Monthly Archives: November 2009

Pub Insurance Tips and subjects to question.

Submitted by Terry Osborne of Osborne Insurance Services Ltd

Insurance is one thing that most people forget, but it can be the one
thing that keeps you in business following a claim

* No one loves insurance until a claim arises

* Sums Insured – These should represent the full replacement costs –
Buildings Insurance should include a sum for demolition, architects fees and
full re-build costs, under insurance will cause
concern as policies are subject to the “Average Clause”, ie if you insure
for £250,000 and in fact you should have insured for £500,000 and you have a
small or large claim, only 50% of the
total amount of the claim will be paid as you were only insuring 50% of the
sum insured

* Ensure that you read your documents, including any clauses, exclusions and
warranties, as if some are not adhered to your policy could be invalid

* Package Policies are the best way to ensure that you have all the cover
your require, however a Taylor Made package is always best and ensures that
you are not over or under insuring as the
policy is made for you.
* Ensure that all facts are disclosed, ie previous claims, financial
problems, ie CCJ’s or bankruptcy. Quotations can still be given, however
non-disclosure could invalidate the policy

* Picking your insurer can be a tough decision, do you pick the cheapest or
go in the middle? Provided you have checked the sums insured, cover
provided, warranties, endorsements and
exclusions the price should not have a bearing on the cover

* Picking a Broker rather than a Direct Insurer should give you added piece
of mind as the Offices are generally smaller, ensuring that you are dealt
with as an individual rather than just a number

* Your Employers Liability Insurance Certificate should be displayed at all
times is a prominent position

Just a few key points for consideration. Should you require anything further
from us or wish to discuss any points please do not hesitate to contact us.

 terry_osborne

Advertising and other information about the Site

Advertise on our site, click on the image to get started.

Advertise on our site, click on the image to get started.

IMG_1748The initial aim of the site was to make newcomers “Streetwise” before they bought a licensed property.

Our aim now is to provide free information, advice and help to anyone that needs it in the pub and restaurant business , we have a number of industry professionals who will always talk to you and where ever possible point you in the right direction.

We now know by the amount of people reading the content on the site that it needs to be an information tool for the industry, we are working in conjunction with other web sites and have agreed to have links between these sites to achieve this. They have access to certain information  and we have access to more commercial information.

We would like to point out that articles are submitted, which may not be our views and we do not accept responsibility for, but we wish to display a variety of opinions from the industry, we would also like to stress that we try to avoid at all times, anything that is obviously untrue, litigious or detrimental or naming companies and individuals that may cause them stress if the information is not correct. Should we do so please contact us immediately to rectify the error.

We are committed to supporting the good Pub owning companies who want to see the Industry return to being a career for life, where on going training and information is standard practice and these companies want the best operators or potential operators, if you are one of these companies we will be delighted to give free editorial on your company under good Pub owning companies as information, sadly we do need paid adverts to fund this operation.

We are looking for every business involved in the industry to write editorials on their specialist services, not a commercial, but information that one needs to know to get the full benefit from a product or service.

Barrel-dregs.com, which is also linked to the site consist of fact based articles with humour on many of the less savoury activities by companies that we hope may change their ways, they are written by a number of professionals in the Industry under nom de plumes.

CPL & BII and other qualification providers cover a section of the information needed, but the specialist knowledge of every service or supplier is vital to the success of a licensee and we would like to try and achieve this with everyone’s assistance.

If you know of any supplier who would like to write an editorial and would like an advert or page for their product we will be pleased to talk to them.

Much to our total amazement, with the wonders of Google Analytics, we are now being viewed consistently in 27 countries across the world, a large number of our foreign viewers are in North America, our aims were far more modest at the outset, just to help everyone that wanted to buy a pub or enter the UK Pub Industry, which we are achieving from our emails.  We now have several thousands of pages read every month in depth, by the average time spent on them, which is terrific.

The aim of the site has always been to inform would be licensees and people in the industry of anything that may be of benefit to them and to make them question issues that need to be questioned and there are many.

The Buying a Pub, Restaurant and Licensed Property Books are available to everyone free of charge, hopefully making everyone entering and in the industry better informed beyond just qualifications. If you feel that you have derived benefit from the books or the site please consider making a small donation to the Licensed Trade Charity when you can, it is not compulsory, but it helps the less fortunate in the Industry.

The books are constantly being read in depth by people thinking of entering the industry, with many other topics and represent excellent long term advertising space, if you feel it suits your particular company, product or service.

