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

4. Guest beer arrangements

Where requested by tenants, the Code requires businesses to offer a guest beer agreement in certain circumstances, allowing a tenant to sell at least one beer that the tenant has chosen, at a price of the tenant's choice. The beer can be changed as often as the tenant wishes but is restricted to brands of beer which have a production level of 5,000 hectolitres or less.

Flow monitoring equipment

Flow monitoring devices measure the amount of beer sold by the tied pub tenant. It is proposed that the Code should state that guest beer agreements must not require the use of flow monitoring equipment on a guest beer line, without the consent of a tied pub tenant.

Question 15: Do you agree or disagree with the following statement:

flow monitoring devices should be permissible on guest beer lines only with the consent of the tenant?

Responses to Question 15 by respondent type are set out in Chart 13 below.

Respondents were divided with respect to a requirement for the tenant’s consent for flow monitoring devices on guest beer lines. Those who agreed or strongly agreed were predominantly Individual and Campaign group respondents, while all Pub-owning business respondents strongly disagreed. Representative body respondents who answered were divided between strong agreement and strong disagreement.

Please explain your answer.

Seventeen respondents gave their reasons, including three respondents who argued that there should not be any possibility of monitoring guest beers (Representative body and Campaign groups), and one who suggested that flow monitoring equipment breaches food safety legislation and should not be used at all (Representative body). Of these respondents, three strongly agreed at the closed question while one strongly disagreed.

Reasons that flow monitoring devices should be permissible on guest beer lines only with the consent of the tenant

Representative body, Campaign group and Individual respondents argued 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 (set out in Part 5 of the Scottish Pubs Code Regulations 2024) 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, and to do so ‘without penalty’ (Regulation 20). There was a view that sales of a guest beer should therefore not be allowed to impact rent levels (Major representative body for tenants, another Representative body and Campaign groups).

It was noted that Regulation 25 describes a flow monitoring device as ‘to measure the amount of alcohol being sold by the tied-pub tenant,’ and ‘for the purposes of verifying that the tenant does not sell alcohol at the tied pub in contravention of the terms of the tied pub lease or any other contractual obligation’, neither of which should be relevant to a guest beer (Representative body). Experience from England and Wales was reported to have shown that tied pub tenants may feel undue pressure to accept a flow monitor from the pub-owning business even if they have the right to refuse (Campaign group and Individual respondents).

It was also argued that:

• Free trade pubs do not usually use flow monitors which suggests that they are not needed for tenants to be able to successfully manage a free-of-tie guest beer line (Representative body and Campaign group).
• Accepting a flow monitoring device on a guest beer line would impose an effective restriction on the sale of guest beers, requiring them to only be sold through beer lines that have devices installed (Representative body).
• No monitoring restrictions are placed on free-of-tie bottled and canned beer, meaning different products would be treated in different ways (Representative body and Campaign group).
• The pub-owning business might use a flow monitoring device to try to influence a tenant’s choice of guest beer from an independent brewery in favour of beer supplied by their owning business, damaging consumer choice (Representative body and Campaign group).

Reasons that flow monitoring devices are required

The alternative perspective was that information from flow monitoring devices is necessary:

• To assess trading and ensure correct rental values (Pub-owning businesses and the Major representative body for pub-owning businesses). It was noted that, as drafted, the Code requires that the profit and loss forecast is based on actual income and costs relevant to the tied pub, and it will be difficult to comply with this obligation without being able to establish the full income (Pub-owning businesses).
• To collect information on trading that will be important for future tenants (Pub-owning businesses and the Major representative body for pub-owning businesses).
• To police the guest beer provision, something that will already be difficult and would be made even more challenging with no reliable way of monitoring (Pub-owning businesses and the Major representative body for pub-owning businesses).

It was argued that the absence of flow rate monitoring could encourage tenants to abuse the guest beer provision, with one respondent suggesting that, in the absence of flow-monitoring equipment on the guest beer line, there would be nothing to stop a tied tenant dispensing a tied product purchased from a third-party through the guest beer line. Removal of flow monitoring equipment was seen as creating an essentially free-of-tie tenancy (Pub-owning businesses and the Major representative body for pub-owning businesses) and one Pub-owning business respondent reported that accurate measurement of volumes on existing free-of-tie lines has never caused conflict within their existing business agreements.

Other points raised included that:

• A pub-owning business is contractually entitled to install flow-monitoring equipment irrespective of whether the dispense line being monitored is used to dispense a tied product or free-of-tie product (Pub-owning business).
• The information generated can also be useful to the tenant, for example to allow comparison of dispensing figures with till receipts (Pub-owning business).

Question 16: What might be the impact of this proposal on tenants?

Sixteen respondents answered Question 16.

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 and without undue influence from the pub-owning business (Campaign group); making a better margin from guest beer (Campaign group), keeping the relevant trading information confidential (Individual), and rebalancing power in rental negotiations (Major representative body for tenants). Less positive impacts could include being put under pressure to consent to monitoring, and additional costs and administrative burdens (Representative body).

In practical terms, it was suggested that a time scale should be set for removal of flow monitoring devices to avoid undue delays (Individual).

In contrast, some Pub-owning businesses 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 (Pub-owning businesses and the Major representative body for pub-owning businesses). It was also suggested that keeping monitoring devices could assist tenants – for example by allowing them to benefit from product management support such as line cleaning records and rate of sale data, while removing monitoring would mean the pub-owning business guessing volumes on guest beer lines, with the potential for errors that could impact the tenant (Pub-owning businesses).

Question 17: What might be the impact on pub-owning businesses?

Fifteen respondents answered Question 17.

Respondents who thought that tenants should have the right to refuse flow rate monitoring on a guest beer argued that retaining monitoring could undermine the Code (Representative body), allowing pub-owning businesses to collect data that could be used to discourage tenants selling guest beers from small independent breweries (Representative body and Campaign group). In contrast, removing monitoring would require pub owning businesses to adapt (Campaign group), and to work co-operatively with their tenants (Individual respondent).

Pub-owning business respondents had a different perspective, with flow monitoring seen as essential to monitor tie compliance. They suggested that loss of flow rate monitoring would:

• Make it harder to detect breaches of the Code relating to guest beer.
• Complicate determining rental values.
• Result in a lack of clarity with respect to responsibility for maintenance/ servicing for the guest line.
• Result in loss of profit.