With just under a month to go until the Pubs Code takes effect on 26 May 2016, Jonathan Hyldon, senior solicitor, looks at how the regulations will affect pub-owning businesses.
With just under a month to go until the Pubs Code takes effect on 26 May 2016, The Pubs Code etc. Regulations 2016 and the Pubs Code (Fees, Costs and Financial Penalties) Regulations 2016 have finally been published, albeit only in draft with neither of the Regulations yet being made a statutory instrument.
The Small Business, Enterprise and Employment Act 2015 (SBEEA 2015) requires the Secretary of State to introduce a statutory Pubs Code, creating regulations about practices and procedures to be adopted by large pub-owning businesses (that is those owning 500 or more tied pubs in England and Wales) in the course of their business with their tied tenants. It governs their relationships with those pubs, but not with their managed houses or free-of-tie pub tenants.
A tied agreement is where a landlord has the facility to earn income from the goods a tenant sells under the tie agreement. Tied agreements vary in their nature from a full tie, covering all products sold, to a partial tie covering a limited amount of products for example both bottled beers and draught only.
A free-of tie agreement is where the landlord has no interest in the beer sales side of the business leaving a tenant free from such trading conditions.
The Code details how the 'market rent only' option will work. The fundamental principle is that a tenant tied to a business owing 500 or more tied pubs should be no worse off than a free-of-tie tenant.
The Code itself has two principles which are:
fair and lawful dealing by pub-owning businesses in relation to their tied tenants
tied pub tenants should be no worse off than if they were not subject to any tie
The Code makes sure that tied pub tenants:
receive the information they need to make informed decisions about taking on a pub or new terms and conditions
have their rent reassessed if they haven’t had a review for 5 years
can request a market rent only (MRO) option to go free of tie and pay only a market rent in specific circumstances, including at a rent review or renewal of tenancy. The tenant would then pay a market rent for the pub but be able to purchase beer and other products from any source.
Tenants will also keep their code protection (except for MRO) if their pub is sold to a ‘non-code pub-owning business’, until the time of their next rent review. This will enable them to negotiate a fair rent with the new pub-owning business that reflects any change in their trading circumstances. After that review they will lose their statutory code protection and will be on the same footing as all other tied tenants of the smaller pub-owning business.
Further the Code provides the right to take disputes to an independent adjudicator with the adjudicator possessing powers to:
resolve individual disputes
award redress to a tied tenant if a breach of the code is found
investigate widespread abuses of the code
Enforcement powers will also be available to the adjudicator after an investigation including the imposition of financial penalties.
To assess the impact of the Code, around 13,000 tied tenants in England and Wales will be protected by it.
If you require specialist lease advice or would like to discuss how the Code could impact upon you or your business in more detail please contact any member of our commercial property team. Alternatively, if you need advice in relation to the retail sale of alcohol, or any other licensing aspects, please contact one of our licensing team.