This represents a new aspect for those of us involved in the site and we are on a learning curve, since the site has always been a “Labour of Love” rather than commercial viability.

I would like to have a relatively low cost advertising for small companies with specialist services, like trainers, small brewers etc, large companies should they wish to advertise would be a trifle more commercial.

Click on the advert for details, certain advertising spaces rotate and it is essential to submit the correct size to achieve this or email us at info@buyingapub.com.

What we would like from all specialist companies is editorial on their subject, not a commercial, ie Insurance the sort of cover that you actually need, the hidden proviso’s that anyone new to the industry would not pick up or in fact someone who has been in the industry for years, but has blindly accepted a brokers word and not read the small print.

If you have a subject that you feel is not in the Guide to buying a Pub book we will insert a page with an advert at the bottom of the editorial. Apart from a couple of subjects we want no more than three or four specialist advertisers on a page where possible.

If you have only one advertiser, people will look elsewhere if you have a maximum of three they have a competitive choice.

Apart from the books which are read extensively by newcomers, we are putting separate pages on the site under Pub Business Advice, ie Pub Insurance Tips with editorial and similar adverts to the book for the long term licensees information, we have discovered that by using the term Tips that they get read extensively like the books.

Any Pub Co’s breaching their Codes of Practice will be charged an excess should they wish to advertise, we would also like to say we will criticise any company or person on Barrel-Dregs if you are guilty of any breach or questionable activity regardless of whether you have an advert.

We may notify you if this situation arises, before the article goes out.

If you can honestly say that you have not breached the BII Codes of Practice as a Pub owning company we will be delighted to discuss advertising with you.

We are linking with several Pub Web Sites because they would like our editorial and information, the more we get out the more knowlegeable the reader.

Note.

Copyright, Legal Notice and Disclaimer

This publication is protected under the US Copyright Act of 1976 and all other applicable international, federal, state and local laws, and all rights are reserved, including resale rights: you are not allowed to give or sell this Guide to anyone else. If you received this publication from anyone other than BuyingAPub.com™, you’ve received a pirated copy. Please contact us via e-mail at support at info@buyingapub.com and notify us of the situation.

Please note that much of this publication is based on personal experience and anecdotal evidence. Although the author and publisher have made every reasonable attempt to achieve complete accuracy of the content in this Guide, they assume no responsibility for errors or omissions. Also, you should use this information as you see fit, and at your own risk. Your particular situation may not be exactly suited to the examples illustrated here; in fact, it’s likely that they won’t be the same, and you should adjust your use of the information and recommendations accordingly.

Any trademarks, service marks, product names or named features are assumed to be the property of their respective owners, and are used only for reference. There is no implied endorsement if we use one of these terms.

Finally, use your head. Nothing on this Web Site is intended to replace common sense, legal, medical or other professional advice, and is meant to inform and entertain the reader.

Copyright © 2007 BuyingAPub.com™. All rights reserved worldwide.

A possible solution to the Tied problem(suggestion for to-day)

IMG_1743If all the Suppliers could be induced or legally required to deal direct with the individual tenants/lessees.

They arrange their own discounts and trading conditions, the landlord receives a maximum of 5% of the wholesale price or 10% of the discount available and the remainder of the discount goes to the tenant/lessee.

The 5% or 10% is paid retrospectively to the landlord, where there is an outstanding debt to the supplier, the 5% or 10% could be reduced off the debt until cleared or possibly 5% and 5% passed on.

It would in fact straighten the whole tie issue out immediately.

Every brewer/supplier would have to sign an agreement to pass the discount back to the landlord one month in arrears.

The Pub Co’s could then shed their accounts and debt collectors and concentrate on making their pubs work.

The tie would become irrelevant, the only exception would be brewers supplying their own pubs, if they supply beer to other tied pubs the conditions apply.

It would simplify the whole Pub Co operation and guarantee them a defined percentage and reduce their overheads and guarantee them a profit where they have previously claimed none existed in certain cases, it would remove a major problem for the Government at a stroke of a pen.

I would appreciate your thoughts and if you think it a workable proposition pass it on to every tied licensee.

I am sure that someone will raise some problems because it would appear to be far too simplistic as a solution, often the most simple ones are the real solution.

Hi, Bridget another one for your Diary

Barfly

S & N and Brulines?????

Hi,

I run the Durham Hotel, North Marine Road, Scarborough. I am getting sick and tired of being accused of buying Carling out, which I have not.

I am sick of arguing with S&N and told them to take me to court.

