Last orders for Tied Pubs in Scotland

International Beer Day today celebrates both those that make and serve beer and the wide varieties of beer available. As many Government restrictions have eased, consumers can now celebrate International Beer Day, in the quintessential British business – the pub. However, your tipple of choice, whether that be a pint of lager, a bottle of pale ale, or a pilsner may depend on your local pub.

While the re-opening of pubs is welcome news to publicans and consumers alike, pubs (like the rest of the hospitality and food and drink industries) have taken a majority hit due to COVID-19. Some impacts of COVID-19, such as temporary measures on destruction of spoilt beer, have been discussed in an earlier article. While introduced before the lockdowns hit, the Tied Pubs (Scotland) Bill may become a lifeline to some tied-publicans in Scotland.

What is a tied house?

In Scotland, as with the rest of the UK, there are two main types of pubs: free houses and tied houses. A free house is a pub where there are no restrictions on the beers that it can stock. Inability to obtain funding can be a major stumbling block for would-be publicans from purchasing or renting a free house.

A tied house is typically rented from a pub company (Pubco) or brewery with a requirement to purchase their beer or enter into a supply agreement in exchange. A tied house tends to come with a much lower rent then a free house, lowering the threshold for starting up a business. Beer ties offer budding entrepreneurs a first step on the ladder, especially where they may have no previous experience of running a pub.

With an obligation to sell only the beer and products provided by the landlord Pubco or brewery, which often come at above market prices, the tied tenant is unable to shop around for potentially cheaper beers. Landlord Pubcos and breweries tend to have the more negotiating power and tied tenants may also have little protection against price increases or receiving beer of poor quality. While tied houses tend to come with lower rents, this beer tie can eat into the profits of the tied tenant.

Tied pubs can result in a lower choice of beers available to consumers and can be detrimental to independent and smaller breweries without any pub ties. Pubcos and Breweries who have tied the pubs in certain areas may effectively create a monopoly in that area, limiting the products which are available for purchase.

Tied Pubs (Scotland) Bill

The Tied Pubs (Scotland) Bill seeks to govern the relationship between landlord Pubcos and breweries, and their tied tenants. The Bill aims to improve the position of tied tenants with the principle that tied pub tenants should not be worse off than if they were not subject to a beer tie.

The Bill looks to create a new Scottish Pubs Code, together with a Scottish Pubs Code Adjudicator.

The draft new Code currently provides that:

  • Tied tenants must be allowed to sell at least one guest beer, of the tenant’s choice, regardless of the producer
  • Landlord Pubcos and breweries must offer a new Market Rent Only (MRO) lease, which does not include a beer tie, to tied tenants who request this 
  • Parties are to use reasonable endeavors to enter into a MRO lease
  • The Scottish Pubs Code Adjudicator will have powers to enforce the Code, including imposing financial penalties

Further, the Bill proposes that any terms in a Tied Tenancy that are inconsistent with the new Code will be unenforceable.

What can we learn from England & Wales?

A statutory Pubs Code and an independent Adjudicator were introduced in England & Wales in 2016, together with a MRO lease option to end beer ties in certain circumstances. However, few applications to end the beer tie have so far been successful, with tied tenants and landlord Pubcos and breweries clashing on interpretations of the Code. Tenants have argued that their landlords are attaching unreasonable conditions to new non-tied lease, such as excessive rents and upfront costs. Landlords have also been accused of delaying negotiations and even serving notices on tied tenants who have sought to use the MRO option.

In Scotland, the proposed scope of the MRO option appears wider than that of England & Wales, and includes an obligation on pub owning businesses to make a genuine attempt to conclude these agreements.

As pubs already face ongoing and future challenges of COVID-19, with declining visitor numbers as more people are drinking at home, giving tied tenants an option to cut the beer tie could help them change consumer habits and open the doors to more independent and smaller breweries.

The devil, as always, will be in the detail of the final bill and the effectiveness of a new Scottish Pubs Code will remain to be seen in a post-COVID-19 Scotland.

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