pubs out of business.
The new Market Rent Option in the Small Business, Enterprise and Employment Bill has a twofold effect.
- The tenant can ask to pay a fair rent at the market rate
- This will then break any beer tie, allowing the pub to source its beer from the open market
This won't all happen straight away, it is triggered at certain points for example at the rent review (usually every 5 years) or if market conditions change (a new Wetherspoon's pub opens up next door) or the freehold is sold.
Is There a Downside?
As I see it there is a possibility that this will make the PubCo model fail as they lose some of the control over their income, forcing them to sell large numbers of pubs in a fire sale that ultimately means even more pub closures.
This is made more likely by the lack of planning control to convert a pub into a shop. New legislation is needed to require planning permission to convert a pub into anything else before I'd feel comfortable that this wasn't a real possibility.
Secondly, a Market Rent is the amount a freeholder could get for the pub in the open market taking into account all the factors e.g. the pub's size, location, competitors etc. Not all beer ties are a bad thing and there are some pubs where the rent would be unaffordable at the market level so a beer tie and reduced rents would actually be the best model.
Accepting a beer tie for lower rents will still be an available option if the tenant and the PubCo agree on it as the Market Rent Option is, of course, just an option, but under the amendment to the bill will now be a mandatory option for the PubCo to provide so I don't really see this as a problem.
What's the Upside?
More choice for the consumer. As the beer ties are broken pubs will have more chance to bring in local guest beers, hold more beer festivals, and provide what their customers want.
Fewer pubs forced out of business. This is not to say that pubs won't close down, they will, but publicans will now be able to negotiate the terms of their contract knowing that they have more options and will be less restricted in how they run their business.
More, Better Pubs? We can hope.
Overall I see this as a historic moment for the British Pub Industry and personally see it as a huge step in the right direction. I hope I'm right.
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