I seem to have the problem only with the Carling and nothing else, which does make me look guilty.

But again I say I have not bought any Carling out of tie.

Please, please can you help me in anyway to prove that I have not bought any Carling other than through S & N.

Brulines people came in three times in one week and also refused to give me any feedback as to whether they found anything wrong or not with the system.

Where do I go and what can I do?

Greene King Pub Partners – Code of Practice

IMG_1748The following has apparently appeared on both MA and Publican website…does this strike you as a bit disingenuous considering the BLRA doesn’t exist in that name anymore (I thought it had become BBPA and that GK have signalled intention to leave). Further to this their code of practice has been rejected by BII.

Greene King Pub Partners – Code of Practice

We’ve been involved in building strong relationships with our Licensees through trust and support for over 200 years; and we’re committed to carrying forward this fine tradition.

Therefore to help you understand how we operate we have developed our Code of Practice.

As a member of the Brewers and Licensed Retailers Association (BLRA), we are committed to operating our agreements in accordance with our Code of Practice. It is also a condition of the granting of a Greene King Agreement that Licensees adopt the Code.

Is this the start of a succession of Pub owning companies leaving the late BLRA  or the new BBPA, is the mediation agreement too draconian for these sort of companies to comply with, does anyone know?

Is this the start of the fragmentation of the unity of the Pub Co’s or are some companies realising that the direction that they have been running in for the last decade has a very limited chance of survival?

terry_osborne

Barfly

The tied trade is the saviour of cask ale????

DSC00643Having been the owner of a number of free houses since the early seventies, the last thing that I would say is that the tied trade are the saviours of cask ale.

The free trade were the pubs that maintained the real cask ale, the larger brewers treated the small brewers with total disdain  in many cases.

Their very personalised service and concern about the quality of beer that they provided gave them a much needed hold in the market.

The large wholesalers took them on board and then the present Pub Co’s had to concede that the canned beers were losing ground to quality cask ales.

CAMRA’s growth and influence had a major effect on real identification of these small brewers and we have the backbone of UK cask ale.

They are being exported around the world by progressive small brewers, those that are dealing with the larger Pub Co’s are finding that they have to accept stringent trading conditions and the owners of these brewers would rather deal with freehouses than Pub Co’s.

The growth of real ale has grown since the tied trade are using a number of small brewers, but I would dispute that the tie could ever truly be cast as the saviour of cask ale.

I am sure that many small brewers have to think long and hard about the profitability and trading conditions involved in dealing with the tied trade.

Some are fine but I am sure that some have a large question mark over the wisdom of putting their eggs in the tied basket at this moment of time, without cast iron guarantees on a number of issues.

So Much for Coni

My family decided that my youngest son should have a cat, against my better instincts. A very pretty cat was rescued from the local cats home, she totally ignored us and tried to run away on numerous occasions before finally deciding that we were possibly acceptable. Having a cat wandering around a foody pub is always suspect, she very quickly learned that the kitchen bar and restaurant were all off limits, which was a great relief to me. She would stretch out in front of the fire and the customers would make a fuss over her, until she got fed up and then went outside or upstairs.

One very busy evening the bar was packed the restaurant full, we were all running at full stretch. One of the girls came in and said that the cat had just ripped a chunk out of a customers fur coat in the restaurant and taken off. It was a lady’s birthday and she had a fur coat over the back of  her chair with a big tear in the arm, she was not a happy customer. I apologised profusely and asked what sort of fur was it, she replied saying that it was Coni (Rabbit). My wife then explained that the cat had been costantly  bitten and kicked by a tame rabbit in the cattery. Bumble was the cats name and she obviously saw this as an opportunity for revenge. I said we would sort out compensation, phoned the insurance company in the morning, who said their policy did not cover marauding cats. I got stroppy and threatened to cancel all our policies and they agreed to a £300 ex gratia pay out. I then asked the lady with the coat how much would she like as compensation, she said £150 and was delighted, I bought Bumble a tin of luxury cat food, not rabbit. (JCG)
 
 

INDEPENDENT PUB CONFEDERATION Statement

INDEPENDENT PUB CONFEDERATION

Representing lessee, licensee and consumer interests

 

Preamble

 

As representatives of multiple and individual lessees and consumers within the pub industry, the organisations and groups listed at the end of this document support and endorse the analysis and conclusions reached by the Business and Enterprise Select Committee. Since the publication of the report, we have been working collectively and individually to determine how best to address the problems it identified.

