ROB HASTIE TALKS ABOUT THE PUBS CODE

ROB HASTIE TALKS ABOUT THE PUBS CODE thumbnail

The Pubs Code has, since 2016, changed the relationship between tied pub landlords and their tenants. I hope with these articles to shed some light on what is a complex area of the law…

Summary

Large landlords of tied pubs are subject to regulation under the Pubs Code.
The Code is founded on two principles:
            o Fair and lawful dealing.
            o That a tied tenant should be no worse off than if they were not subject to a tie.

Large landlords have to abide by a Code of Practice.
Their tenants have the option to take a free of tie tenancy at various points.
The Pubs Code Adjudicator decides disputes (or appoints someone to do so) and monitors compliance.


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Am I a “Business Development Manager”?

21st April 2021

I have been a solicitor for over 25 years and more recently a barrister, so have never written “Business Development Manager” (or “BDM” for short) on the job description part of any application form. However, under the Pubs Code, that does not necessarily mean I cannot be a BDM.

BDMs are traditionally the person who acts as the main point of contact between tied publicans and the pub company. Part of their job is to help the tenant develop their pub business, to both parties’ benefit.

The test for who is a BDM under the Code includes “a person who is employed as such by a pub-owning business” and:
any other person who represents the pub-owning business in negotiations with tied pub tenants in connection with …

   (i) rent proposals;
   (ii) rent assessments or assessments of money payable in lieu of rent;
   (iii) repairs to the tied pub premises;
   (iv) matters relating to the tied pub tenants’ current or future business plans;

Under the Code, pub companies must ensure their BDMs deal with tied pub tenants in a fair and lawful manner, are trained annually in the Code and provide the tenant with meeting notes within 14 days of any discussions dealing with issues (i) to (iv) above.

An example of how the test has been applied was the case of Whitby v Star Pubs & Bars Quarter 4 2019 2:

  • An external surveyor was retained by Star to represent them on an October 2016 rent review.
  • Star argued that the surveyor was not a BDM as they were only instructed to advise Star and to make submissions to the arbitrator as to the rent.
  • After the rent review was finished, the tenant complained to the Pubs Code Adjudicator (‘PCA’) that the surveyor’s conduct in the arbitration was not fair and lawful, in breach of the Code.
  • The PCA appointed an external arbitrator who found:
  1. That the surveyor did not have to be an employee of Star to be a BDM;
  2. There could be more than one BDM at any one time;
  3. The surveyor’s role was similar to that of a lawyer representing their client;
  4. The surveyor was involved in negotiations as they had made three without prejudice offers as to rent and had a meeting directly with the tenant;
  5. The surveyor was a BDM;
  6. He could therefore review the conduct and submissions of the surveyor in the rent review arbitration to determine whether it fell short of “fair and lawful dealing”; and
  7. The surveyor’s conduct was not unfair or unlawful.

Such arbitration awards are not binding on future arbitrators and there is one point I would take issue with the arbitrator in this case: It is wrong to find that a surveyor who acts in negotiations in the past as a BDM, remains a BDM in other contexts.

It is likely that a surveyor who sends offers and meets with the tenant to discuss terms, is acting as a negotiator and may therefore be classed as a BDM in relation to those negotiations.

However, when the same surveyor goes on to make submissions to a third party tribunal, like an arbitrator, they are acting in the role of advocate, and are not representing the pub company in negotiations. In relation to those submissions the surveyor is not a BDM.

The RICS Guidance Note on Surveyor Advocates sets out the professional ethical obligations of surveyors in making submissions to tribunals. It also states that the surveyor may be acting in more than one role at different times (including negotiator, case manager, expert witness, adviser and witness of fact) and “should be aware at all times which role is being adopted and differentiate between them as necessary”. When a surveyor makes submissions they are not acting in the role of negotiator.

The Code obligation on BDMs is to “deal with” tied pub tenants in a fair and lawful manner. That relates to direct interactions with the tenant on the relevant subjects and not to submissions to a tribunal.

It would be bizarre if different Code duties applied to a surveyor advocate who happened to have been involved in earlier negotiations, compared to one who had not.

Am I a BDM?

It is possible, if and when I am negotiating with the tenant in relation to rent, repair issues or (which is unlikely) business plans, that I am a BDM, but the vast majority of the time I am not.

If anyone should think that makes me (or the surveyor) free to be deal unfairly and unlawfully when not negotiating, there are the very serious professional ethics obligations placed upon me by the weighty tome that is the Bar Standards Board Handbook, and the surveyor in the Whitby case would be bound by the RICS professional standards.

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What is a pub?

12th January 2021

It may seem obvious, but the Pubs Code only applies to pubs. It does not apply to restaurants, cafes or take-aways etc.

Despite being around for over a thousand years, there is no settled definition of what a pub is. With the growth of “gastro-pubs”, “bistros”, “kitchens” etc it can be very hard to tell the difference between a pub and other types of licensed venues.

The  definition of a pub used by the Code is that “the main activity or one of the main activities carried on at the premises is the retail sale of alcohol to members of the public for consumption on the premises.”

Jo Swinson, the minister promoting the Code, made clear on 30 October 2014 that the definition was intended “to make sure that restaurants are not improperly covered by the Pubs Code and importantly, that tied tenants of so-called gastropubs, which sell food, receive the protections we intend.”

In the next village to me there is a venue called “The Black Horse”. It used to be a village pub, but in the last 20 years I would say it has become a restaurant. I can tell because there are tablecloths, you have to book a table, there is little room for “vertical drinking”, it has a wine menu, and people dress quite smartly to go to it. Also it calls itself a restaurant. However, I know some venues that might be described as “gastro-pubs” that are virtually identical in their operation. The debate about whether a venue is a pub or restaurant is becoming a classic British argument, like whether the evening meal is “dinner” or “tea” or whether a scotch egg is a substantial meal.

