GOVERNMENT CONSULTATION ON PUB COMPANIES AND TENANTS RESPONSE TO OFT SUBMISSION DATED 14TH JUNE 2013
Fair Pint Campaign consider there are some fundamental flaws in the OFT's understanding of how the tied pub sector currently operates and the Government proposals to deliver fairness and circumstances where a tied tenant would be no worse off than if they were free of tie.
The OFT have said in the past that they do not consider the artificial market environment of a supply tie of beer to tied tenants raises any competition issues, they are now suggesting that the tenants choice to stay in the artificial environment or step outside it, in to an open market, would have competition issues.
COMPETITION
Despite the proposed intervention being on the grounds of the relationship between landlord and tenant, and not competition, the OFT do raise an important competition issue. Their previous conclusions in respect of the beer supply tie were established in 2010, since then legislation has changed requiring that Land Agreements (of which the supply tie would be one) need to be competitive and now fall under the Competition Act 1998. Anti competitive land agreements, or provisions within them, are now prohibited restrictions.
Fair Pint Campaign believe some supply ties would now be considered prohibited restrictions, and do not comply with the criteria for exemption, and the OFT should be reconsidering their previous findings in the light of these changes.
OFT CONCERNS TO THE PUBLIC CONSULTATION
The OFT stated in their submission they did not believe there would be a significant rental adjustment to rectify the perceived imbalance rendering the tied tenant no worse off than if they were free of tie. They then raise concern that the implementation of the "no worse off" principle may lead to significant rental adjustments. These two statements are contradictory and show a conflicting understanding of the 'no worse off' principle.
The OFT demonstrate a clear misunderstanding of the circumstances that prevail. To close a pub it must be vacated. Most tenants have a degree of protection from eviction by legislation. It is tied terms that circumvent that protection. The Government proposals would make it much harder to evict a tied tenant and offer them the similar protection to that enjoyed by practically all other commercial tenants in the UK.
The OFT also expressly indicate their understanding that price regulation is being proposed - IT IS NOT.
There are around 1,000 brewers in the UK and despite some large non brewing pub companies allowing sourcing from a small handful of them the vast majority are restrained from participating in around 40% of the UK's pubs. The OFT, even in their latest work, have failed to recognise this fact.
Contrary to the OFT understanding, the benefits of central purchasing by large pub companies are NOT passed on to the tenants and in turn the consumer does NOT benefit. If products and services were genuinely cheaper through the pub company, due to the benefits of central purchasing, then a tenant would choose to acquire them from the pub company not be forced to acquire them by mandatory lease provisions.
The original contractual nature of agreement between landlord and tenant is that the higher tied product prices would be fairly balanced by benefits (special commercial or financial advantages - SCORFA). The pub companies have altered the nature of the contract between the parties by undermining the balance taking too much in rent whilst over charging on tied product prices and offering little if any other countervailing benefits. The intention of Government intervention is to redress that balance and restore the 'fair' nature of the contract between the parties NOT to alter it as the OFT have concluded.
The OFT have demonstrated an incredibly naive perception of how the pub sector operates and the failings within it and seemingly relied almost entirely (again) on the information submitted to them by the pub companies and their representatives.
FAIR PINT CAMPAIGN
Simon Clarke
Steve Corbett
