My Lords, I thank my noble friend Lord Hodgson for this amendment on franchises and the noble Lord, Lord Berkeley, for his intervention. Pub franchises are of course covered by these measures because they fall within the definition of a tied pub in Clause 65. I understand my noble friend’s argument that a pub franchise agreement based on a share of turnover, rather than a tied rent, can lead to a better alignment of interests between a pub company and a tenant.
However, there are other aspects of the pub company and tenant relationship that can lead to unfairness, in the same way as for more traditional tied pubs. The Pubs Code includes transparency protections for tied tenants to ensure that they are clear as to what they are signing up to. We believe that these protections and others in the code should be available for all tied pub tenants, including those with a pub franchise agreement. I can, however, provide some reassurance to my noble friend. If, as he says, price increases make no impact on the tenant in a franchise agreement, the MRO-only trigger for pricing will never apply to a franchise agreement. Should a franchisee exercise the MRO option the pub company will still be able to benefit from the stocking requirement, so the tenant could still be required to stock their beer and/or their cider. The pubs company’s obligation to provide services as part of the franchise agreement would of course fall away.
I am, however, afraid that we believe that to exempt franchises would leave a loophole in the legislation. Tied pubs could be converted to franchise pubs to gain exemption from the code. If pub franchise agreements seek to reduce some of the risks of the tied model for
tenants by revenue-sharing, as my noble friend Lord Hodgson explained, we would welcome that. One would expect such agreements to be less likely to fall foul of the Pubs Code. In turn, one would expect those tenants to be more satisfied and less likely to request the MRO option. This is not a reason, however, for removing franchise agreements from the scope of the legislation where we remain uneasy about opening up a loophole. I appreciate my noble friend’s amendment but I hope that he will feel able to withdraw it.
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