May 2016

Dear Adjudicator

Firstly, congratulations on your appointment.

It has to be said the Pubs Code etc Regulations 2016 have had an unhappy start. Starting with the Consultation over the winter, resulting in many changes and leading to the news on 6 May that the latest draft was being suspended while some errors are being addressed. All of this has not helped build confidence in the Regulations themselves.

In fact, the last draft of the Regulations contains many curious features and what appear to be multiple drafting errors. Some of the provisions contain a logic which is difficult to follow and others seem to have drawn up by someone not well-versed in the workings of the sector.

The Regulations are made under the Small Business, Enterprise and Employment Act 2015 which says that advice and guidance may be given by the Adjudicator in a whole range of circumstances and to different groups. Obviously, you cannot change the legislation but it would help us all if you were to give us guidance on a number of issues.

These are for starters:

  1. Can you tell us what a pub is? The Government spokeswoman in the House of Lords accepted that “increasing food consumption in pubs, gastro pubs and so on” has made a legal definition more “complex”. Although she said that there is power to exempt certain types of premises so that only pub premises are in “scope”, this does not appear to have happened. It would help if you could define what are, and what are not pubs.
  1. What is a tied pub? The Act contains a very surprising definition of a tie. Trade ties can take various forms, and both before and after the Beer Orders, various mechanisms were developed in order to achieve the same economic effect. These included certain types of unilateral contracts which, in some cases, fell foul of the Orders. Those same contracts would not necessarily fall foul of the Act or the Regulations – in fact the wording of the Regulations appears to be drawn so as to positively encourage them. The Secretary of State has power to make regulations about terms which are “inconsistent” with the Pubs Code. What is your view of these types of mechanisms? Is it inconsistent with the Act to use mechanisms which can produce the same economic effects as a tie even if the outlet is not “tied” within the meaning of the Act?
  1. The Regulations draw some odd distinctions between tenants who have the protection of the Landlord and Tenant Act 1954 and those who do not. It may be that this is one of the points which have resulted in the suspension of the Regulations. There are a number of examples of this, but the first that I noticed was that only tenants protected by the 1954 Act on a renewal would be entitled to the appropriate pubs entry training. Why are contracted out tenants excluded from this?
  1. One of the events that gives rise to the MRO is a significant increase in product prices. Is there any reason why this should be so, bearing in mind the pub owning business may only be passing a price increase on? Isn’t the prospect of price increases beyond the stated increase, which are being passed on, reasonably foreseeable at the start of the tenancy? Why is this apparently catered for in the definition of “trigger event” (which also gives rise to MRO) which expressly refers to “extrinsic increases”? Your view on this would be interesting.
  1. If there is a significant increase in tied product prices, is that really an event which could lead to the MRO for all products? Is it foreseeable at the time of the grant of the tenancy that a tenant could manipulate his buying patterns to achieve this?
  1. Do you know why is there no exemption from the liability to have a sustainable business plan for a person who does not have to undergo pre-entry awareness training? Is there a reason why a long serving tenant who has taken a succession of contracted-out tenancies (possibly a lifestyle tenant) or a multiple operator has to undergo this process?
  1. If a tenant is granted a rent concession does this trigger a rent proposal or a rent assessment?
  1. Could you explain exactly what is meant by Regulation 47 which says that the pub-owning business must not require a tied pub tenant to purchase or rent gaming machines. Most tied pub tenancy agreements contain a restriction on bringing such machines onto the premises. Did the draftsman in fact mean that the pub-owning business could not make it a condition of its consent that the tenant could only bring onto the premises such machines that it had bought or rented from a landlord approved supplier?
  1. The Regulations say that an MRO compliant tenancy should not contain terms and conditions which are not common terms in FOT tenancies. There might be a difference in this respect, in tenancies granted FOT by pub companies, and tenancies granted by landlords who are not pub companies. With whom should be comparison be made? As an example, is a recharge for gas and electrical certification common terms in both those cases?
  1. The issue of void or unenforceable terms is looming large in everyone’s mind – particularly in the light of Regulation 57. Does “void” mean void forever? It seems a bit odd that a clause which owes its invalidity to the size of the pub-owning business’s tied estate should also be void between successors in title.

Whilst appreciating that there are a lot of questions to answer here, and you clearly have a lot to deal with, these are in fact just some of the concerns which the industry needs to see addressed.

Yours faithfully

Peter Holden
Freeths LLP

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