The fact is that over the last 30 years some pubs have evolved to be virtually identical to restaurants and there is no clear dividing line between them.

The definition used by the Code attempts to make a distinction, but it is vague. There is no explanation of how substantial the sale of alcohol has to be, in order to qualify as a “main activity”, and previous legislation like the Licensing Acts and Landlord and Tenant Act 1954 are of limited assistance.

There has been no case reported on the definition, but in my view the key question is the proportion of alcohol sold that is not ancillary to dining.

In the pandemic there have been times when pubs in tier 2 were only allowed to open if they operated as a restaurant, with drinks being served at the table with meals. Sales of drinks with meals are therefore the activity of a restaurant, and, for the purposes of assessing whether the test of a pub is established under the Code, sales of alcohol with food should be ignored.

The key distinguishing feature of a “pub” is whether sales of alcohol to non-diners can be described as a “main activity” of the venue. That will require a consideration of its contribution to turnover, the space set aside for non-diners’ drinking and the marketing of the venue.

It will always be a matter of judgment on the facts of the particular venue and will continue to spur debate.

PS - I’m from Essex so its “dinner” (but I call it “tea” to keep in with the locals) and in my book a scotch egg is not a substantial meal.

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The Pubs Code

Summary

• Large landlords of tied pubs are subject to regulation under the Pubs Code.

• The Code is founded on two principles:

  • Fair and lawful dealing.
  • That a tied tenant should be no worse off than if they were not subject to a tie.

• Large landlords have to abide by a Code of Practice.

• Their tenants have the option to take a free of tie tenancy at various points.

• The Pubs Code Adjudicator decides disputes (or appoints someone to do so) and monitors compliance.

A bit more depth

Who

A company is a ‘pub-owning business’ if it, or companies in its group, owns 500 or more tied pubs in England and Wales. There are presently six regulated businesses – Ei Group Ltd, Star Pubs & Bars, Greene King, Marstons, Punch and Admiral.

A smaller landlord company can also become subject to some of the rules in the Code if it buys a pub from one of the six pub-owning businesses.

A ‘tied pub’ is one that has to purchase some or all of its alcohol from the landlord or the landlord’s nominee.

The Code applies to most forms of tied tenancy and licence.

Why

Campaigners and individual tied tenants convinced the Trade and Industry Select Committee and MPs that they were being treated unfairly by large pub companies and that free of tie tenants were better off.

Whether it was truly “evidence-based legislation” is a matter for debate.

There was never any proper analysis, for instance, of the free of tie tenancy market, and whether they were truly “better off” than tied tenants. It is not a straightforward comparison. For instance, in the Covid pandemic, tied tenants will get more support from their landlords, than free of tie tenants, because a tied landlord has a greater interest in the trading success of the pub.

Where and when

The rules are in the Pubs Code etc Regulations 2016, which was introduced by the Small Business Enterprise and Employment Act 2015.

It came into force on 21 July 2016.

The rules in the Code are supplemented by The Pubs Code (Fees, Costs and Financial Penalties) Regulations 2016 and also by Guidance and Advice issued by the Pubs Code Adjudicator. There are also published arbitration awards that attempt to interpret the rules and apply them to real life scenarios.

The Government will shortly be consulting on whether there should be changes to the Code.

What

The majority of the Code is based on the previous voluntary codes of practice that had developed in the pub industry in previous years. They deal with the information and advice that the tenant should be provided with on pre-entry, rent review, assignment, renewal or at expiry. They contain provisions for the recording of meeting minutes. Although there is an element of the Code “gold plating” sensible provisions by adding time consuming bureaucracy, these provisions of the Code have worked relatively well and seen few disputes referred to arbitration.

The right for a tenant to a free of tie tenancy at certain points of the tenancy (usually at rent review or expiry) have proved the most often disputed provision. The Code was not specific on the question of the form or content of the free of tie tenancy. Pub-owning businesses have looked to standard free of tie leases as a precedent. Tenants have sought to argue that their existing tenancies are more favourable than those free of tie leases and should only be changed to the limited extent required to make them free of tie. The awards received have been a spectrum between those two points.

The Pubs Code Adjudicator, Fiona Dickie, has two roles; arbitrator of individual disputes and regulator. In recent times the Pubs Code Adjudicator has on almost all arbitrations appointed external arbitrators, in order to concentrate on her regulatory role.
The arbitrations are private, but the expectation is that the awards will all eventually be published on the PCA’s website, potentially with redactions to maintain the anonymity of the tenants.
Previous arbitration awards may be persuasive to an arbitrator, but they do not bind them in the way a court would be bound by the decision of a higher court. There have been a few arbitration appeals taken to the High Court which have clarified a small range of issues.

In terms of regulatory action, the PCA is in regular correspondence with the pub-owning businesses, tenants’ groups and others. The PCA has conducted one investigation so far, which led to a £2m fine for one pub-owning business.
For even more depth.

The Pubs Code is a very complex and relatively new piece of legislation. I have been involved in over a hundred referrals, over the last 4 years and a half years. As a resource for myself and the solicitors that instruct me, I have collated the regulations, awards, advices and information into a “Handbook of the Pubs Code”, which at present stands at 658 pages.

If you have a question concerning the Code or any aspect of this article, please do not hesitate to contact me via my clerk, Wayne Stevens. I look forward to working with you soon.

Rob Hastie
Barrister