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

3. Information for prospective tenants

Regulation 10 of the draft Code sets out what information pub-owning businesses should provide to new or renewing tenants to assist them in assessing the risks and rewards of the tied tenancy and whether they would be no worse off than if they were subject to neither a product tie nor a service tie.

Publicly available reports

Regulation 10(d)(v) requires that pub-owning businesses should provide prospective tenants with “any publicly available reports analysing the trade costs of tied pubs, including the costs of the agreements under which such pubs are occupied.” It is proposed that this should be amended to require provision of at least one such report rather than any that are publicly available.

Question 9: Do you agree or disagree with the following statement?

‘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?’

Responses to Question 9 by respondent type are set out in Chart 8 below.

A large majority of respondents either agreed or strongly 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. Those who strongly agreed were predominantly Individual and Campaign group respondents, while Pub-owning business and Representative body respondents tended to agree.

Please explain your answer.

Seventeen respondents gave their reasons.

Although strongly agreeing that at least one report should be provided, some Individual and Campaign group 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.

Pub-owning businesses and the Major representative body for pub-owning businesses who agreed with the proposed change argued that the requirement to provide ‘any’ publicly available reports is too vague or too onerous for pub-owning businesses to comply with, or could risk overloading prospective tenants with information from multiple sources. In contrast, ‘at least one’ report was seen as a proportionate approach, aiding transparency and allowing informed decision making. Three Pub-owning business respondents noted that they already provide this type of information as part of their tenant recruitment process.

The single respondent who strongly disagreed with the proposed requirement took the view that a prospective pub tenant should already know the potential risks and rewards involved, or should be able to research these for themselves.

Nature of the report

While there was broad agreement that at least one report should be required, this consensus did not extend to what the report should be. Some Pub-owning business and Representative body respondents suggested that the British Beer and Pub Association (BBPA) annual cost benchmarking guide would be appropriate as it is widely used across the industry. Although produced for England and Wales, it was suggested that it would also be broadly applicable to Scottish businesses.

However, there were also views that current reports are forecasts and could be misleading or that BBPA reports are neither up-to-date nor accurate. (Individual respondents) Specific suggestions were that potential tenants should be provided with access to:

• Actual costs of running any pub being let, wherever such information is available, as these will often vary markedly from ‘average’ costs (Major representative body for tenants).
• The raw data used inform BBPA benchmarking, since the pubs used for benchmarking could be very different types of business to those covered by the Code (Representative body).
• Annual comparison of tied prices and other prices in the sector, carried out independently of brewers and pub-owning businesses (Campaign group and Individual respondent).
• Specific reports specified by the Scottish Pubs Code Adjudicator (Pub-owning business).

Question 10: What would be the impact on the sector?

Seventeen respondents answered Question 10.

A range of respondents anticipated positive impacts arising from greater transparency or more realistic information allowing better informed decision making, with tenants less likely to fail as a result. In some cases, these views were clearly based on the respondent’s expectation that the information provided in future would differ from that currently available (Representative body and Individual respondent).

Some Pub-owning business respondents did not expect significant impacts for the sector, noting that the information in question is already available (Pub-owning business) or that they already supply the BBPA benchmarking report to prospective tenants. Although a consistent approach was seen as useful to ensure all prospective tenants have access to similar data there were also suggestions that:

• There could be greater implications for businesses operating only in Scotland and not already regulated by the Pubs Code in England and Wales (Two Pub-owning businesses).
• Any requirement for specific reports would add significant costs and complexity (Pub-owning business).
• Reports that are not relevant for the area or sector could be confusing (Pub-owning business).

Number of operators of a pub

The draft Code currently requires pub-owning businesses to provide information to new tenants on the number of tenants who have occupied the pub in the past ten years. It is proposed that this should be amended to cover all operators of the pub in the past ten years, not only tenants, to better reflect the turnover of occupiers of the pub in recent years.

