Fiona Dickie offers a guide to the framework for resolving disputes under the Pubs Code.
The statutory Pubs Code regulates the relationship between all pub companies (or “pub-owning businesses”) owning 500 or more tied pubs in England and Wales and their tied tenants. A tied tenant is one that is contractually obliged to buy its alcohol from its pub company landlord.
Tenants (and in some cases pub companies) have the right to resolve disputes about Code breaches by way of statutory arbitration. The Pubs Code Adjudicator is the regulator responsible for enforcing the Code, which applies to six pub companies – Admiral, Greene King, Marston’s, Punch, Star Pubs & Bars and Stonegate (the Heineken pub chain). Legal advisers and property professionals acting for tenants who are tied to these businesses on any aspect of their contractual relationship with their pub company should be aware of the duties owed to them under the Pubs Code, including those relating to the pub premises.
The Code is intended to ensure the application of two core principles: that there should be fair and lawful dealing by the pub company towards its tied tenants; and that those tenants should be no worse off than if they were free of tie. The Code places transparency obligations on the pub company to propose a balance of power in the business relationship, requiring the provision of certain information to the tenant, including when negotiating for a new tenancy and at renewal, and when renegotiating the rent. Other rights under the Code include the option for the tenant to undertake a price-matching exercise in relation to insurance for the premises. In specified circumstances, a tied tenant can break the tie by taking the “market rent only” option.
The pub premises
As is the case with commercial leases, the most common and contentious areas of disagreement in the relationship between tied tenant and pub company can concern the respective repairing obligations. The repairing liability of the tied pub tenant is usually commensurate with the length of the agreement. In this respect, and subject to market changes and individual commercial negotiations, the longer the term of a tied agreement, the more onerous the repairing liability. Conversely, shorter agreements (and franchise agreements) will tend to have limited (if any) liability for the tenant in respect of repairs.
The Pubs Code does not alter the contractual obligations between the parties with regard to repairs, or the availability of any dispute resolution mechanism, including any set out in the agreement. The Code’s transparency obligations can, however, support tied tenants to avoid and resolve disputes. In this regard, advisers should consider if a dispute relating to repairs involves an alleged breach of the Code, and whether their clients should use available means of resolving that dispute formally or informally.
Code duties in relation to the premises
The Code places a range of statutory obligations on pub companies relating to pub repair at the outset of any new tied agreement. For example, the Code requires the pub company to set out in pre-contract information the respective repairing obligations of the parties; its procedures for carrying out any repairs it is responsible for; and how the tenant can report these and raise any complaints or concerns. Importantly, the pub company must provide a schedule of condition for the premises to record the state of repair and make it clear in what state of repair the pub must be at the end of the agreement.
The pub company also has a legal duty to point out to the negotiating tenant any specific problems at the pub premises. Often, before entering into an agreement for a pub, certain works of maintenance, repair or improvement may need to be carried out. Where a pub company is aware of any maintenance that is required, it must provide a list of the works to the tied tenant and explain whose obligation they are. It must also be clear what works have to be completed before the agreement comes into effect and what can be done afterwards and by when.
Throughout the lifespan of an agreement, pub companies have various continuing obligations. Additionally, there are responsibilities concerning assignment and the timeframe for obtaining the schedule of dilapidations towards the end of an agreement. A factsheet produced by the PCA to outline Code obligations on regulated pub companies with regard to repairs and dilapidations can be found here.
In addition, pub industry bodies including the British Institute of Innkeeping, the British Beer and Pub Association and UK Hospitality have jointly published guidance regarding the handling of pub repairs and dilapidations.
Recording discussions regarding repairs
Once the agreement is in place, repairs, whether the tenant’s responsibility or those of the pub company, should be one of the matters discussed regularly with the latter’s appointed business development manager. The Code requires BDMs to provide the tenant with notes of any discussions regarding repairs, rent and business planning. Those notes must be provided within 14 days of the discussion, and the tenant then has the right to notify the BDM within seven days if the record is not agreed. A clear and accurate note of discussions and agreements can greatly help in avoiding potential future disputes and can be useful evidence to the adviser, if required.
