My Lords, in the light of the concerns raised about our government amendments in Committee, I committed to further engagement with noble Lords and wider stakeholders, with a view to returning with further amendments on Report. My ministerial colleagues, officials and I have since had extensive discussions with noble Lords, honourable Members in the other place, and pub company and tenant stakeholders. I am grateful for the constructive engagement of noble Lords opposite, including the noble Lords, Lord Stevenson, Lord Mendelsohn, Lord Whitty, Lord Snape and Lord Berkeley, as well as my noble friends, including my noble friends Lord Hodgson, Lord Borwick, Lord Younger, Lord Stoneham and Lord Ridley, who joined us last week.
I should say before I turn to my amendments that the problems we are trying to address in the pubs industry have a long history. The difficulties that arise from the imbalance in bargaining power between tied tenants and their pub-owning companies have been well documented. The measures in the Bill are designed to ensure fairness for tied tenants of large pub-owning businesses and to respond. They are a proportionate and targeted response, and represent a significant step for the sector.
Incorporating the “market rent only” option into the Bill in the limited time available to us, while also ensuring that it will work in practice, has not been easy. But we have made good progress, which has enabled us to bring forward these amendments. We believe they will make for a better Bill and more closely reflect the wishes of the other place. The principle of market rent only is that at certain trigger points a tied tenant should have the right to move to a free-of-tie agreement and pay a market rent for the property. A market rent will generally be higher than a tied rent, because a free-of-tie tenant is free to purchase all drinks and other products and services from wherever he or she wishes, rather than from the pub-owning company. The only exception to this is insurance, where it is common practice in any commercial lease for this to be arranged by the landlord and charged to the tenant.
I was clear at Second Reading that the Government accept the will of the other place that there should be a market rent only option. Our work since has been to ensure that it delivers the protections for those tied tenants without potential unintended consequences. The questions that have arisen and the discussions that have taken place are over exactly how the market rent only option should work in practice. I am pleased to say that we have now reached a position where the Fair Pint campaign and CAMRA are content with our amendments. I also met my honourable friend Greg Mulholland last week and he is supportive of the approach we are proposing. I should like to say we discussed it over a pint, but actually I had a scotch, supporting another of our important industries. I pay tribute to his dedication to this cause, his relentless campaigning for the rights of tied tenants and his willingness to move forward.
I am also pleased to say that, although some differences remain, at a recent meeting that Jo Swinson and I hosted with stakeholders from all sides, pub companies, too, seemed to recognise that much progress had been
made. Two of the issues most keenly debated in our discussions since Committee have been how to ensure that investment in tied pubs continues, which is important for the industry, and whether the pub franchise agreements should be covered by the code.
We have made good progress here, too. I can announce that Government will be using existing powers in Clause 42 to set out in secondary legislation how tenants and pub companies can agree the waiver of two MRO triggers in exchange for significant investment in a pub. We will also use powers in Clause 71 to exempt genuine franchise agreements from the market rent only clauses of the Bill. I am conscious that noble Lords have tabled amendments relating to these issues. If noble Lords are content, I will turn to the detail of the Government’s proposals in these areas when we debate those amendments.
I now turn to Amendments 33AC to 33AF, which deal with the process of agreeing a rent after the MRO trigger is engaged. Those amendments provide that the Pubs Code must specify a reasonable period in the market rent only process for both stages of that process. The first stage is where a tenant and their pub company try to agree a rent; this was over a 21-day period in the original MRO clause laid in the other place. The second stage involves the settling of a market rent by the independent assessor. The other amendments in this group, Amendments 33AA, 33AB, 33AD and 33AE, clarify that the term “market rent” applies only to a rent set in the second stage by an independent assessor.
The market rent only clause introduced in the other place established the principle that, when MRO is triggered on a brewer’s pub, the brewery should retain their route to market as long as tenants can buy the brewer’s beer from any source. This route-to-market principle was accepted by all sides. Amendment 33AS clarifies the requirements that may be placed on pubs in terms of stocking requirements after MRO has been triggered. The Bill as drafted already allows brewers to place conditions around the stocking of their own brands of beer and of cider in terms of volume and range. The amendment confirms that brewers may also protect their route to market by allowing some restrictions on the sales of competitors’ products. Brewers will not be able to require that their market rent only pubs sell only their products; they will need to satisfy themselves that they are compliant with competition law.
Turning to Amendment 33AV, there was concern in Committee about removing the sale of title and administration triggers for market rent only, which were in the original Commons amendment. Noble Lords were worried that this would leave tenants at risk if their pub was sold or if their pub company went into administration. What has become clear through our various discussions is that it is not a pub sale or administration itself that is of concern; rather, it is the potential for a pub sale—whether as part of an administration or the normal course of business—to result in adverse consequences for the tenant. The sale of a pub to another of the large pub companies is not a problem as the code will still apply. The concern is therefore the potential loss of protection for tenants if their pub is sold to a company that is outside the scope of the Pubs Code—for example, if Fuller’s or Young’s buy a pub from Punch Taverns.
