My Lords, I thank noble Lords for their contribution to this important debate within this Chamber and outside it. I especially thank my noble friend Lord Hodgson for his broader comments about the industry and his warnings about investment in the industry, which of course warms all our hearts, and my noble friend Lord Ridley for similar comments. Clearly, we are seeking to create certainty on the basis of the new system that Parliament will, I hope, pass in a very few days’ time. One would hope that that would lead to more investment in the industry and fewer closures. The planned consultation on the subordinate legislation will give us an important opportunity to look again at these important issues.
Before I answer the various points, I should also thank the noble Lords, Lord Whitty and Lord Stoneham, and all noble Lords for their acknowledgement and empathy and the thanks that they have accorded to my excellent team, who have worked long and hard on all this. I also thank the noble Lords, Lord Berkeley and Lord Snape, in particular for the pivotal role that they played in our discussions in Committee.
On Amendment 33L, I emphasise to my noble friend that the parallel rent assessment and the market rent only are different tools. PRA is a comparative illustration of the likely tenant profit in a tied and free-of-tie scenario for their pub; it has at its heart a projected profit and loss account for both scenarios. MRO, on the other hand, is about the market rent for the pub: in other words, what it would fetch as a pub on the open market. That starts from a different premise from a PRA. In addition, apart from being technically different, we have decided to reinstate PRA for existing tenants for a specific reason: because some tenants who do not wish to be free of tie would prefer the PRA, as they consider it a less confrontational way to secure a fair tied deal.
None the less, my noble friend will know that I am always keen to minimise bureaucracy, and as I said earlier it is our intention to streamline and integrate the two processes as far as possible, but we need to do the detailed work and process mapping to understand where and how the processes dovetail. This will benefit from further formal consultation, which will inform how we set this out in secondary legislation. I look forward to input from other noble Lords, including my noble friend, on our consultation.
My noble friend Lord Hodgson also felt that PRA was complicated and expensive. Pub companies are generally experts on the costs of running their own pubs under different models and their trading history. Therefore the extra complication and expense will be limited. As I have said, my officials will work with stakeholders on all sides when finalising the code to ensure the optimum streamlining.
My noble friend also asked about the rent assessment trigger for MRO. As I said in my opening remarks, we are aware that we need to ensure that the MRO triggers for rent assessments and renewals do not cover, for example, a predetermined rent increase, or a rent reduction to help a tenant through a difficult time. We will look at whether the drafting of the Bill needs to be improved to avoid such consequences.
Amendments 33AW, 33AX and 33AY from the noble Lord, Lord Whitty, would amend the Government’s own Amendment 33AV, which relates to the extension of code protections. I thank him again for his constructive contributions to our debate. As I said earlier, the Government will provide the continuation of protections when and where it matters. After a sale from a code to a non-code company, when the purchasing company offers new terms those must be prepared in line with the statutory code. This includes the transparency and rent negotiation provisions, and these changes will ensure that we have preserved the tenant’s right to a fair tied rent.
If the terms do not change, the tenant will not be in a worse situation but will have the right to a rent review under the code if local economic circumstances change and impact on their trade or if there is a significant price increase. If the purchasing company breaches the code, the tenant can refer the dispute to the adjudicator, who has ample powers of redress under the Arbitration Act, including the power to set a fair rent. It is appropriate and proportionate to ensure that the code protections apply until the first
occasion when the tenant negotiates a new deal with the purchasing company, because this is when any disadvantage from the sale first presents itself and can be remedied through negotiation between parties.
In setting the threshold of 500 tied pubs for the code, the Government respected the wishes of the other place not to overburden smaller regional and family brewers. Therefore if we are to require that they are to be subject to the code in certain circumstances, this must be in a targeted and proportionate manner.
The noble Lord, Lord Whitty, would like to provide code protections for a longer, 10-year period. While I can accept that in one sense it is attractive to protect the tenant for a longer and fixed period, we need to have evidence for the period we would choose. Bearing in mind the concern of the other place not to overburden family brewers, the Government consider that it is proportionate to continue with the code protections until the first rent assessment and that after that the tenant is on the same footing as existing tenants of the purchasing company. Independent Family Brewers of Britain has committed to continuing the industry’s self-regulation system for its members, with access to a dispute resolution system.
