Part 4 of the new Small Business Enterprise and Employment Act 2015 (“SEEBA”) contains provisions dealing with the regulation of businesses that own public houses.
The Secretary of State must make regulations about practices and procedures to be followed by pub-owning businesses in their dealings with their tied pub tenants. These regulations are to be known as the "Pubs Code".
The Pubs Code will have an impact on the landlord and tenant relationship in respect of public houses, including disputes. The SBEEA 2015 establishes the role of Pubs Code Adjudicator (Adjudicator), who will have a range of powers, including authority to arbitrate disputes between pub-owning business and their tied pub tenants.
Another major element of the introduction of the Pubs Code is to regulate the rent payable under leases and licences of tied public houses. There have been concerns over the potentially unfair nature of the rent that can be owed under tied pub leases for many years. The introduction of the Pubs Code is aimed at alleviating them, along with other problems in the tied pub sector. The government has referred to tenants (and licensees) under such arrangements being allowed to request a rent review, if they have not had one for five years and it seems that this may be covered in the Pubs Code itself.
A tied pub is one where the tenant must buy some or all of the alcohol sold on the premises from the landlord, a person nominated by the landlord or a person in a group owned or nominated by the Landlord.
This arrangement is often referred to as a "beer tie" (even though it might not apply to just beer). Many leases or licences to occupy tied pubs are subject to a rent that requires a certain amount of alcohol to be purchased on the tie. This sort of rent is referred to as "barrelage". It is quite easy for rents with a barrelage element to prove very expensive for the tenants.
The Pubs Code may help to alleviate some of the hardship caused to tenants on tied leases, although it remains to be seen exactly how the market rent option will operate in practice.
Section 47 of the SBEEA 2015 (not yet in force) also states that the Secretary of State may make regulations dealing with the terms of tenancies (or other agreements) made between pub-owning businesses and tied pub tenants. Section 47 envisages that these regulations will cover situations where the tenancy is inconsistent with the Pubs Code. It therefore seems likely that these regulations will, in some way, restrict upwards only rent reviews in tied pub tenancies and this will be an important point for institutional and investor landlords as well as tenants themselves.