My Lords, I thank all noble Lords who have spoken in a helpful discussion. When we saw the grouping we knew that it would be a marathon. I hope that noble Lords will forgive me if I make a lengthy 10,000 metre reply, so that the various questions that have been raised are answered.
I shall respond first to the noble Lord, Lord Berkeley, on timing, and secondly, to the noble Lord, Lord Mendelsohn, on his suggestion. I want to reassure the noble Lord that Clause 41 places a clear duty on the Secretary of State to introduce the Pubs Code within 12 months of Royal Assent. As government Amendment 89A sets out, this must include the MRO provision. The Government are completely committed to getting on with things and to swift implementation. I am also completely committed to open discussion in this House between now and Report. I will try to answer the points in this debate, but if I fail I would urge noble Lords to talk to me before Report, and I am sure that there will be further collective discussions.
I enjoyed the intervention of the noble Lord, Lord Mendelsohn, because he put today’s discussion into the context of small business policy where there is much consensus. I sense that he is trying to make progress. I agree that we should try to get the framework right today, if noble Lords agree, once they have listened to me, by agreeing the government amendments. Then we should discuss the issues and possible changes ahead of Report, including whether we have the right balance between the core Bill and the subordinate legislation, as he mentioned. We have thought about that quite a lot. I do not want to lose this important Bill, which would be a very serious unintended consequence, and timing is tight.
Before turning to the individual amendments, I thank my noble friend Lord Hodgson, who took the Floor for a long time, for bringing his knowledge of the industry to this important debate. He spoke of the impact of social change on pubs, which is an opportunity and a concern, and described a nuclear option, which is exactly what we want to avoid.
I now turn to Amendments 69ZC, 74ZB, 87A, 87B, 87C, 89ZA and 102B. I start by thanking the noble Lord, Lord Whitty, for his comments. We have certainly
tried to listen to the other place and come up with provisions that achieve the objectives agreed, and to ensure that there is no avoidance in the system of the kind he described. These amendments set out the detailed definition of the market rent only option in the Bill. One effect is that the MRO will come into force on Royal Assent, before the Pubs Code Adjudicator existed. Market rent only and the protections it brings can work properly only if it is introduced with the code and with the adjudicator.
Clause 42, introduced in the other place, says:
“The Pubs Code shall include a Market Rent Only Option”,
so it would still require secondary legislation. The code must be introduced within a year, and under our Amendment 89A it must include MRO.
Secondly, and importantly, the amendment would not allow us to consult on the MRO process. As I have already said, given that it was introduced into the Bill only at a relatively late stage, it is incomplete in its design and it is important that we have some public consultation to ensure that the process works as intended. Following consultation, we will introduce the code by secondary legislation through the affirmative procedure.
Much of the detail of the triggers for MRO is more appropriate for secondary legislation. Clause 42 as drafted provides no detail on the terms of the new commercial tenancy and what an MRO-compliant tenancy would be. We wish to consult to get a stronger sense of what this constitutes and, similarly, what constitutes a “significant” increase in price and,
“an event outside of the tenant’s control … that impacts significantly on the tenant’s ability to trade”.
Companies and tenants affected by market rent only need the opportunity to comment on the process, not just the authors of Clause 42. The Government are committed to ensuring that MRO is robust and workable.
Turning to Amendments 75 to 78, 82A and 83 to 88, I am not convinced that these amendments are necessary. To respond first to the point made by the noble Lord, Lord Borwick, the market rent only clause introduced into the Bill in the other place outlines some of the process involved in obtaining a market rent only assessment and taking up the offer, but it does not set out a complete process of the kind he is seeking. The Government will consult on the detail of the process and set this out in secondary legislation. I have explained that there is a drop-dead date for the whole process.
Our intention is to follow the outline process in the Mulholland clause. So after the tenant requests a market rent only option, the first step will be for the pub-owning company to offer a market rent, which the tenant will accept or which will provide the basis for negotiation between the two sides. If the tenant and pub-owning company cannot agree a market rent only agreement within a certain period of time, the tenant and pub-owning company will jointly appoint and jointly pay for an independent assessor to determine the market rent for the pub.
Our amendments allow the code to stipulate that the existing agreement between the pub-owning company and tenant will prevail until the market rent only procedure concludes. To answer my noble friend Lord Hodgson, there is a power in government
Amendment 89B to set out in the code that existing contractual arrangements remain in force until such time as the procedure comes to an end and the new market rent only contract starts.
If in the end the tenant opts for a market rent only agreement, this will constitute a new agreement between the tenant and pub-owning company. The terms of the agreement will need to be clear to the tenant before he accepts the offer. To be clear, at this point the pub-owning company can remove from the MRO agreement any special commercial or financial advantages—SCORFA—that the tenant was entitled to under the tied agreement. As I said earlier, we intend to consult publicly to ensure that the process works as intended.
On my noble friend Lord Hodgson’s Amendment 88 in particular, the only requirements for a lease to be MRO-compliant are set out in Clause 43(4). Other than this, it is up to the pub company to decide what the MRO lease or licence looks like. The pub company will be free to offer a new lease or tenancy without it being considered to be discriminatory.
Turning to Amendments 79, 81 and 89, in addition to consulting on the detailed process for MRO, we will consult on the detailed definitions of the trigger points for an MRO assessment. These will be set out in the statutory code, which is subject to affirmative resolution. Under our amendments the tenant would be entitled to the MRO option: at rent review; if the tenant renews their lease; when there is a significant price increase for tied products which was not reasonably foreseeable; and if an event occurs that is beyond the tenant’s control and meets the descriptors set out in the Pubs Code. The headlines would rightly be in the Bill but we need to set out the details in secondary legislation.
I confirm that the MRO trigger at the point of renewal applies to tenancy agreements that are protected by the Landlord and Tenant Act or which have a specific right of renewal clause in their tenancy agreement. Those tenants who are contracted out of the Landlord and Tenant Act will have the protection of the parallel rent assessment in any negotiations on a new lease at their existing pub. The trigger if there is a significant price increase which was not reasonably foreseeable at the beginning of the tenancy or at the point of a rent assessment would not include circumstances when a pre-agreed discount period ends.
By contrast, Amendments 79 and 89, tabled by my noble friend Lord Hodgson—