Scottish Pubs Code Consultation 2: analysis report

Conclusions

The overarching challenge, as with the first consultation, is balancing the views of pub-owning businesses and tied pub tenants. This is especially the case in relation to proposed triggers for rent reviews, which businesses often felt were not well enough defined, posing a potential risk to their business in terms of certainty around future rental income.

For tied pub tenants, concerns were mainly around fees and expenses in relation to disputes. The key challenge that emerged here in their view was pitching expenses at a level that discourages claims made deliberately to cause annoyance but not genuine ones and is acceptable to tenants and businesses alike.

Pre-entry requirements

• Respondents of all types agreed that pub-owning businesses should be required to provide information about pre-entry training to tenants. Information provided about the pub's past and prospective future performance should be impartial and accurate.
• Most proposals for tenant business plans were supported across respondent types. The exception was around taking into account the tenant's business plan when negotiating the lease. Pub-owning businesses felt that tenant business plans should not supersede long-standing industry practice around preparation of profit and loss reports for new tenants.
• From the tied pub tenants' point of view, the priority was access to impartial, consistent and accurate information and advice around drawing up a business plan. It was felt this would benefit everyone by enabling plans to be based on realistic and reliable information.

Rent review process

• The profit and loss forecast emerged as an issue causing some tension between tied pub tenants and pub-owning businesses. Tenants wanted it to be fully transparent and based on actual figures, site-specific is possible. Pub-owning businesses were more keen to use industry-standard data citing how difficult it was, in their view, to create accurate forecasts as so much depends on the individual tenant's performance.
• Tied pub tenants felt there was a need for more information on industry benchmarking and how it is used to calculate the rent. Some were concerned about the quality of industry data. They wanted actual sales and costs data to be used if possible and felt over-reliance on industry data risked a 'one size fits all' approach to reviewing and setting rents.
• Most supported the proposal to require taking into account RICS guidance on rent assessment when preparing the rent assessment statement. Some tied pub tenants felt that RICS surveyors were sometimes too close to pub-owning businesses, however.
• Overall, most supported proposals regarding circumstances where a rent review can be requested. Pub-owning businesses' main concern was that including the proposed potential triggers for rent reviews sought to introduce a non-contractual obligation without evidence or an impact assessment.
• Most agreed with the proposed changes in circumstances that would trigger the right to request a rent review, but pub-owning businesses wanted to see clear definitions around some of the changes for example what exactly would count as a 'change to local employment' significant enough to trigger the right to request a rent review?
• Most across all respondent types agreed that tenants should be able to request a rent review for existing leases, but pub-owning businesses were less supportive than tied pub tenants regarding new leases.
• Tied pub tenants agreed that a legal right to request rent review was workable alongside contractual rent review rights, but pub-owning businesses tended to disagree. Tenants felt the legal right was necessary to counter a perceived imbalance of power in the landlord's favour. Pub-owning businesses were put off by the potential cost and complexity.
• Most agreed with the proposed time periods for rent reviews (rent assessment statement should be provided within 4 weeks of a request, and the statutory rent review process should take no longer than 12 weeks). Tied pub tenants were especially supportive as they were keen to prevent processes from being drawn out by landlords.
• Views were mixed on when to allow disputes to be referred to the Adjudicator. Some felt that other avenues should be exhausted first in order to avoid the risk of overburdening the Adjudicator with cases, whereas other felt that not allowing early access to arbitration risked building in long delays to the dispute resolution process.

Repairs and dilapidations, Flow Monitoring Devices and gaming machines

• Dilapidations was generally acknowledged as a long-running source of tension between tenants and landlords that needed to be addressed. Pub-owning businesses wanted the arbitration process to safeguard against cases brought by unscrupulous tenants looking to avoid their obligations around dilapidations and repairs. Tied pub tenants, on their part, voiced historical concerns about dilapidations bills being used unfairly against tenants by landlords.
• There was a general recognition that Flow Monitoring Devices were not always accurate. It was felt that action should not be taken against tenants purely on the basis of their readings.
• Most felt that gaming machines should be covered by the Code. Tied pub tenants especially did not want to see rents proposed that included gaming machines.

Arbitration and financial penalties, fees and expenses

• Half of respondents did not think that 1% of turnover should be the maximum penalty for a pub-owning business or group that has failed to comply with the Code. Those who disagreed felt it should be higher in order to be more of a deterrent.
• Pub-owning businesses operating across jurisdictions felt that penalties should be based only on the turnover of the part of the business running the pub business in Scotland, not the organisation as a whole.
• The proposed £250 fee for submitting a dispute to arbitration was broadly acceptable across respondent types.
• Regarding tenant expenses where arbitration results in an award in favour of the landlord, pub-owning businesses were most in agreement that tenants should be required to pay towards arbitration expenses, tied pub tenants less so. Regarding a limit to expenses payable by the tenant, again the issue was striking a balance between discouraging cases and brought deliberately to cause annoyance and encouraging genuine ones.
• The picture was similar regarding views on whether tenants should be required to pay expenses in excess of any ordinary limit where an arbitrator has decided that the pub-owning business has no liability on account of the dispute having been submitted for arbitration by the tenants deliberately to cause annoyance.