Last week in parliament, the crucial vote on whether pub companies with more than 500 pubs and at least one tenanted or leased site would be forced to offer a Market Rent Only (MRO) option, took place.  As it stands tied pubs are forced to buy beer at inflated prices from the pub company as well as paying a ground rent which is often above the true worth of the property.  The beer price inflation can be startling which is why it is called the “wet rent”, the ground rent being the “dry rent”

As an example (as told to me by a 20+ year veteran of the trade), a good session ale direct from the brewer will cost about £60 for an “9” (or 72 pints), of which a landlord expect to sell 62 pints once pull through wastage is accounted for over a few sessions.  When this is distributed via SIBA (Society of Independent Brewers), the costs increases to £70 to cover their costs, not an extortionate amount for a convenient centralised system.  This is what the pub companies buy at, but when it is sold to their tied tenants, the cost has jumped to £120, so now instead of paying about 97p per pint (pre taxes and costs), tied tenants now pay about £1.93.

When you sell 1000 pints a week, £970 (97p per pint difference) per week or £48,500 per year makes a difference between struggling to make a profit or paying yourself the minimum wage for the long hours you pull behind the bar, computer keyboard and in the cellar.   If you are a couple then you can take £15,000 per year each out of this and start planning for your life after the pub trade when you have to pay for your accommodation and utilities as an individual.  It also means that you could employ staff to give you a break during the week with the remainder.

The amendment to the Small Business, Enterprise and Employment Bill, New Clause 2 as this is catchily known as in Parliamentary terms (called NC2 from here on) was passed by 284-269 votes, despite a last minute attempt by Jo Swinson, Minister for Employment Relations and Consumer Affairs to introduce an change which would add a delay of 2 years whilst a “rigorous” review was done into whether the clause was needed, with her adding that the MRO would only be implemented if the review finds tenants are not sufficiently protected by the current system.

If the pub companies were going to clean up their act, they would have done it in the last 6 years, another 2 years will make no difference and the majority of MP’s agreed with this view and voted for introduction of the clause into law as soon as legislature allows.  So what does the change mean.

First of all, total freedom to pick your own beer is not included.  The pub company can mandate a choice of brands which can be sold in their pubs, however tenants can buy these beers from any supplier to get the best price if the pub company is strongly tied to brewery (eg : Greene King Inns).  This could be of course be offset by threats from the brewery that the supplier will be cut from their distribution chain if they supply the pubs in the breweries chain.  This applies even if the tenant has an MRO agreement.

The pub company must offer an MRO option at the following times, new lease or tenancy contract; agreement renewal, rent review; five years after last rent review.  The pre-condition of this is a) when the large pub-owning business gives notice of, or imposes, a significant increase in the price at which it supplies products, goods or services b) upon an event outside of the tenant’s control, and unpredicted at the time of the previous rent review, that impacts significantly on the tenant’s ability to trade c) when a pubs ownership changes hands.

The tenant must give notice of intention to pursue an MRO and a period of 21 days of internal negotiation is needed before they take this into a 90 day consultation period where a mutually agreed independent assessor, of which the costs are split 50/50, can investigate the commercial situation.  After 90 days he can submit a fair MRO rent, the tenant can then pay no more rent than submitted and existing ties are no longer valid.  There is a clause that says pub companies cannot discriminate against MRO agreement tenants.

So it gives the tenant a fair deal on paper, but like before, pub companies will find a way around this, they did with Beer Orders 1989 and I’ll bet you a tenner its not the last we see of the pubco dirty tricks.

http://www.publications.parliament.uk/pa/cm201415/cmhansrd/cm141118/debtext/141118-0001.htm

http://www.publications.parliament.uk/pa/cm201415/cmhansrd/cm141118/debtext/141118-0002.htm