In the final days of the last Government, the Small Business, Enterprise & Employment Act 2015 came into force containing provisions relating to the Pubs Code.
The 2015 Act refers to a large number of issues to be dealt with by secondary legislation, and there remains a high degree of uncertainty for pub operators affected by it. One of the largely uncommented upon aspects of this relates to the consequences of buying a pub from a pub owning business.
A pub-owning business refers to those with 500 or more leased or tenanted tied pubs immediately before the statutory Pubs Code comes in to force. There are still some blurred lines around the definition of what constitutes a tied pub – for example the difference between a pub and a restaurant – see our commentary on this topic.
Significantly the Act also introduces the concept of ‘extended protection’ whereby a purchaser of a leased or tenanted tied pub (and who would not otherwise be a pub-owning business) could become liable for a range of obligations. A tied pub tenant benefits from “extended protection” when the landlord has been a pub owning business (ie with over 500 tied pubs) and then sells their interest, before the tenancy ends, to another company (which does not have 500 tied pubs). This means that any purchaser of such a pub would take on the tenant with extended protection (until such time as the tenancy ends or there is a rent review).
So what are the implications for purchasers of pubs?
- Whilst not bound to offer the market rent option, and not subject to investigations by the Pubs Code Adjudicator, a purchaser could be subject to other provisions of the Code whilst the tenant has extended protection. This may include arbitration by the Adjudicator.
- We still do not know what the Pubs Code will look like. In an impact assessment by the Government in January 2015 it was stated that it would be based on the existing Industry Framework Code (version 6). Members of the IFBB are reported to have committed to funding the industry dispute resolution mechanisms – PIRRS and PICAS – and to keep the framework up to date. This was against the backdrop of strong support to exclude family brewers and pub companies with less than 500 sites from the Code. If these reports are correct, this suggests the possibility of having to comply with the voluntary dispute resolution procedures and the statutory procedures.
- Oddly, the Industry Framework Code does not expressly state that is applies only to tied leases or tenancies – and it is possible to read the Code as applying to free of tie, limited tie leases or tenancies.
- As pub-owning businesses have an obligation under the Act to pay an annual levy to fund the Adjudicator’s office, there is of course the possibility that anyone purchasing from these pub owning companies, where a tenant has extended protection, will also be required to contribute to the levy.
The uncertainty over a statutory code continues, and it may be some time before these questions are fully answered.