 

As part of this process, we have entered formal mediation with landlord representatives, the British Beer and Pub Association (BBPA). We have also engaged in the formal review conducted by the Royal Institute of Chartered Surveyors (RICS) in order to discuss their internal guidelines and the principles upon which pub valuations and the rental calculation model are based. We hope that these two initiatives will go some way to addressing those specific parts of the BESC Report.

 

In and of themselves, however, these two initiatives cannot deliver a complete solution to all of the problems facing the industry. A satisfactory resolution of all the issues raised by the BESC report appears to be outside the hands of the industry and remains a matter for further consideration by government and the competition authorities.

 

This paper, therefore, represents the collective position of all lessee and consumer representative groups in the industry and sets out what changes we believe are necessary to address all the concerns raised by BESC. In each case we set out our position in response to BESC, recommend actions to be taken and commitments we as lessees will offer to address the general concerns raised by BESC and to assist individual lessees and pub operators.

 

The IPC will work with landlord representatives, individual pub companies, industry stakeholders, other audiences, government and regulatory authorities where necessary to progress this position.

 

1. Rental Valuation method (para 41, 58)

 

The BESC Report concluded that the current method of pub valuations, used in the initial setting and reviewing of rents was subjective and argued that it should be abandoned unless it could be significantly improved. It also noted that “neither the pubcos nor RICS  has taken any serious action to make sure the rental system is not unfairly biased against the lessee”.

 

We believe that the rental valuation method currently in use (the Profits Method) is – in itself – appropriate for the pub industry. Although significantly different to the method used by other commercial landlords, the assessment of a  fair net profit before rent based on a maintainable trade (FMT) established on the assumptions of the turnover and costs of an average competent tenant will, we believe, deliver the right results if properly applied.

 

The problem arises in the way in which it is applied in practice and the over-reliance upon guidelines produced ostensibly by the RICS but drafted by surveyors who are working for, and on behalf of, the major pub owning companies. There has never been an opportunity for lessee groups to influence the content of these guidelines. This has resulted in a standard or blanket application, rather than an individual case-by-case assessment[1], along with a perception and real risk of bias.

 

The RICS guidelines are currently the subject of an internal review within that institution. We have the following recommendations for action:

 

  1. The RICS should establish a working group comprising appropriately qualified and experienced lessee and landlord representatives, as well as independent RICS members to formulate new valuation guidelines. The guidelines should be independent and equal in their application and should cover, as a minimum: the criteria for determining FMT; running costs; how an average competent tenant should be defined; as well as measures to improve the level of disclosure surrounding the income earned from the site by the landlord.

 

  1. The tied tenant should be no financially worse off than a tenant who is free of tie, and all parties should agree on how to determine and implement this principle. A mechanism for quantifying countervailing benefit must be developed by lessee and landlord representatives collectively as a matter of urgency.[2] Proper implementation of this principle is imperative to ensure tie arrangements deliver a benefit to consumers and are compatible with basic competition and free market principles. 

 

  1. The key change we would wish to see made to the current model is an acceptance that that the lessee is entitled to recompense for the time spent in the day-to-day running of the business as a valid cost of operating the premises. It remains a matter of concern that many lessees are earning a very low return from their business investment[3], and are therefore unable to invest as much as they would wish in improving consumer amenity and expanding community activity [4]. This is as a direct result of imbalances in the valuation model which do not allow for lessees time to be taken into account before a divisible profit is determined. The valuation model and guidelines for its application must be amended to make allowance for this. 

 

  1. The guidelines should also set out how tenants’ goodwill and the effects of their alterations and improvements are to be properly disregarded. They should also set out how relevant statute and common law is to be applied to the sector.

 

In order to deliver these changes, lessees and their representatives will draw up a panel of experts to help develop and implement new guidelines and to assist lessees in rent negotiations. We will work collectively to develop robust benchmarks for quantifying the benefit of a lessee’s time to the business in order to calculate an appropriate level of remuneration.

 

2. Rent setting and review (para 12, 45, 54, 47, 60, 70, 75)

 

Noting the significant imbalance in bargaining power between lessees and landlords, the BESC Report argued that improvements in the level of transparency about the assumptions used in setting rents and information on the way in which they were calculated was vital. We concur with this, and believe that the benefits avaiable to the landlord from the ‘tie’ confer a duty of care and a responsibility to make sure the assumptions on which the rent is based are accurate, justifiable and sustainable.

