Tied pubs - Scottish Pubs Code: consultation 3 – analysis report

Executive Summary

This summary presents key themes from the analysis of responses to a public consultation on a Scottish Pubs Code for tied pubs (the Code). This was the third consultation on this subject, and did not revisit all topics within the Code, including whether there should be a code or not.

The consultation exercise was launched on 17 September and ran until 4 November 2024. It asked 20 questions and the consultation documents are available on the Scottish Government’s website.

In total 21 responses were received, of which 16 were from groups or organisations (eight Pub-owning businesses, six Representative bodies and two Campaign groups) and five from individual members of the public. The Representative bodies include two organisations which have been heavily involved in representing their membership in discussions about the Code in Scotland. Reflecting this role, the analysis of further comments refers to the Scottish Beer and Pub Association as a ‘major representative body for pub-owning businesses’, and the Scottish Licenced Trade Association as a ‘major representative body for tenants’.

Market Rent Only (MRO) leases

Notice to quit

Respondents were divided on whether ‘In the case of a notice to quit, MRO exemption only applies where a pub-owning business or tied pub tenant has not served a notice to bring the lease to an end before a specified period of time before the end date of the lease.’ Overall, Pub-owning businesses tended to agree with the proposal as worded, as did the major representative body for tenants’. However, two Pub-owning businesses and the major representative body for pub-owning businesses strongly disagreed. Campaign groups and other Representative bodies also tended to strongly disagree.

Reasons for disagreeing included that change is not required and, from a very different perspective, that pub-owning businesses will serve notice routinely to avoid MRO. Those who agreed with the MRO exemption applying only when a notice has not been served sometimes acknowledged that the draft code has left a loophole.

Respondents were also divided on any timeframe that should apply to the proposal, with seven respondents favouring the longer timeframe of more than 3 months and four each supporting the 3 months, or less than 3 months options.

First half of the lease: earlier application process

Individual and Campaign group respondents tended to agree that the MRO process should be able to start before the half-way point of a tenancy. Pub-owning businesses and Representative bodies tended to divide between neither agreeing nor disagreeing and disagreeing.

Those who agreed sometimes noted their general concerns about pub-owning businesses delaying the MRO process, thus minimising any time a tenant has to utilise their rights to MRO under the Code. Among the issues raised by those who disagreed was that it is fair that pub-owning businesses have some certainty as to their contractual commitments and the commitments of their tenants, at least for an initial period of time.

If the MRO process were to start before the half-way point of a tenancy, respondents were most likely to favour the ‘Less than 6 months’ option.

Right to appeal

There was a clear consensus that there should be a process to appeal the result from the independent rent assessor. Points raised included that it will be important that the assessment is, and is seen to be, completely fair and that it is right and necessary that there are means of challenge for both sides.

In terms of how any appeal process should work, a number of respondents referred to the importance of an error in assessment being clear or manifest, with other approach-related suggestions including that there should be safeguards to make sure that parties do not exploit the appeal route in order to delay or frustrate the MRO-only process.

A majority of respondents agreed that 14 days is the right amount of time for either party to appeal the result and that the time period for the appeal should be additional to the 4-week period to create an MRO offer.

Information for prospective tenants

A large majority of respondents agreed that pub-owning businesses should be required to give tied pub tenants at least one publicly available report analysing the trade costs of tied pubs in the UK, as part of the information to be provided to prospective tenants. Some respondents went on to argue that prospective tenants should be provided with as much information as possible or should have access to all relevant information, while others thought that a requirement to provide ‘any’ publicly available reports is too vague or too onerous for pub-owning businesses to comply with.

Respondents were divided on whether ‘Pub-owning businesses should be required to provide information on the number of operators who have occupied a pub in the past ten years, as opposed to the number of tenants.’ The importance of transparency, providing all relevant information and giving a clearer idea of past trade were all cited in support of the proposal. An alternative perspective was that knowing the number of operators would be of limited value to a prospective tenant, would not always provide an accurate reflection of trading history or would not give insight on future trading prospects, particularly if investment is planned.

A majority of respondents agreed that pub-owning businesses should be required to provide a Schedule of Condition (SOC) to prospective tenants. The importance of certainty concerning the condition of a property at the beginning of tenancy and of providing all relevant information to a prospective tenant were highlighted. However, it was also argued that the requirement to provide an SOC would be very unusual and not reflective of normal leasing practice in Scotland.

Guest beer arrangements

Respondents were divided on a requirement for the tenant’s consent for flow monitoring devices on guest beer lines.

One view was that pub-owning businesses have no legitimate interest in free-of-tie guest beer; there were related concerns that flow monitoring devices could undermine the guest beer agreement which allows a tied-pub tenant to choose a beer and set its price without input or right of oversight for the pub-owning business.

The alternative perspective was that information from flow monitoring devices is necessary to assess trading and ensure correct rental values, to collect information on trading that will be important for future tenants, and to police the guest beer provision.

Respondents who thought that tenants should have the right to refuse flow rate monitoring on a guest beer line saw benefits for the tenant in freedom to choose a guest beer in response to consumer demand, making a better margin from guest beer and keeping the relevant trading information confidential. In contrast, some argued that keeping flow monitoring devices would have no impact or that their removal would be of no benefit to the tenant, unless seeking to abuse the guest beer provision.

Gaming machines

Respondents were divided on whether ‘tied pub tenants should be able to purchase or rent a single gaming machine per licensed premise, in addition to any gaming machine(s) already provided for in their lease’.

Comments in support of the proposal included that the ability to have an additional gaming machine free-of-tie would provide for a more level playing field between new and existing tenants. Points made by those who did not support the proposal included that existing rental assessments are drawn up using a model by which the share of income from gaming machines going to the pub-owning business is reflected in lower rent for the tenant and that, a new right to obtain a single gaming machine from elsewhere during the term of an existing lease, would result in overall loss of income for the pub-owning business.