Pub Companies - Business and Enterprise Committee Contents

1  Introduction

1.  Until 1989 many pubs were owned by breweries, but leased to tenants who were 'tied' to selling the breweries' products. This system was broken up because of concerns that brewery dominance was anti-competitive. The legislation which brought this about, known as the 'Beer Orders',[1] stipulated that breweries should be limited to 2,000 tied pubs. There then emerged a new business model, that of the pub company or 'pubco'. In this model, a company controls a series of pubs, which it either manages itself, or leases to tenants. Many, although not all, pubco pubs are tied — obliged to buy products, usually beer, supplied by the pubco itself (some pubcos are also breweries and include their own products as part of the tie). Like the brewery pub ownership model, the pubco model and the pubco tie has generated a great deal of criticism. In particular, there have been concerns that pubcos are distorting the market, and that the beer tie constituted unfair competition.

2.  In 2004 the Trade and Industry Committee published a report[2] on pubcos which, most notably, concluded that:

  • No one pubco held a dominant position within the market;
  • Small brewers could be disadvantaged by the requirements set by pubcos;
  • The cost of 'beer ties' were usually balanced by the benefits available to tenants; and
  • Splitting the wholesaling and property functions of the pubcos, by removing the beer tie, could lead to the national brewers having a virtual monopoly on the wholesaling of beer, as before the Beer Orders.

However, the Report expressed concerns about the relative commercial strength of pubcos in comparison to the individual tenants; the Committee was not convinced the relationship was entirely fair and made recommendations in an attempt to redress the balance.

3.  In June last year we launched what was intended to be a short inquiry to establish whether the conclusions of our predecessor still stood and how its recommendations had been applied. The key questions asked were:

  • Has the Licensing Act 2003 had an effect on competition within the market?
  • To what extent have revisions to the framework codes of practice met the Committee's concerns?
  • To what extent are the codes applied by the pubcos?
  • Is there a need for further regulation of the industry?

4.  This inquiry has taken far longer than we had expected, for a variety of reasons, but chiefly because of the lack of agreement among our witnesses on almost every point. We have had to set the pubcos' defence of their business model against the claims of the campaign groups and the stories of individual lessees. The second has been that the inquiry has taken place at a time when closures among all types of pub are high; we have needed to look carefully to establish to what extent the difficulties of pubco lessees were the product of tough trading conditions, and if it was clear whether pub closures were more or less prevalent within pubco estates. This was not an inquiry into those wider problems and this Report, therefore, addresses them only briefly to put our conclusions into their proper context. This does not mean that the Committee is unconcerned about those other questions and we emphasise that we understand fully the social role of pubs in many local communities, a role to which we attach considerable importance. Indeed, it is this important and sensitive social role — a role shared with post offices, the subject of a separate inquiry by the Committee — that justifies us looking in such detail, during a period of serious recession, at what is a relatively small sector of the economy.

5.  Our witnesses were impassioned. The stories we heard from individual lessees were extremely troubling; indeed, many were heart-rending. On the other hand, we initially had 50 complainants from a pool of some 30,000 lessees. We asked the pubcos about some of these complaints and received a different account of events. We were also aware our predecessors had found the advantages of the pubco system balanced the disadvantages. We decided we needed independent evidence that we could be confident was an accurate representation of the overall situation. Accordingly, we commissioned our own survey to try to get a clearer picture of what was happening in the pubco-owned pubs. A thousand publicans were questioned by telephone on a range of matters to do with their business. The sample was chosen by an independent survey company, CGA, and structured to ensure that there was fair coverage of the various businesses in the sector. Although there has been some publicity about the survey recently, we were careful not to publicise it in advance, to ensure our results were unbiased. The results of this survey are examined throughout the report. The questionnaire results are appended to the evidence.[3]

6.  During the course of the inquiry we received over 100 pieces of written evidence; by the end of our inquiry we had had over 70 submissions from lessees. Only one expression of support for a lessee's pubco was submitted in response to the initial call for evidence. We note that at a very late stage in the inquiry several Enterprise lessees contacted the Chairman expressing their support for the company and giving examples of help they had been offered. This had the appearance of a campaign. Some of the stories show simple naïvety on behalf of lessees. Some of the stories we heard clearly have two sides. Nonetheless we were struck by the consistency of lessees' complaints about pubco behaviour. This was supported by cases submitted through other MPs' offices. Committees have power to protect their witnesses if they suffer as a result of giving evidence. However, in many cases it would be difficult to disentangle the extent to which action was taken as a result of evidence to the Committee or as the culmination of a pre-existing dispute between pubco and lessee. Accordingly, we print only evidence that lessees have expressly agreed can be published.