 

  1. There should be industry agreed minimum standards of disclosure, transparency and fairness in the handling of rent negotiations. In particular the cost and turnover assumptions used in the rental calculation model should be explained, justified and agreed before lease negotiations are commenced. This is one of the issues being addressed by the current mediation between landlord and lessee representatives. This process is still ongoing and both the discussions and topics included within it are bound by confidentiality.

 

Lessee representatives commit to working together to develop robust and reliable industry benchmarks for operating costs, which will be made freely available to lessees and their advisers, pro forma templates for business plans and P&L statements, standard questions and information requests to present to a prospective landlord.

 

3. The way in which leases are issued – Individual company codes of practice

 

There are limits as to what may be covered by such a pan-industry agreement and we acknowledge that the BBPA believes itself to be constrained by the Competition Act from discussing pricing or the operation of purchase obligations. We do not necessarily agree with their interpretation of the law and continue to believe that it would be possible to collectively debate all the substantive issues set out in this paper. Nevertheless, in light of the BBPA’s position, we would expect companies to draft their own codes – outside the mediation process – setting out how they intend to implement and exceed this.

 

Individually, and in public, the majority of pub companies have acknowledged that the current division of profits between landlord and lessee is imbalanced and needs adjusting. We accept that this may not be capable of being delivered collectively but have, to date, seen nothing setting out in detail how the current imbalance may be addressed. In the absence of detailed proposals to deliver that adjustment, we have set out below how we believe the necessary redistributive effect may be achieved.

 

We believe the following issues should be included in such a company code and we will be recommending them to our members as standards of best practice:

 

  1. Lessee Representation: the earliest property owning pub companies, Unique and Inntrepreneur, established an internal lessee forum comprising nominated representatives. The forum met with the Board and discussed issues such as discount formula and other trade related matters. These internal forums have been largely abandoned and there is now no conduit for lessee concerns to be raised and addressed. It is this, arguably, which has led lessee groups to look outside the industry for a solution to their problems. We believe that there would be merit in treating the pub companies and their lessees as if the Works Council Directive applied to their relationship and requiring companies with sufficient lessees to establish a consultative body with lessee and landlord representatives. Such a body should meet the minimum standards set out in the Works Council Directive and would require the pub company to meet with a representative, elected forum of their lessees to inform and consult them on issues material to the company and their contractual relationship. We would expect the forum  to be consulted on changes to the company code of practice, standard lease terms,  pricing and discount policy and negotiate with them on these matters with a view to reaching agreement. The code of practice should make clear that these matters and related policy cannot be determined unilaterally.

 

 7.   Pricing: an individual company code of practice should make clear the company’s policy on beer pricing and should set out the formula for calculating discounts. We will be advising our members that, as a matter of best practice, we believe that the formula should be set in consultation with an established lessee forum or council; be published openly and shared with new and existing lessees; provide for volume related discounts, set by reference to the national wholesale price; and should give a clear commitment to margin maintenance. 

 

8.    RPI: the use of RPI for the annual indexation of rent is wholly inappropriate. The index bears no relation to the commercial environment within which pubs are operating and in particular the operating costs which are being borne. The use of annual RPI increases often takes place in addition to normal periodic rent reviews.  The effect of the annual increases is to increase the passing rent so as to influence the outcome of the rent review further in favour of the landlord.  The net effect is to replicate an upward only rent review clause of the type which has been criticised by BESC, DCLG and others over the past decade. Long leases within the industry are already subject to a regular rent review which allows rent to be adjusted according to market conditions and further annual adjustment should be unnecessary.

 

As a matter of best practice, pub companies should abandon the use of RPI in rent setting for leases which are more than 3 years’ in duration. If they wish to retain an annual indexation method for these short leases, another property-based index should be used. The company code of practice should make clear which method is being used to review rent and provide justification for it. We will be advising our members not to accept RPI clauses in their leases and will be asking pub companies to issue Deeds of Variation to remove such clauses from existing leases longer than 3 years in duration.  

 

Where companies make a range of lease terms available, lessees should be offered the ability to remove an RPI clause from an existing contract by Deed of Variation at nominal cost.

 

9.            Upward Only Rent Reviews: despite being criticised in the TISC Report in 2004, many existing leases still contain UORR provisions. Some pub companies have given undertakings not to apply them, but these are not binding and it would be therefore open to a subsequent landlord to enforce the terms of the lease in full. Others have offered lessees the option of a Deed of Variation to remove the clause, but at a cost of £500. We believe that all lessees should be offered the option of removing an UORR clause from their lease on request at nominal cost. In addition, a company’s code of practice should make clear that any undertakings offered in respect of UORR clauses will be made binding on their successors in title.