The Government are addressing this concern through Amendment 33AV, which extends the protections of the code—apart from the market rent only option—to tenants whose pub is sold by a “code company” to a company outside the statutory code. The protection will last until the next rent assessment and will mean that the tenants concerned will be able to refer any code breaches during that period to the adjudicator.
As soon as the purchasing pub company presents the tenant with new terms, the deal it offers will have to be fair and comply with the code. The tenant will have the right to refer these terms, including the rent, to the adjudicator if he thinks that the code has been breached. If a breach is found, the adjudicator has wide powers of redress. The tenant will also have the option to request a parallel rent assessment—a provision we have brought back since Committee, as I will explain—if agreement is not reached.
If the purchasing company does not change the tenant’s terms when the sale is made, the protection of the code remains until there is a new rent assessment or when the lease agreements expire, whichever comes first. In that period, if there is an event outside the tenant’s control that affects his ability to trade, or a significant price increase, this would trigger a rent assessment, which must comply with the code. The tenant could also request a parallel rent assessment in these circumstances. These provisions preserve tenants’ rights to a fair tied rent after sale.
Noble Lords will remember that, in the other place, there was concern about overburdening family brewers through our provisions. We agree and therefore we do not propose to include market rent only in the continuation of protections when a pub is sold. Nor would the adjudicator have investigatory powers relating to those companies. This is because the investigation function is designed to uncover systemic breaches of the code. It would not be right to include in that power companies that are obliged to follow the code only because some of the pubs they own used to belong to a “code company” and which are covered by the code only in respect of those pubs.
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The details of how the code extension will work will be set out in secondary legislation following a consultation. The regulations will be subject to the affirmative procedure. To deter avoidance and ensure fairness, we are also continuing code protections—excluding the market rent only option—until the next rent review for the tied tenants of pubs owned by a code company which, by selling a number of its other pubs, falls below the threshold of 500 tied pubs. These tenants, too, would have continuing rights and expectations regarding their existing lease, as well as the protections they should have under the statutory code, and they should not lose their protections because of events beyond their control.
During our consultations since Committee, a number of further points have been made about the definitions and terminology used in Part 4. I turn now to a number of amendments that we are making as a result of those representations.
Amendments 33D, 33N, 33P, 33S, 33T, 33V, 33Z to 33AB, 33AG to 33AN, 33AQ, 33AAA and 33AAB change the references in the Bill from “market rent
option” to “market rent only option” to give reassurance that the intention is that a tenant who exercises market rent only should pay a market rent only for the pub and not for other services.
Amendment 33G clarifies the comparator for the “no worse off” principle in Clause 42 but does not change the substance of the clause.
Amendments 33Q, 33R and 33X change the definition of “market rent” to bring it in line with the industry guidance prepared by the RICS.
Amendment 33U provides that all MRO triggers “must”, rather than “may”, be set out in the code. It is right to clarify “must” for the introduction of MRO triggers, as it clarifies for Members of the other place that we will honour the intent of the original MRO clause. This has the effect of constraining the flexibility of these powers but we think that this is an acceptable compromise to give clarity on this important point. We are aware of the potential for unintended consequences for the tenant where a pubco might feel constrained from voluntarily offering a rent reduction as a result of a tenant’s personal circumstances for fear of triggering a right to MRO. We will explore whether there is a need to improve the drafting to avoid such consequences.
I am aware that my noble friend Lord Stoneham has tabled a similar amendment with regard to the parallel rent assessment. With his leave, I will discuss that in more detail when we reach his other amendments.
Finally, I come to the parallel rent assessment itself. Following the introduction of market rent only in the other place, the Government sought to restrict the scope of this assessment so that it applied only to prospective tenants, as they will not have the right to market rent only. This was an attempt on our part to reduce bureaucracy and increase simplicity. However, it is clear from discussions since Committee that tenant stakeholders actually like the parallel rent assessment and feel strongly that it should be retained for existing tenants. There are tenants who have no wish to exercise market rent only but who want to ensure that they have a fair tied deal. They would far prefer to gain this reassurance by requesting a parallel rent assessment, rather than by starting the market rent only process. There are also arguments that the transparency of the PRA may help a tied tenant to decide whether market rent only is for them.
Therefore, Amendment 33J seeks to reinstate the parallel rent assessment. We will consult on how best to streamline this with the market rent only provisions so that, as far as possible, the processes are integrated to help both pub companies and their tenants and to minimise bureaucracy. I know this is something that my noble friend Lord Hodgson is very keen to ensure.
I hope that the House will recognise the Government’s commitment to producing legislation that is effective in addressing problems in this important industry and workable in practice. We have tried hard to find common ground between all the stakeholders and to respect the view of the other place. We are confident that the amendments we have produced do indeed do that. I hope that noble Lords will feel able to support them and I beg to move.