7.  We took oral evidence from: Fair Pint Campaign;[4] Federation of Small Businesses (FSB); Paul Daly, a publican; Royal Institute of Chartered Surveyors (RICS); David Morgan, a chartered surveyor; Simon Clarke, a publican and chartered surveyor; British Beer and Pub Association(BBPA);[5] Association of Licensed Multiple Retailers(ALMR);[6] British Institute of Innkeeping (BII);[7] Punch Taverns; and Enterprise Inns.

8.  In addition we visited Enterprise Inns Headquarters to meet with Regional and Divisional Managers. The Chairman visited the Eagle Ale House in Battersea to see how the tie was monitored and met groups from the Fair Pint Campaign and Marston's. Staff also visited a Punch Taverns pub to meet the lessee and their Business Relationship Manager. We undertook such a programme of visits and informal contacts because we wished to be as fair as possible to both sides. Punch and Enterprise were chosen to give oral evidence to us simply because of their considerable market share. Not all pubcos submitted evidence to this inquiry; for example we did not receive evidence from either SNPE or Wellington. Our survey showed some differences between individual pubcos, but although we are confident that the overall sample is large enough to give a clear picture of the trends in the business, it would be unfair to read too much into the responses relating to individual pubcos, since the smaller the sample, the greater the risk of distortion. On the other hand it would be equally unfair not to note that responses did vary from one pubco to another.

9.  There is one thing we wish to record. Lessees have been assiduous in providing us with verifiable information, including copies of legal documents. In some cases we were not convinced by their interpretation, but we have no doubt that they were entirely open with us. As is noted elsewhere in this Report,[8] in evidence to us both Mr Thorley of Punch and Mr Tuppen and Mr Townsend of Enterprise Inns made assertions which, on investigation, proved to give a partial picture, or on one occasion were positively false. We recognise that those giving oral evidence may need to simplify a complex picture, and that slips of the tongue may occur, but these repeated slips have undermined the reliability of their evidence.

10.  Most publicity about the problems of the pubco model has focused on the beer tie. However, when complaints are analysed, they go far wider than that. Pubcos claim that their interests and the interests of their lessees are aligned; other witnesses deny that. The constant thread throughout is the imbalance of power between pubcos and lessees; witnesses' recommendations to abolish the beer tie were made to alter that balance of power. Many other allegations about misuse of power have also been made, and the Committee's attention has been drawn to a wide range of problems. As we explain below, we are not the right body to determine them all; in this report, we focus on the relationship between pubcos and lessees, the extent to which interests are really aligned, and the overall fairness of the model. We will not seek to judge the conduct of individuals or institutions save where we have first hand knowledge and the evidence is compelling. However, although we do not rely on individual anecdotes, good or bad, we believe the submissions we have been sent, together with our own survey, give us a clear overall picture.

11.  A select committee has limited functions. We are not the Competition Commission. Nor are we a full-scale regulatory body. We have neither the resources nor the investigative powers to reach firm conclusions on every issue. Nor do our recommendations carry the force of law. We recognise that complex problems demand investigation, and that if remedies are put forward too hastily, they can produce problems which are far worse than those they sought to solve. It would be irresponsible of us to put forward eye-catching recommendations which we are sure would be eagerly taken up by many in the trade, in the media and in the House, unless we were confident that they would produce the result we desired. The history of the Beer Orders, which transferred ownership of pubs from the brewers to pubcos, suggests we should be wary of such confidence.

