One of the immediate impacts, picked up in a Private Eye article, for Punch tenants following the Heineken takeover, would be a 48 hour lead time (and on weekdays only) on deliveries, due to appointment of a new drinks distributor. This has raised the question as to whether this could be a trigger event for tenants to request a free of tie option.
This change was never likely to play well with tenants who may require deliveries over weekends, and whose business may be negatively affected due to longer delivery timescales.
The Pub Code states that the tenant has a right to a free of tie tenancy in four separate situations:
- Renewal of the pub tenancy or lease or
- Rent review or
- A significant increase in price of tied product of service or
- A “trigger event” occurs.
Could this change in delivery lead times be a “trigger event”?
There are certain pre-conditions for a trigger event and a tenant would have to show that:
- the increase in delivery times would have the effect of decreasing the level of trade reasonably expected to be achieved at the pub in each month over a continuous period of 12 months and
- this effect is not something which the tied pub tenant could reasonably have substantially mitigated.
A tenant will need to answer some key points – in particular:
- Is the extended lead-time for deliveries actually going to decrease the level of trade?
- If so, will it have that effect in each of the next twelve months? This could be difficult to show, particularly in the quieter months of the trading year. Why the Pubs Code requires this to be the case in every month of the year rather than over the year as a whole is not obvious – unless the cumulative effect of the disadvantage is to be outweighed by one exceptional month.
- Will the tenant reasonably be able to “substantially” mitigate the effect of this extended lead time for deliveries? In most cases the answer is going to be yes. A weekly order is something that most tenants can cope with, and as all publicans run short of stock from time to time, many have arrangements in hand to borrow stock from other operators in an emergency. All of this is reasonable behaviour and can show that mitigation by the tenant is possible without taking any steps outside the normal business life of a publican.
- One quirk of the Code is that it refers to a decrease in the level of trade. So a decrease of just £1 would satisfy the test and, subject to the other conditions being met, allow a trigger event to have occurred. But was it really intended that the loss of a valuable right for a pub-owning business could be triggered by a nominal loss for the tenant?
The assumption has been made that the Code is intended to prevent the pub company landlord from doing anything that puts the tenant’s business at a disadvantage. In fact, the Code does not actually say this and, if anything, impliedly accepts that there can be disadvantages which accrue, albeit unevenly, over 12 months.
Concerns were also been expressed by some tenants that the acquisition of the Punch estate by Heineken will lead to a restriction on choice and create upward pressure on pricing.
Competition concerns were addressed by Heineken undertaking to sell off pubs in 33 areas. However, this issue appears to have been resolved with the consumer in mind and not the position of the tenant.
Significant increases in prices for tied products and services can be a ground for requesting a free of tie tenancy. The Code sets these increases at 3% above CPI for beer, with other specified rates for non-beer drinks and services. However, the big gaps in the Code are, firstly, the impact of changes in prices which fall below the rate of “significant” price increases and, secondly, the effects of restricted choice of products on tenant profitability.
How does the Code deal with these?
- Price increases below the level of “significant” increases and restricted product choice may adversely impact profitability. If so, this is not, by itself, a “trigger” event. Remember that the Code requires there to be a decrease in the level of trade and does not mention tenant profitability.
- The tenant does have to accept extrinsic increases in price (increases in prices at which the pub-owning business buys in the product or service which are then passed on to the tenant). How does this tie in with pub-owning businesses which buy in the tied product or service from a group company? Are those purchases “extrinsic” purchases? You might think not. However, the definition in the Small Business, Enterprise and Employment Act 2015 (the Act which gave birth to the Pubs Code) defines “pub-owning business” but only refers to group companies in the context of including pubs owned by the group companies in the threshold figure of 500 and not for any other purpose. If this is right it means that price increases imposed by, for example, the group brewing company, can be passed on as extrinsic price rises and which would not be a “trigger” event.
- Can deletion and/or addition of brands from and to the price list of the pub-owning business be a trigger event? The relevant condition in the Code refers to “a change in the tie”. Removal of particular brands may not amount to a change in the tie bearing in mind that the tie still requires the tenant to buy beer or the relevant product type from the pub-owning business’s price list. What it should have referred to is a change in the tie or the brands offered for resale, other than by express agreement.
Some of these points could be amended quite easily in the Code. Given that the Daily Telegraph reported on 1 August 2017 that an All Party Parliamentary Group, led by Toby Perkins MP, is considering the issues and wants to remedy any deficiencies, the points set out above should be on the list for consideration.
The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.