Finally, I also do not consider that the noble Lord’s Amendment 33AY meets the test of proportionality. It would mean that despite not being subject to the code, a family brewer buying a code pub would be required to provide the market rent only option for that pub. This would potentially deny the family brewer the right to exercise their chosen model and discourage them from buying pubs from code companies for continued use as pubs. In addition, after taking advice from government lawyers and from external counsel—a highly respected competition, public law and European specialist—it is the Government’s view that it would be a disproportionate infringement of the property rights of pub-owning companies for the market rent only protection to continue in the case of a sale. Frankly, I do not agree with the noble Lord, Lord Mendelsohn, having seen the advice, and it is not normal practice to publish such advice because of loss of legal privilege.
The uncertainty created by the possibility of MRO would negatively impact on the property’s sale value. We have therefore sought a more proportionate way of protecting the tenant’s interests, which I have already set out. Achieving a proportionate balance between the interests of tenants and pub-owning companies is important to successfully defend any legal challenge.
The noble Lord, Lord Mendelsohn, referred to the Landlord and Tenant Act 1987, whose purpose was to protect the co-tenants of a block of flats in the event of a sale by the landlord. The Act allows tenants to be collectively offered the purchase of the residential property before the landlord can offer it for sale on the open market. Business tenants, and so pub tenants, are excluded from such protections, as the purpose of Parliament was to protect residential tenants of a multi-occupier property. This is not analogous with the case of pub tenants. Furthermore, we do not think that this protection is appropriate in relation to pub premises, as pub tenants are not constrained from making an offer for the property should the pub company wish to sell it.
The noble Lord’s amendment would also mean that the investigatory powers of the adjudicator, and its related enforcement powers, would be included in the code extension. These powers have a specific function, which is to investigate systemic breaches of the code. It would not, therefore, be reasonable to apply them to family brewers who are covered by the code only by virtue of pubs they have purchased from code companies.
The noble Lord, Lord Snape, expressed a fear that the adjudicator would be emasculated—I think that was his word—in cases of the code being extended to tenants when their pub is sold. I assure him that the adjudicator is not being emasculated. He will be able to arbitrate on any alleged code breaches, including setting a fair tied rent, if necessary. The only powers that the adjudicator will not have after a pub is sold are the power to investigate a purchasing company and to impose such sanctions afterwards. That seems to me to give the right balance.
I share the noble Lord’s wish to extend protections to give a fair deal for the tenant where his pub is sold to a new company. This we have done in the amendments that we have proposed today, and this includes the ability to turn to the adjudicator for arbitration if they have a problem in doing so. That will be an important guarantee of tenants’ rights. The noble Lord has been very persistent and very constructive, and I hope in the circumstances that he will not press his amendments and that my noble friend Lord Stoneham will also feel content with my explanation.
The noble Lord, Lord Mendelsohn, asked how the stocking requirement would work. Under Clause 43(5), the Secretary of State may set out in the code terms that are required to be in a lease for it to be MRO compliant, including any terms that would be considered unreasonable. For example, if the requirement has the effect of reintroducing a product tie-in, the lease will not be MRO compliant. We will consider this in detail when we come to implement these provisions in the code. Of course, Clause 62(3) gives the adjudicator the power to set out guidance in relation to any matters regarding the Pubs Code, including the application of its provisions as well as steps that pub-owning businesses must take to comply with the code.
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The noble Lord, Lord Whitty, asked about the MRO implementation time. I think he asked about timing, but I will clarify it anyway. I answered the point about the 10 years, but I add for the record that MRO must be included in the Pubs Code, which must be implemented within 12 months of the Bill coming into force. The Bill comes into force two months after Royal Assent, so the code, with MRO, will be in place within 14 months of Royal Assent.
I hope noble Lords will agree that much progress has been made since Committee. I very much hope that I have covered noble Lords’ principal questions on this extremely complex area. We have had constructive engagement from all sides, for which I am grateful. The best way of thanking my team would be to agree these government amendments. Although I am sure there are places where noble Lords would prefer us to go further, and some where they would prefer us to go less far, the resulting package of government amendments
meets the concerns of the supporters of the original MRO clause, including my honourable friend Greg Mulholland, CAMRA and Fair Pint, whose energy and determination have made this legislative reform possible. We are keen to bring this to a conclusion.