12.  That said, the results of our survey are disturbing. We recognise that landlords are rarely, if ever, popular with their lessees, but the results are often startlingly clear, this combined with the evidence submitted to the inquiry, suggests that, whatever the effect of the pubco model on competition, which we examine later in this Report, the imbalance of bargaining power and information between pubcos and their lessees has produced a system which is biased against lessees, and needs to be examined in depth. Accordingly this Report examines the industry from first principles rather than being, as we first expected, a simple check on the implementation of the Trade and Industry Committee's recommendations.

13.  We would like to thank those who met members and staff of the Committee on informal visits and those that have submitted to the inquiry, particularly the lessees who gave such frank evidence regarding their situations. We would also like to thank the House of Commons Legal Services Office and our specialist adviser Julian Maitland-Walker for assisting with the inquiry.[9]

What is a pubco?

14.  Pubs can be owned and operated in a variety of ways. At one extreme is the managed pub, in which a company owns a pub, specifies what is sold in it, and hires a salaried manager to run it. At the other is the freehouse, where the individual licensee owns the pub, controls the business, makes the buying decisions and takes the profits. In between is the leased or tenanted pub, in which a licensee pays rent to the owner of the property and is often required to buy at least some categories of products through the landlord — known as being 'tied'.

Table 1: Pub Ownership
Pub type
Number of outlets

Source: Ev 189

15.  Pubcos operate two different models of leasing agreements: the short-term tenancy agreement and the long, assignable lease. The long (10-20 year) assignable lease, which has a full repairing obligation, was developed by the pubcos and has taken precedence over the short term tenancy (3-5 year) — developed historically by the brewers. It is this long lease model with which we are mostly concerned, and so throughout this Report we refer to the publican as the lessee. The long assignable lease means that while the lessee does not own the freehold, the lease of the pub can still be an asset for them as they can 'sell' on the business by assigning their lease. In such cases, pubcos have a right to approve the new lessee, but cannot reasonably withhold consent, and the financial benefit goes to the person selling the lease.

16.  There are many smaller pubcos with fewer than 1,000 outlets, but the main pubcos which own leased and tenanted pubs are:

Table 2: Pubco number of outlets
Number of outlets
Enterprise Inns
Punch Taverns
Admiral Taverns
Greene King
Scottish & Newcastle Pub Enterprises (SNPE)

Source: CGA - These figures include both short term tenancies and long term leases

Of the pubcos listed above, only Wellington does not operate a beer tie. Marston's, Greene King and SNPE are also brewers.

The 2004 Inquiry


17.  The Trade and Industry Committee carried out an inquiry in 2004 on Pub Companies at the request of the Federation of Small Businesses (FSB). The FSB were concerned that the pubco business model was having a detrimental effect on their tenants and lessees and more generally the market for the resale of beer through public houses. Of particular concern were the beer tie and the basis on which pub rents were calculated — the FSB believed that there could be grounds for referring pubcos to the Competition Commission.

18.  The Trade and Industry Committee carried out a thorough inquiry into pubcos. It looked into the market definition, competition issues, access to the market for small brewers, distribution of beer and the contractual relationship between pubcos and their tenants which included: the beer tie, rent valuation and reviews, the amusement with prizes (AWP) tie, repair obligations, buildings insurance, assignment, grievance procedures and business support from the pubcos.


19.  The Trade and Industry Committee came to a number of conclusions and made some significant recommendations. In regard to competition concerns, it agreed with the Office of Fair Trading (OFT) that there seemed to be "a reasonable amount of competition between on-trade outlets"[10] however, it disagreed with the public house market definition and recommended that the OFT should more accurately define it.[11] The Committee also found that there was a "strong possibility of anti-competitive consequences" in the distribution market for beer and asked the OFT to keep it under close and regular scrutiny.[12]