Question 11: Do you agree or disagree with the following statement:

‘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?’

Responses to Question 11 by respondent type are set out in Chart 9 below.

Respondents were divided on this issue. While ten respondents either agreed or strongly agreed that pub-owning businesses should be required to provide information on the number of operators, nine either disagreed or strongly disagreed. Those who agreed or strongly agreed tended to be Individual, Campaign group and Representative body respondents while all Pub-owning business respondents disagreed or strongly disagreed.

Please explain your answer.

Sixteen respondents gave their reasons.

Comments in support of the proposal

The importance of transparency, providing all relevant information and giving a clearer idea of past trade were all cited in support of the proposal, with a specific suggestion that comprehensive information, including on occupiers under other business models, could provide prospective tenants with a view of turnover and that this could be vital to make informed decisions.

There were also calls for the requirement to go further than proposed, for example including:

• The whole recent history of the pub – at least 10 years – including all periods of operation and any periods of closure (longer than a week) (Campaign group).
• The duration of the period of operation of each operator (Campaign group) and the nature of the agreement in each case (e.g. management agreement, tenancy at will, tenancy) (Individual respondent).
• The reasons for previous occupants ending the arrangement, particularly if a tenancy was given up before completion of the term (Individual respondent).

Reasons for disagreeing with the proposal

An alternative perspective, expressed predominantly by Pub-owning business respondents, 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.

It was also reported that the landlord may simply not have the information in question, particularly when they have acquired new sites, but also in relation to operators who are not formal tenants – for example if a tenant has appointed one or more managers) (Pub-owning businesses and the Major representative body for pub-owning businesses). A number of circumstances where a high turnover of operators might be misleading were also highlighted including if a tenant has experienced ill health, if a short-term operator has been brought in to run pub between tenancies, or if there have been other changes to the individual circumstances of a tenant or in the local area (Pub-owning businesses and the Major representative body for pub-owning businesses).

It was argued that tenant-specific data would be more practical and reliable and that data should be restricted to tied tenants to be directly comparable. For the requirement to be more achievable, there should be restriction to tenants who have held a tenancy or lease with the pub-owning business, and a period of 5 years would be more reasonable. There was also a suggestion that GDPR may restrict the ability of pub-owning businesses to disclose some information to incoming tenants.

With respect to current drafting it was suggested that:

• The term ‘operator’ is not clearly defined, creating potential ambiguity with respect to the information requested (Pub-owning businesses and the Major representative body for pub-owning businesses).
• Regulation 11 4(c)(ii) should be amended to require ‘providing details if requested by tenant and available’ (Pub-owning businesses and the Major representative body for pub-owning businesses) and should exclude temporary managers appointed for a period of less than 1 year (Pub-owning business).
• The obligation should not apply to information with which an existing tenant may already have been provided (Pub-owning business).

Repairs and dilapidations

Regulation 10(c) of the draft Code requires that prospective tenants are given a copy of any dilapidation report prepared in respect of the lease covering the period of the previous tenancy of the tied pub. Additionally, Regulation 10(d) requires information about: (i) completed repairs undertaken on the tied pub covering the period of the previous tenancy; (ii) any repairs required to be carried out at the start of the lease by the tenant; and (iii) any repairs required to be carried out at the start of the lease by the pub-owning business.

It is proposed that the draft Code should include a requirement for a Schedule of Condition to be provided (as is the case in England and Wales) to provide reassurance to tenants about the terms of their proposed lease and the condition of the pub.

Question 12: Do you agree or disagree with the following statement?

‘Pub-owning businesses should be required by the code to provide a Schedule of Condition to prospective tenants.’

Responses to Question 12 by respondent type are set out in Chart 10 below.

A majority of respondents either agreed or strongly agreed that pub-owning businesses should be required to provide a Schedule of Condition (SOC) to prospective tenants. Those who strongly agreed were predominantly Individual and Campaign group respondents, while most Pub-owning businesses either agreed or were neutral on this issue.