 

Moreover, those companies which have undertaken not to enforce upward only clauses have interpreted this strictly and have not allowed rents to fall, even where circumstances suggest they should have. For the avoidance of doubt, it should be made clear by pub companies that all rent review clauses should be capable of upwards and downwards reviews.

 

10.          Insurance: the BESC Report clearly states (para 108) that lessees should not pay through their insurance premiums for a measure which benefits the pub company. Whilst it is acceptable for the landlord to recharge the cost of insurance for property damage of their loss of rent in the premium paid by the lessee, it is not appropriate for the lessee to bear the cost of insuring the landlord for other income risks that they face. We would expect the best codes of practice to make clear that the pub company will not seek to make a profit from the provision of insurance and to make clear that the insurance premium does not cover the cost of insuring the landlord’s loss of income from wet rent and other income streams.

 

11.          Enforceability: we remain concerned to ensure that any revised BBPA Code and individual company codes produced in response to it are legally binding. There are many examples of existing codes being ignored or the provisions changed.  We believe that a company’s commitments offered through its code of practice should be translated into standard lease terms to be applied to new and existing agreements. As a group of lessee representatives, we are working to draft these clauses and accompanying deed of variation  

 

In the past, company codes have been dramatically altered on a unilateral basis and imposed upon lessees without consultation or notice. For the avoidance of doubt, we believe that any company code should be explicit that changes cannot be imposed unilaterally, must be developed in consultation with lessee representatives and provide for  a guaranteed minimum notice period before any such changes take effect.

 

As a collective group representing lessee interests, we will be advising our members to be extremely cautious about signing leases with companies whose codes of practice do not make these matters clear or meet these standards of best practice. We will also be providing model examples of leases which contain the correct clauses and rent review structure to advise them on which leases meet best practice. 

 

In addition, we will work to support the BII’s current process of code accreditation to ensure that it scrutinises the content of the codes as well as their clarity. We commit to placing our expertise at the BII’s disposal to ensure that compliance with company codes is assessed on an annual basis and to develop a mechanism for dealing with complaints.

 

 

 

4. Exclusive Purchase Obligations – the Beer Tie (84,87,92, 125, 129, 138, 139, 191)

 

The BESC Report expressed concern about the operation of an exclusive purchasing clause or tie in long pub leases. It stated that “the tying of beers, other drinks and ancillary products should be severely limited to ensure competition in the retail market”. We would concur with this.

 

When the pub company model was developed in the 1990s, the lease agreements typically only included one exclusive purchasing obligation –  the beer tie. Over time, the phrase ‘the tie’ has been expanded and now many lessees are bound by five separate exclusive purchase obligations. For the avoidance of doubt and to aid understanding these are set out below:

 

  • Beer tie – originally bottled and draught lager, ale and recently cider
  • Wines, spirits and minerals (WSM)– all other wet products
  • Machines – originally just Amusement With Prizes (AWPs) but recently other skills based  machines (we have dealt with this separately below because it raises separate concerns)
  • Insurance – requirement to buy buildings cover
  • Ancillary products

 

In so far as they are made to meet with the objectives of competition legislation, the existence or legality of an exclusive purchasing agreement in and of itself is not the issue in question. As lessees, the focus of our concern is on the cumulative economic effect of this clause on the agreement as a whole and in particular the distortive effect it can have on the rental calculation model. At present, the income earned by pub owning companies from the sale of beer is not adequately taken into account in the determination of rent and a fair share of the divisible profits earned by the lessee. This is a particular matter of concern where the company has no production capacity.

 

We would therefore put forward the following proposals to address lessees’ concerns about the economic effect of the tie:

 

12.          Choice: BESC suggested that the only way of determining the fairness or otherwise of the tie would be to open it to genuine market pressures and urged the Government to undertake an urgent consultation to introduce a phased programme offering all lessees the choice of whether to be free or tied.  This would force pub companies to compete and demonstrate the clear, quantifiable benefits arising from any exclusive purchasing agreements. Ahead of any Government intervention, we believe that industry best practice would be for companies issuing leases to provide a free and fair choice to all existing and future lessees whether to be tied for beer or not and a menu of options of the degree of partial tie for other ancillary products – either at the start of new lease negotiations, at the next planned rent review, at renewal of the lease or on receipt of a code of practice review request.

 

As a lessees body, we would be recommending to our members that they do not contract with a company which does not offer this degree of choice and flexibility.