20.  The Committee came to a series of conclusions about the contractual relationship between pubcos and their lessees. Most significantly it found that the "immediately quantifiable cost of the tie is usually balanced by the benefits available to tenants"[13] and that it was not clear "that removing the beer tie would make tenants better off".[14] However the Report also recognised that "this does not mean that for every tenant the costs equal the benefits, leading to some tenants getting into financial difficulties. In such cases pubcos could do more to redress the imbalance" and that "some pubcos demonstrated greater sensitivity to tenants' problems than others".[15] To redress the imbalance the Committee made a number of recommendations centred around updating the BBPA's Framework Code of Practice[16] — on which individual pubcos based their codes. The Committee recommended that the areas the codes should cover were: rent reviews; the role of Business Development Managers (BDMs); complaint and dispute procedures; disclosure and the availability of information; and the taking of legal and professional advice by prospective tenants.[17] The Report concluded that "At this stage we do not think a legally binding code of practice necessary, but if the industry does not show signs of accepting and complying with an adequate voluntary code then the Government should not hesitate to impose a statutory code on it."[18]

21.  The Pub Companies Report also made some recommendations on specific issues. It recommended that:

  • pubcos should reconsider policy on marketing fees;[19]
  • pubcos should allow their tenants more flexibility in the choice of products that they sold to allow greater opportunity for small brewers to participate in the market;[20]
  • there was a need for an inexpensive and efficient system of arbitration or alternative dispute resolution to resolve disputes without imposing legal costs on either side;[21]
  • pubcos should advise their tenants of the average discount they receive when purchasing beer from the breweries, how this compares to the free market discounts available, and how much of their discount pubcos are passing on to their tenants;[22]
  • the AWP tie should be removed;[23]
  • there should be clear guidelines for the rental valuation process and tenants should be provided with a comprehensive breakdown of how their rent was calculated including detail of the profit assessment and how the specific requirements of the lease conditions had been interpreted by valuers;[24]
  • the profit assessment should form an addendum to leases, with any subsequent review, to ensure transparency;[25]
  • upward only rent review clauses should be removed from leases and there should be a nation-wide register of rent reviews;[26]
  • the industry should develop a nation-wide register of rent reviews; [27] and
  • pubcos should support their tenants in attending training courses.[28]

The responses


22.  Both the Department of Trade and Industry (DTI) and the OFT responded to the Committee's Report. The DTI said that it would be hard for the Government to impose a statutory Code of Practice upon the industry and that any competition concerns were for the competition authorities.[29] The OFT responded that:

  • it continually kept market definition in the beer sector under review;
  • it had not received any evidence of anti-competitive behaviour amongst distributors; and
  • that the contractual difficulties faced by tenants and small brewers did not constitute grounds upon which the OFT could exercise its competition enforcement powers.[30]


23.  The main recommendation for an updated code of practice was accepted by the industry. The BBPA drew up a revised Framework Code of Practice which was published towards the end of 2005. Members of the BBPA were then invited to review their own codes to ensure that they were in line with the Framework Code. In addition to this the British Institute of Innkeepers (BII) formed a new company in 2007, to independently benchmark company codes of practice. It did this through its two independent committees, the Steering Committee (which set the criteria for benchmarking) and the Benchmarking Committee (which judged a code against the criteria).

24.  We have received positive evidence about the codes of practice and the pubcos' implementation of them such as from the Association of Licensed Multiple Retailers (ALMR) which said:

The existence and accreditation of the codes is clear evidence of the efforts taken by industry landlords to address the Trade and Industry Select Committee's concerns. […] They are relatively open and transparent and address many of the concerns of critics of the system.[31]

25.  All the pubcos which responded to our 2008 call for evidence have highlighted how they have adhered to the 2004 recommendations:

  • all claimed to have removed upward only rent review clauses from their leases;
  • all advocated their training programmes for their lessees and BDMs; and
  • all emphasised that they gave rent concessions to struggling lessees.

26.  In other areas the pubcos were less forthcoming; for example, only Enterprise commented on recommendations regarding marketing fees and the contribution towards the costs of professional advice. There were also recommendations that the pubcos rejected:

  • none of the pubcos have removed the AWP machine tie;
  • profit assessments for rental valuations have not been appended to leases; and
  • pubcos do not advise their tenants on the average discounts they receive from the breweries as this was considered to be "commercially sensitive" information.[32]

In addition the Committee's recommendations for a national register of rents and for an inexpensive system of arbitration with independent arbitrators have not been implemented.


