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Morning Briefing for pub, restaurant and food wervice operators

Mon 22nd Apr 2013 - Breaking News - Tenanted pubco consultation begins
Vince Cable fires gun on consultation to ensure pub tenants “no worse off than free-of-tie pubs”: The government has begun a consultation on how to the principle of ensuring tied pubs are no worse off than free-of-tie pubs should be interpreted in calculating rents. The consultation also asks whether a Code of Conduct should include a mandatory free-of-tie option. The proposal applies to pub companies with more than 500 pubs - Enterprise Inns, Punch Taverns, Greene King, Admiral; Star Pubs and Bars Marston’s, Wellington, Trust Inns and Spirit. Business Secretary Vince Cable said: “Pubs are a significant part of our national heritage, and the government is keen to support pubs and the pubs sector. One key industry issue over the last decade has been concerns about the fairness of the relationship between large pub companies and their tenants. It has become clear to me that the self regulatory approach, which was announced by the government in November 2011, has not been sufficiently far-reaching, with many individual publicans continuing to face significant hardships and difficulties. Therefore, further government action is required in order to maintain a level playing field in the business environment. The pub industry faces a wide range of challenges and the number of pubs has declined from 70,000 in 1980 to approximately 50,000 today. At present, 18 pubs (net) are closing every week. Whilst the financial crisis has brought into stark relief the slow process of sectoral decline, it is undoubtedly the case that the activities of the major pub companies, with their highly leveraged business model, have intensified the crisis. With the banking collapse and subsequent recession, the weakness of companies with high debt-to- equity ratios has been rather brutally exposed. What we have seen in recent years is some pub companies trying to retrieve their financial position at the expense of their tenants. We are all familiar with well managed, popular pubs in our constituencies being driven to the wall by, frankly, exploitative financial practices. Although some pub companies behave well, the evidence I have received makes it clear that in too many cases tenants are being exploited and squeezed, through a combination of unfair practices, lack of transparency and a focus on short-termism at the expense of the long-term sustainability of the sector. This behaviour, especially alongside the many other challenges facing the sector, risks damaging the British pub industry, which not only consists of small businesses employing hundreds of thousands of people across the country but also contributes substantially to community spirit and cohesion. After considering the various options, I have therefore decided to consult on establishing a Statutory Code and an independent Adjudicator for the pubs sector to govern the relationship between large pub companies and their tenants. At the heart of this intervention I propose to establish both an overarching fair dealing provision and the core principle that ‘a tied tenant should be no worse off than a free-of-tie- tenant’, enshrined in statute. I would like to be clear that I am not proposing to abolish the beer tie. When operated as envisaged and fairly, it is a valid business model being used responsibly by companies both large and small. Were it to be removed, the British brewing industry could be significantly disadvantaged. What is clear is that it is the abuse of the tie, like the abuse of rent calculations and other factors, that is causing problems in certain circumstances.” The Business Innovation and Skills Committee consultation on setting up a statutory tenanted pub company regulator has estimated the cost will run at around £900,000 per annum, which will cost the seven companies affected a total of £168,000 per annum. The adjudicator is estimated to cost £220,000 per annum to set up. The cost estimate is based on the cost of the Groceries Code Adjudicator. The consultation paper states: “The main benefit and aim of the policy is the estimated transfer from pub owning companies to licensees that is estimated to be £102m per year.” The consultation lasts until 14 June.

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