The Small Business, Enterprise and Employment Act 2015 (“SBEEA 2015”) will enable the Secretary of State to establish a framework of regulations for businesses that own public houses. These regulations will be known as the “Pubs Code” and will affect the relationship between landlords and their tied pub tenants. A tied pub is one where the tenant must buy some or all of the alcohol sold on the premises from the landlord or a person nominated by the landlord. Many leases are subject to “barrelage” which is a type of rent that requires a specified amount of alcohol to be purchased on the tie. Rents with a barrelage element are often very expensive and it is no surprise when tenants in the pub trade struggle financially with some earning less than the minimum wage.
Under the Pubs Code pub-owning businesses will be required to offer their tied pub tenants the option of taking a tied pub tenancy on market rent terms. It is not clear how this will work in practice although the implementation of any such measure designed to alleviate the hardship experienced by pub tenants should generally be welcomed.
Note also that there is to be a Pub Code Adjudicator who will have a range of powers including authority to arbitrate disputes between pub-owning business and their tied pub tenants. Provisions in agreements for tied pubs will be void if they prevent a tenant from referring a dispute to the Adjudicator for arbitration or penalise the tenant for making a referral.
We would also mention that SBEEA will give the Secretary of State power to make regulations dealing with the terms of tenancies. It is expected that these regulations will cover:
- what happens where a tied pub tenancy is inconsistent with the Pubs Code;
- what happens where a lease contains terms which penalise a tenant who requires the pub business to comply with a provision in the Pubs Code; and
- what happens where a rent review is upwards only or can only be triggered by the pub business.
It remains to be seen if the Pubs Code will be effective in addressing the inequality between pub-owning business and their tied pub tenants. Self-regulation has not worked and if the regulations can ensure the survival of local pubs which play a key role in the local community then that can only be a positive step.
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