27.  The lessees and their representatives have been far less positive about developments since 2004; in fact much of the evidence from lessees themselves is completely at odds with the evidence from the pubcos. The FSB carried out a survey of its members, following the call for evidence by the Committee, and found that 99% of the 156 members who responded felt their situation in relation to their pubco had not improved since 2004.[33] The evidence the Committee received from lessees contained many of the complaints that were heard in 2004: the rental valuation; the beer tie; the AWP tie; and dispute resolution.

Pub closures

28.  The economic climate has changed since our predecessors' Report. The latest figures show that around 39 pubs closed each week in 2008 against just eight a week at the time of the 2004 inquiry.

Fig. 1

Source: CGA

29.  The BBPA blamed pub closures on the Government for increasing costs for small businesses through new legislation such as licensing reform,[34] gambling laws, smoking ban, fire regulations, employment legislation and policy on alcohol taxation.[35] It claimed that licensing reform alone had cost the hospitality sector £95 million in additional costs of meeting new conditions imposed by licensing authorities and imposed continuing annual fees of £40 million.[36] It also believed that the smoking ban had caused a significant decline in sales in some pubs.[37] Moreover the BBPA highlighted the growth in the off-trade sales due to the expansion of off-licence trading hours and a heavily discounted supermarket pricing strategy.[38] Enterprise added:

staying at home has become an increasingly attractive option, with huge improvements in at-home entertainment, the massive expansion of internet usage and the impact of supermarket pricing, particularly on alcohol consumption.[39]

Punch argued "that the current challenging trading environment is the primary contributory factor for any increase in Licensees' financial distress. The 'tied' lease model is not the issue".[40]

30.  However the responses to our survey demonstrated that lessees disagreed with the pubcos' analysis of problems in the trade. The main cause perceived by the lessees for their financial difficulties was overwhelmingly their pubco — the rent they were charged by their pubco and the price they had to pay for their beer from their pubco.

Fig. 2

Source: CGA

31.  There is no doubt that the sector as a whole is suffering. Pubcos argued that their pubs were in fact less likely to close than others, because the tied model ensured that during difficult trading and economic conditions when beer sales may decline the licensees' 'rental' cost reduced as a result of the variable nature of rent paid through the beer and machine tie. [41] Ted Tuppen, Chief Executive of Enterprise, told us:

The percentage of pubs that are failing in our particular sector is far less because we have this strong vested interest in helping people to succeed.[42]

Punch and Enterprise highlighted recent comments by the Head of Pubs at Christies & Co[43] who said:

High Street rental levels are based on floor areas (ie. pounds per square foot) which has proved inflexible and left many retailers both in the pub sector and across other markets struggling to stay afloat in the current climate.

The support and flexibility of the pubcos has meant that the pain seen on the high street has not been replicated to such an extent across the entire pub industry.[44]

32.  The raw data appear to support the pubcos. The BBPA submitted the following table of pub closures which shows that there were more closures in the freehouse sector in the first half of 2008.

Table 3: Pub Closures
Tenure % of closures

Source: Ev 189

ALMR also commissioned research on pub closure rates from 2003-08. Their data showed that over the period as a whole the cumulative loss in the pubco estate accounted for approximately 46% of all net closures. In contrast, the decline in the independent free trade was 37%.[45] Since the free trade is a relatively small section of the market, this again suggested that pubco pubs were less likely to close than were freehouses.

33.  However, raw data can be misleading. Closure figures deal with cases where the pub ceases to trade as a pub entirely. Lessees argued that closure figures mask pub failures — where a pubco lessee has failed and gone out of business only to be replaced by the pubco with a new lessee. We were told:

Pubcos argue that fewer tied lease pubs are closing compared to the freehold/free house sector. Certainly fewer close since the pubcos appoint temporary or relief operators to keep the pub open whilst a new tenant is sought. The "churn" in lease premiums probably more than compensates for any lost rents and management cost. The real comparison should be the number of operators (i.e. tenants) who fail and have to leave the business.[46]

Ted Tuppen, the Chief Executive of Enterprise Inns acknowledged:

…pub failures may not appear in the [pub closure] statistics and I am completely prepared to accept that.[47]

34.  We tried to get an idea of the failure rate in the pubco sector when questioning the Chief Executives of Enterprise Inns and Punch. Ted Tuppen of Enterprise Inns told us that 184 people had been evicted from Enterprise pubs in the last year for breaches of their contract[48] and 170 lessees had handed the keys back in because they could not make the business pay.[49] Given Enterprise has an estate of some 7,500 pubs, this makes a failure rate of 4.7%. Giles Thorley told us that there had been 575 pub failures within the Punch estate— a failure rate of nearly 8%. [50]

35.  It is clear that figures for pub closures do not adequately cover cases where individual lessees go out of business without the pub itself actually closing. We cannot be confident that pubco lessees are less likely to fail than other publicans.