 

13.          Extent of tie: whilst we can understand the justification put forward for tying beer, as the principal product or service provided by the pub, we believe that all other ties are ancillary to this and believe they should be severely restricted in line with the BESC Recommendations. Where exclusive purchasing agreements continue to exist they should be for beer (draught and bottled beer and lager) only and other wet products should not be ‘tied’ at all.

 

Exclusive purchasing obligations should be separately considered and negotiated and the cumulative effect of each restriction should be fully reflected in the rental valuation and share of the divisible profit.

 

We note that the European Commission has recently expressed concern at the bundling of buying obligations. The greater the number products subject to an exclusive purchase obligation, the less likely it is that the benefits of them will outweigh the anti-competitive restrictions. For this reason, we support the removal of the Competition Act 1998 (Land Agreements Exclusion and Revocation) Order 2004 to require pub companies to carefully assess the cumulative effect of a number of product ties on an ongoing basis and justify that the benefits outweigh the restrictions. In our view, the greater the number of product ties, the less likely it will be that the agreement will satisfy the criteria for automatic exemption and the greater the need for individual scrutiny.

 

14.          Guest Beer: Leases which continue to include a beer tie must allow lessees to purchase one draught and one bottled beer outside the scope of the exclusive purchase obligation, provided this is sourced direct from a small brewer (less than 200,000 hl capacity). This limited relaxation of the beer tie would reduce barriers to market access for small brewers and increase competition and consumer choice. 

 

15.          De Minimis: nevertheless, we accept that for some small businesses, the beer tie is an integral part of their business model and they may not be able to offer this degree of choice. We would therefore suggest that a de minimis threshold, consistent with that applied under EU law, be adopted to restrict the  application of the above to companies with a market share of more than 1%.   Within the UK pub market, this would equate to companies operating fewer than 500 pubs.

 

As a collective group representing lessee interests, we will be advising our members to be extremely cautious about signing leases with companies whose codes of practice do not make these matters clear, meet these standards of best practice or which do not contain the correct clauses.

 

We will also work to develop learning programmes and tools to explain the economics of the tie and to equip lessees with an understanding of its impact on the rent calculation and FMT model.

 

 

 

5. AWP tie (103)

 

TISC Report in 2004 and BESC Report both concluded that the “benefits of the AWP machine tie outweigh the income tenants forego and recommend that the AWP machine tie be removed”. It also noted the requirement on machine suppliers to make up front access payments to many pub companies. This results in above-market rents being charged to lessees. 

 

We wholeheartedly concur with the BESC Report and are disappointed that the pub companies have taken no steps to address this issue over the past 5 years. We understand that the BBPA believes that it is precluded by competition law from requiring its members to act in this area, therefore we recommend the following as best practice to be adopted as a matter of urgency by individual companies:

 

16.          The AWP tie should be removed from all long leases either at the end of the machine supply contract or the next rent review whichever is earliest. In the meantime, and until this is fully achieved, the nominated supplier list and practice of upfront access payments should cease immediately.  No new leases should be issued which include a machine tie.

As lessee representatives, we would be willing to discuss collectively with the BBPA and others a new system for dealing with gaming machine income. We would also work to develop an approved supplier list for use by lessees.

 

Conclusion

 

The BESC report has already been a catalyst for change within the pub industry but the problems it identifies are wide ranging, multi-faceted and inter-linked. We as lessees, endorsed by consumer organisation CAMRA, believe that there are five key elements of the pub company model which must be addressed as a matter of urgency to ensure that competition in the market is not further distorted to the detriment of small businesses and consumers alike.

 

Those five elements are set out in detail in this paper:

  • the rental valuation model
  •  the way in which rents are calculated
  • the way in which leases are issued by pub companies
  •  exclusive purchasing obligations (tying agreements)
  •  the AWP tie.

 

Some of these require structural adjustment or regulatory intervention, but many can be delivered through the promotion and adoption of best practice and a willingness by the pub companies to change the way in which they operate.

 

As a collective body of lessee and consumer representatives, we have already begun work to  address these issues individually and the discretion of the competition authorities has been engaged in considering the beer tie. However, it is clear that these five issues are intricately inter-linked and a successful resolution of one element on its own cannot and will not resolve the problem as a whole. There is no one solution or lever to be applied, and any solution must address all five issues.

 

We are committed to working with all stakeholders to deliver a workable and pragmatic solution in each of these five areas and will not consider the problems identified in the BESC Report fully resolved until that is achieved.