Each pub company must employ a code compliance officer, whose role it is to oversee the pub company’s compliance with the Pubs Code. More information about the role and duties of the BDM and the CCO can be found in the PCA’s factsheet here.
Pubs Code disputes – initial steps
Though the Code places legal duties on pub-owning businesses to ensure that responsibilities in relation to repair and pub condition are clear at the start, issues can arise.
Tenants will have contractual rights under their tenancy, but it is important to note that there may be ways of resolving disputes under the Code (should the dispute be a breach of a Code obligation) which could help avoid the matter going to court.
If a tenant considers that a pub company has not complied with the Code duties (such as to provide an accurate schedule of condition or record an agreement as to repairs) then that could be a breach of the Code. The first port of call for tenant is to discuss the issue with their BDM.
If the matter cannot be resolved by the tenant in discussion with the BDM, the tenant can use the pub company’s complaints procedure. They can also approach the CCO regarding any Code compliance issue. The CCO is expected to report any Code breaches to the PCA, explaining the steps the pub company has taken to resolve the matter where a breach has occurred. The PCA pays close attention to these reports in considering whether any regulatory steps are appropriate, and publishes them in summary form to ensure appropriate transparency to the industry.
Pubs Code disputes – arbitration
If using the informal routes specified above fails to resolve the disagreement, the tenant has the right to refer alleged Code breaches to arbitration. A factsheet providing further information about Pubs Code arbitration, to which strict time limits apply, can be found here.
The PCA expects the pub company to attempt to resolve the issue to avoid the need for arbitration. Even after arbitration has begun, wherever possible the parties should continue negotiations.
Both the Code arbitration process and the ultimate award are confidential, but with appropriate consents or anonymisation, the PCA publishes arbitration awards and summaries to help inform the industry about how the Code is being applied. Although this article focuses on disputes relating to repairs obligations, referrals can be made in respect of a dispute over compliance with any regulation which the Code specifies is arbitrable.
Before making an arbitration referral, the tenant must notify the pub company as to an alleged Code breach and wait 21 days to give the pub company time to resolve the matter. A referral can be made if the matter is not resolved after those 21 days. However, such referral must then be made to the PCA within four months, beginning with the first date on which the dispute could then have been referred. Different timescales apply to referring a dispute relating to the MRO procedure. A £200 fee is payable for all referrals.
Special rules provide costs protections for tenants in Code arbitrations, meaning that usually the tenant’s liability for an order for the pub company’s legal costs is limited to £2,000 and the pub company is liable to pay the arbitrator’s fee. Parliament intended that tied pub tenants of regulated pub companies should have low-cost access to dispute resolution to enforce their Pubs Code rights. Awards can be appealed to the High Court under limited grounds pursuant to sections 67 to 71 of the Arbitration Act 1996.
Pubs Code arbitration referrals are managed by the Chartered Institute of Arbitrators. Suitable arbitrators from its specially trained panel are appointed by the PCA and follow service standards to help ensure timely and consistent management of disputes. Published quarterly statistics on the number of disputes show that the majority are completed within six months. The PCA does not get involved in individual arbitrations where an arbitrator is appointed but, as regulator, it does have powers to obtain copies of documents and decisions in the case. The PCA monitors the decisions to see whether there are general issues about Code compliance that may need to be raised with the pub company, or on which the industry would benefit from published advice.
Calling time
The importance for the tenant (and its advisers) to check pre-contract documentation provided by the pub company and notes of BDM conversations are what they were expecting, and to act promptly if they are not, cannot be overstated. Repair issues are not uncommon and early proactive steps taken by tenants (and their advisers) to engage with their pub-owning business on any matters relating to Code duties can serve to prevent such issues developing into formal disputes.
Should Code disputes fail to be addressed by the pub company, tenants and advisers should consider Pubs Code arbitration as an efficient and cost-effective means of resolving them, though strict referral time limits must be met.
Fiona Dickie is the Pubs Code Adjudicator; this article is intended to aid understanding about the Pubs Code and its impact – its contents should not be understood to be a substitute for the Pubs Code legal framework