Please explain your answer.

Fifteen respondents gave their reasons.

Comments in support of the proposal

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 by a range of respondents, with Campaign group and Individual respondents seeing the SOC as essential to avoid the risk that a tenant is held liable for repairs that should have been carried out before their tenancy started. It was also suggested that dilapidations are currently one of the most contentious issues in renting a pub, with the potential to wipe out a tenant’s profits from running the business (Representative body).

Some Pub-owning business respondents noted that providing a SOC to tied tenants is already a requirement under the Pubs Code in England and Wales or that they already have this in place, and that the proposed approach in Scotland would provide consistency.

Reasons for disagreeing with the proposal

However, a Pub-owning business respondent also argued that the requirement to provide an SOC would be very unusual and not reflective of normal leasing practice in Scotland. Another noted that if the tenant is taking on a full repairing lease (which requires them to put and keep the premises in good and substantial repair and condition), the condition of the premises when the tenancy starts will not remove liability for the repairs, although it could have some value in terms of highlighting areas where repairs are needed.

A Representative body respondent argued that SOCs should not be the only solution and that a ‘fair wear and tear’ clause should be written into to the lease (Representative body).

It was also noted that Regulation 8 of draft code (Restriction on enforcing certain terms of agreement) does not include repair and maintenance of premises which, it was argued are therefore matters on which the parties need to agree terms (Pub-owning business).

Issues for consideration

Respondents also highlighted:

• The need for the SOC to be accurate and honest, (Campaign group) or to be photographic (Major representative body for tenants).
• The importance of the wording of the tenancy agreement in relation to the SOC and, specifically, whether the requirement is ‘no better’ or ‘no worse’ than the SOC (Representative body). It was also argued that a requirement for a tenant to maintain the premises should only ever be to the same condition as set out in the SOC (Major representative body for tenants).
• The importance of a prospective tenant commissioning their own structural survey (Pub-owning business and Representative body) or taking independent specialist advice to ensure they understand any obligations taken on as part of the tenancy agreement (Pub-owning business). There was an associated concern that being provided with an SOC might encourage them not to do this (Pub-owning business).
• The potential burden that drawing up an SOC could place on smaller pub-owning businesses within Scotland (Pub-owning businesses and the Major representative body for pub-owning businesses) with costs likely to be passed on to the tenant as an additional cost of entry or through higher rent. It was not thought clear that the benefits will out-weigh these costs.
• The potential for confusion as the Code requires periodic updates to the SOC, while the benchmark for the repairing obligation will be the original schedule (Pub-owning business).

Question 13: Do you agree or disagree with the following statement:

pub-owning businesses should be required by the code to provide a copy of the previous dilapidations report, if they are providing a Schedule of Condition?

Responses to Question 13 by respondent type are set out in Chart 11 below.

Respondents were divided on this topic: while ten respondents strongly agreed that pub-owning businesses should be required to provide a copy of the previous dilapidations report, nine either disagreed or strongly disagreed. Those who strongly agreed tended to be Individual, Campaign group and Representative body respondents while most Pub-owning business respondents disagreed or strongly disagreed.

Please explain your answer.

Seventeen respondents gave their reasons.

Comments in support of the proposal

Provision of the previous dilapidations report was seen as essential (Campaign group), avoiding doubt and argument (Individual) or allaying concerns that a new tenant is being expected to repair dilapidations from previous tenancies (Campaign group). It was argued that dilapidations are an area that can be open to abuse by pub-owning businesses (Major representative body for tenants, another Representative body and Campaign group) and there was a suggestion that knowing how many repairs have been done can provide an indication of how good a landlord is at honouring the repairs agreement (Individual). There was also a view that not all repairs in the sector are done to a good standard, and that details of both the work carried out and where would allow the area to be inspected to ensure the problem has indeed been rectified (Individual).

