26 May 2015

A man walks into a pub

In the words of Samuel Johnson, "nothing has yet been contrived by man by which so much happiness is produced as by a good tavern"…

This is a phrase that many of us would surely agree with yet with the continual disappearance of local pubs at an alarming rate, it is clear the industry needs changes in order to save our great institution.

A recent attempt to make such changes comes in the form of the Small Business, Enterprise and Employment Act 2015 which received Royal Assent on 26 March 2015.

Alongside a raft of employment and corporate law changes, the Act introduced the concept of a Pubs Code to come into force in May 2016 to regulate the relationship between pub landlords and their tied tenants.

Around 48% of pubs in the UK are currently run on "tied arrangements" between the pub owning landlord company and a tied tenant. Leases involving tied arrangements include an obligation requiring the tenant to buy some or all of its alcohol through the landlord, rather than on the open market (known in the industry as a "wet rent" payment). In return, the tied tenant benefits from a discount on the monetary payment under the lease (called, you've guessed it, a "dry rent"). 

While this may sound like a fair exchange, many tied tenants feel burdened by above market value prices for their alcohol and resent the lack of flexibility in running their pubs. The introduction of a Pubs Code will seek to alleviate these concerns.

a) Tied tenants will have the option to apply to their landlord to remove the "tie arrangements" in their existing leases where there is:

  • a renewal of the lease
  • a rent review
  • a significant increase in the price of any product that the tied tenant is obliged to purchase which was "not reasonably foreseeable"; or
  • an event beyond the control of the tied tenant which is not reasonably foreseeable and which has had a significant impact on the level of trade at the tied pub.

b) There will be a specified reasonable period for the parties to seek to agree the new rent payable and a procedure for appointing a third party assessor in the event of a disagreement.

c) A newly established Pubs Code Adjudicator will be the ultimate avenue to resolve any disputes between the parties, including whether a determination of market rent has been made in compliance with the Pubs Code.

It remains to be seen what the final form of the Pubs Code will look like and (with as many opposers as supporters to the proposals) whether the new measures will accelerate or halt the decline of our great British institution.

 

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