Tied Pubs - Scottish Pubs Code - part 1: consultation analysis

Conclusions

A number of themes emerged from the analysis of consultation. The overarching challenge is balancing the views of pub-owning businesses, who tended to be more sceptical of MRO leases and guest beer agreements and their potential impact on the sector e.g. in terms of unintended consequences, and tied pub tenants who are concerned about the potential for pub-owning businesses to find ways to make the new provisions work to their advantage.

MRO leases

• Tied pub tenants tended to favour MRO leases being offered as a simple deed of variation, whilst pub-owning businesses preferred a new or substantially altered lease. The stated motive for both was around keeping the process simple.
• Tied pub tenants favoured a simple deed of variation as a way to minimise the opportunity for pub-owning businesses to make it difficult to agree an MRO lease. Pub-owning businesses were concerned that having a deed of variation as a default position could present tenants with an opportunity better than available on the open market.
• Support was strong across the board for proposed unreasonable terms in a MRO lease around break clauses, lease period shorter than remaining period of existing lease, stocking requirements, and personal guarantee requirements. For the other proposed unreasonable lease terms at Q3, tied pub tenants tended to agree whilst pub-owning businesses tended to disagree.
• Views were mixed on MRO exemptions. Regarding the 5 year exemption (Q5), views were fairly even split; tied pub tenants tended to disagree whilst pub-owning businesses all agreed. On the 7 year exemption (Q6), most disagreed across respondent types. Some felt the calculation was arbitrary, the rationale not clear, and that 4-5 years was sufficient to realise a return on investment.
• Exemptions for short-term tenancies were broadly supported, but there were mixed views on the other potential exemptions at Q8.
• There was strong support for including all the items at Q10 in an MRO offer. Other suggestions for inclusion in an MRO offer included ingoing costs (especially increased deposit costs), the basis of the calculation of the new rent, and the terms of the new agreement.
• On timings, pub-owning businesses tended to disagree with the proposed requirement to offer an MRO lease within 4 weeks of receiving a request. A key concern was that a flurry of applications could be received on the day the Code comes into force. Processing these in a short timescale could be challenging for pub-owning companies, putting strain on resources. There was however strong support across the board for a time period on negotiation to be set out in the Code.
• Pub-owning businesses with pubs in Scotland and England/Wales were keen for systems for MRO lease applications to be as similar as possible across jurisdictions, in order to minimise the administrative burden.
• Looking across responses to the questions on MRO leases, a concern that emerged quite frequently from pub-owning businesses in particular was around the potential for unintended consequences. In particular, they were keen to avoid situations where the MRO lease offered a better deal for tied pub tenants than they would find on the open market, which they felt would be unfair and not in the spirit of the Code.
• The rent assessment proposals were generally supported. However, tied pub tenants voiced concerns about whether RICS rent assessors were genuinely independent. There was a general desire for the process of choosing a rent assessor to be tenant-led.

Guest beer agreements

• Tied pub tenants strongly agreed with policy aim on guest beer agreements, but pub-owning businesses largely disagreed. The latter did not perceive that there was a problem getting small brewers' products to market and claimed to offer small production beers to tied tenants already. Tied pub tenants and most representative organisations however did perceive a problem, and so supported the policy.
• Many participants felt that the focus in terms of eligible products should be on the nature of breweries rather than the production level of the beer. It was pointed out that large brewers could easily cap production on certain products to make them qualify under the guest beer agreement proposals.
• The guest beer agreement exemptions (Q24) were generally supported by pub-owning businesses and opposed by tied pub tenants. However, some businesses felt that in practice the exemptions would mostly rarely apply if ever. It was suggested that all tied pub tenants would apply for a guest beer agreement when the Code comes into force, therefore pub-owning businesses would start to offer the agreement as a standard part of any tied lease.
• Tied pub tenants were especially keen that the Code ensures that pub-owning businesses are not allowed to attach conditions to the guest beer agreement and that the process for applying is as quick and simple as possible.

Business and Regulatory Impact Assessment (BRIA)

Pub-owning businesses expressed a number of concerns with the partial BRIA. Overall they deemed the BRIA to be too optimistic. They envisaged a considerable number of unintended consequences from the introduction of the Code which they felt were not adequately covered by the BRIA.