Reasons for disagreeing with the proposal

In contrast, some Pub-owning business respondents and the Major representative body for pub-owning businesses argued that supplying a previous dilapidations report would be of no value or that the purpose is unclear. The SOC was seen as a more useful and up-to-date report on the state of property at start of new tenancy and as establishing a baseline going forward. Pub-owning businesses, the Major representative body for pub-owning businesses and another Representative body expressed concerns that a previous dilapidations report could be misleading if a new tenant does not understand that it deals only with specific repair obligations under a previous agreement when a new tenancy could have different conditions.

Question 14: Should pub-owning businesses be required by the code to provide:

a) information about completed repairs undertaken on the tied pub covering the period of the previous tenancy; or

b) information about repairs completed since the last dilapidations report?

Responses to Question 14 by respondent type are set out in Chart 12 below.

A majority of respondents thought that pub-owning businesses should be required to provide information about completed repairs undertaken on the tied pub covering the period of the previous tenancy. Most pub-owning business respondents (who disagreed or strongly disagreed at Question 13) selected ‘Don’t know’ or did not answer Queston 14. Some respondents indicated that they did not agree with either option a) or b).

Please explain your answer.

Nineteen respondents gave their reasons.

Completed repairs covering the period of the previous tenancy

The need for tenants to have access to as much information as possible in relation to repairs was given a reason for choosing the entire period of the previous tenancy with some respondents referring back to their comments in support of the proposals at Questions 12.

However, it was also argued that, rather than being restricted to the previous tenancy, the information provided should also cover:

• All maintenance records since the last dilapidations report or for the last tenancy, whichever is longer (Major representative body for tenants).
• All repairs completed over the previous five years (Campaign group and Individual respondent).
• Repairs identified but not completed over the same period (Campaign group).
• The dilapidations report, along with items still outstanding and the costs schedule sent to the previous tenant (Campaign group and Individual respondents).
• Repairs carried out since the end of last tenancy (Campaign group).

It was also noted that repair and maintenance actions can have health and safety implications and that relevant information should be added to the health and safety file and to the property information. As an example, it was suggested that if the landlord has replaced a boiler, the tenant will need to understand their own responsibilities for its maintenance and repair (Representative body).

Information about repairs completed since the last dilapidations report

Only one respondent selecting this option explained their reasons, simply noting a view that the more information available to the new tenant the better (Representative body).

Reasons for disagreeing with either proposal

Most Pub-owning business respondents, and the Major representative body for pub-owning businesses, argued that neither of the options presented is relevant or that the SOC will be more important as an up-to-date report on the property. Associated points included that:

• No useful additional information would be gained (Pub-owning business).
• The requirement is not restricted to material repairs, so even very minor actions should be disclosed, and it is not clear how this would help a prospective tenant in their decision making (Pub-owning business).
• Too much information could be confusing or could risk information overload and make it hard to see the wood for the trees (Pub-owning businesses and the Major representative body for pub-owning businesses). There could also be an unintended effect of causing a prospective tenant to think they can dispense with their own due diligence (Pub-owning business).

From a practical perspective, it was argued that the pub-owning businesses may not, or will not, have information on works undertaken by a tenant as part of repairing obligations or records of work carried out before they acquired a property (Pub-owning businesses and the Major representative body for pub-owning businesses). One respondent pointed out that a tenancy could last for 30 years, arguing that it is unreasonable and unrealistic to expect records to be held over such a period. Potential administrative and cost burdens for pub-owning businesses required to collect records were also highlighted, with a suggestion that the effort involved could be proportionately greater for smaller businesses.

It was suggested that, if the Scottish Government does decide to include a requirement to provide information on completed repairs, the obligation should be limited to the information in the possession of the pub-owning business and to repairs undertaken by the business (Pub-owning business). It should not apply where a lease is being renewed (as the prospective tenant would already have the relevant information) and should be limited to a period of no more than three years (Pub-owning business).