1   The Supply of Beer (Tied Estate) Order 1989

This has since been repealed by The Supply of Beer (Tied Estate)(Revocation) Order 2002 and The Supply of Beer (Loan Ties, Licensed Premises and Wholesale Prices)(Revocation) Order 2003. Back

2   Trade and Industry Committee, Second Report of Session 2004-05, Pub Companies. HC 128-I Back

3   Ev 290 Back

4   Fair Pint Campaign define themselves as "a coalition of supply-tied lessees and other industry professionals who have come together to ensure fairness for the many thousands of tied tenants who are struggling at the hands of their Pubcos." Back

5   BBPA is a membership organisation made up of major pub operators; vertically integrated brewers and pub operators; and minor pub operators. Back

6   ALMR says it is "the only national trade body dedicated solely to representing the needs and concerns of licensed retailers." Back

7   BII is the professional body for the licensed retail sector. Back

8   Para 52, para 71, para 95, para 125 Back

9   Extract from the Minutes of the Committee, 4 November 2008

Mr Maitland-Walker's interests were declared as follows:

"I have specialised in UK and EU competition law for many years and have been involved in advising on competition issues in the beer sector since 1982.Legal confidentiality prevents me from listing specific clients, but I can confirm that I have acted for clients representing all parts of the UK beer supply sector including pubcos, brewers and individual pub licensees.My firm continues to act for such clients." Back

10   HC (2004-05) 128-I para 19 Back

11   HC (2004-05) 128-I para 38 Back

12   HC (2004-05) 128-I para 71 Back

13   HC (2004-05) 128-I para 188 Back

14   HC (2004-05) 128-I para 198 Back

15   HC (2004-05) 128-I para 188 Back

16   As defined by the BII "Codes of Practice are used by companies to tell potential and current lessees/tenants the terms of the business relationship on offer and how that relationship will be conducted". Back

17   HC (2004-05) 128-I para 203 Back

18   HC (2004-05) 128-I para 204 Back

19   HC (2004-05) 128-I para 53 Back

20   HC (2004-05) 128-I para 61 Back

21   HC (2004-05) 128-I para 90 Back

22   HC (2004-05) 128-I para 125 Back

23   HC (2004-05) 128-I para 129 Back

24   HC (2004-05) 128-I paras 144 and 145 Back

25   HC (2004-05) 128-I para 145 Back

26   HC (2004-05) 128-I paras 151 and 157 Back

27   HC (2004-05) 128-I para 157 Back

28   HC (2004-05) 128-I para 165 Back

29   Fourth Special Report of Session 2004-05, Pub Companies: Responses to the Committee's Second Report of Session 2004-05, HC 434, p1 Back

30   Fourth Special Report of Session 2004-05, Pub Companies: Responses to the Committee's Second Report of Session 2004-05, HC 434, p2-3 Back

31   Ev 83 Back

32   Ev 206, 200 Back

33   Ev 149 Back

34   Licensing Act 2003 reformed the system of licensing the sale and supply of alcohol Back

35   Ev 186 Back

36   Ev 185 Back

37   Ev 185 Back

38   Ev 186 Back

39   Ev 98 Back

40   Ev 161 Back

41   Ev 161 Back

42   Q 227 Back

43   Christies & Co say they are 'the leading business agents in the hospitality, leisure, care and retail sectors' Back

44   High street landlords can learn rent lessons from pubcos, Morning Advertiser, 21 January 2009 Back

45   Ev 91 Back

46   Ev 155 Back

47   Q 227 Back

48   Q 216 Back

49   Q 225 Back

50   Q 218 Back

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