 

KN

12 October 2009

 

PREPARED AND ENDORSED BY

 

  • Association of Licensed Multiple Retailers
  • Campaign for Real Ale
  • Fair Pint Campaign
  • FLVA
  • Guild of Master Victuallers
  • Justice for Licensees
  • Federation of Small Businesses
  • Society of Independent Brewers
  • Unite the Union

 

 

SUPPORTED IN PRINCIPLE BY

 

  • BII – in light of its charitable status and training remit, the BII has offered its full support but is unable formally to endorse the document itself.

 


[1] This principle was recently confirmed in the Brooker judgement

[2] This process was started by Whitbread in its application to the European Commission for individual exemption from Article 85(3) in 1994

[3] Research carried out by BESC identified that the majority of lessees earn less than £15,000 pa and many would be in breach of the NMW and Working Time Regulations if they were employed as staff as a result.

[4] Research carried out by BESC identified that the majority of lessees earn less than £15,000 pa and many would be in breach of the NMW and Working Time Regulations if they were employed as staff as a result.

Bridget Jones and the All Party Parliamentary Beer Group

IMG_1748This is getting more like Bridget Jones Diary.

Dear Bridget Jones (Nom de plume) was due to appear before the APPBG with other groups from the industry.

My Mole in the House of Commons said that she and her friends were apparently hiding round the corner in the House of Commons rather than talk to some of the serious thinking people in the Industry also destined to speak to the APPBG.

She apparently insisted that all the other interested parties left the committee room before she actually spoke or if she did speak.

This behaviour is a trifle bizarre from the head of an organisation that claimed in the press that everything was very rosy in the garden and that there was nothing that could warrant the Competition Commissions involvement.

Surely if this was the case she would have been having meaningful friendly discussions with everyone that was there, after all the aim of the exercise is to get fairness and transparency back into a fractured and segmented industry.

I would put her reluctance to meet the others as girlish shyness in her new position, she was probably overawed owing to her apparent lack of knowledge of the problems in the industry, a bit like Bridget Jones in the same position.

Her inopportune press releases whether through naivity or a desire to cause mayhem in certain bodies whose aims are to put the industry back on it’s feet, not on it’s back, seriously bring into question the ability of the BBPA to implement the mediation agreement, yet again.

Her comments if correct would mean that the mediation agreement has no use whatsoever and is needless, yet the whole industry know that these details of the mediation agreement are an essential part to bring the industry back to being a level playing field, if implemented fairly and realistically.

The BBPA under her stewardship has foundered on the rocks of public opinion and have confirmed the doubts expressed by many.

I would suggest that the Bridget Jones of the Pub Industry slips away to another industry more suited to her talents, this is purely my opinion along with a lot of my readers from their emails.

BBPA a la Brigid Simmonds and the Publican

IMG_1748Brigid Simmonds claims that the shortcomings in the BEC Report have been addressed and a positive “response” achieved to it’s new code.

No further action will be required by the Business and Enterprise Committee with the OFT and the RICS conclusions.

Am I on another planet or is Brigid Simmonds?

Why is Peter Luff very concerned, Greg Mulholland equally so, thousands of thinking people in the industry are horrified at the total disregard for any of the recommendations that have been quietly bypassed by certain organisations, articially high rent increases being pushed through before anything changes, the BII are investigating further breaches of the Codes of Practice.

The Pub Revolution Movement is growing in numbers they are not a few malcontents, but more thinking struggling lessees, CAMRA have always been a consumer group who have stayed out of the Pub Co issues are now suitably incensed along with many more about the OFT’s inability to look anywhere further than the end of their office.

Brigid I would suggest that you move out of your plushy office and spend a week talking to the real struggling lessees and tenants as I do and join the real world.

I am not trying to be rude to you, but you seem to have completely missed the reality of the situation.

I was prepared to give you the benefit of the doubt about the Mediation Agreement, but the BBPA would appear to have conceded absolutely nothing and learned absolutely nothing about the real pub world.

Your comments in this weeks press showed absolutely no humility or awareness of the struggling lessees and tenants, but the apparent arrogance of convenient ignorance of the realities that appeared with the previous BBPA statements over the years.

If you have been misquoted I apologise since you are relatively new to your responsibilities, but you do appear to be running true to the BBPA form of old.

This raises an even bigger spectre as to whether your commitment to the mediation agreement can be honored and enforced by the BBPA if your comments are correct, since they highlight the lack of real understanding of the situation.

Using the words of the French Revolution you might like to give the Pub Revolution Movement some cake.

JCG