British pubs are closing their doors. But while the number of pubs across the nation since 2000 has fallen by 17% (10,500) and closures were two a day in the second half of 2017 according to CAMRA, a campaigning publican is now taking on the industry regulator on over tied-rents and “extortionate” beer costs.
The legal move, which is being funded through Crowd Justice, the leading crowdfunding platform for legal cases, may offer some relief to publicans in England operating near the bread line – if successful in the High Court – due to what have been described as “onerous rents” charged by the pub operators.
Additionally, stipulations under a tie to buy certain products from the brewery, mean beer products often have to be bought by such pubs at inflated prices.
Indeed, around 15,000 pubs in the U.K. today are estimated to be contractually “tied” to purchasing their beer from their pub company (pubco) at sometimes double the price they might pay on the open market.
Gary Murphy, the landlord of Ye Olde Mitre in High Barnet, a pub and ancient coaching inn located in north London, commenting said: “Perfectly good pubs are closing every day because they have onerous and unfair restrictions imposed on them. For many of them this simply due to the publican not being able to make ends meet as a result of the tied deal that they get. I want this situation to change.”
The crowdfunding move comes just a month after hundreds of members from Campaign for Real Ale (CAMRA), a group comprising over 183,000 members and dubbed the most successful consumer group in Europe, descended on Westminster to send a message to MPs about the serious threats facing pubs.
That lobby came the day after the Budget and saw agreement in a three-point plan that there “must be urgent reform” to business rates, Beer Duty (i.e. introduce a preferential rate) and the Pubs Code (i.e. conduct an review so that the Market Rent Only (MRO) option, which lets pub tenants buy beer on the open market, becomes a genuine choice for tenants), in order to save the Great British pub from extinction.
The day’s event culminated in a rally with speeches from the Chairman of the All Party Parliamentary Beer Group, Mike Wood MP, as well as Ruth Smeeth MP and Alan Brown MP.
A former civil servant, Murphy, has run Ye Olde Mitre (established in 1636) and frequented by the likes of Charles Dickens and London diarist Samuel Pepys, for the past 10 years under three different pub-owning company (pubco) landlords.
The latest in the line being Greene King, the nation’s leading pub retailer and brewer with around 2,900 pubs, restaurants and hotels. But visitors to the pub would not necessarily know as, against the odds, he has negotiated significant purchasing freedom.
The pub landlord who comes from Glasgow first heard of new legislation in 2016 for pubs to would allow him to break free of the so-called “beer tie”, an arrangement dating back centuries obligating landlords to purchase beer at above-market prices from the beer companies, who own so many pubs in Britain.
In essence the new law provided landlords with an opportunity to opt for a rent only deal on their premises and to source the best beer prices.
However, the entire process was far harder in reality. Murphy was told by Greene King that to be “free-of-tie” would mean a £58,000 (c.$73,66o) upfront cost, which comprised of three months’ rent, a deposit equal to three months’ rent as well as additional costs.
Breaking the beer tie lease, which involved a weekly rent of £3,000 (c.$3,810) and a deposit of some £10,000 (c.$12,700), was simply made unobtainable by his Pubco landlord and he acknowledged when I met him in the pub this December that he would have to “remortgage my house”, if he chose to do so.
Access To Pub Rights
Needless to say, this situation – being on the one hand awarded legal rights only to find on the other hand they were in effect accessible – made the Scotsman pretty angry.
Now the landlord has been forced to consider legal action because of the lengthy delays in the way the Pubs Code Adjudicator (PCA) has been handling pub tenants’ access to a fair deal over their rents from pubcos.
Attempts by tenants of pubs to break free from the so-called “beer tie” and negotiate “Market Rent Only” (MRO) tenancy agreements for their pub, which would leave them better off and stop the rate of pub closures, appear to have been stymied by obfuscation and obstruction and the woefully slow speed of the government’s PCA, an independent body funded by a levy on the pubcos.
While Murphy has recently signed a new part-tied deal until 2027, which he revealed was an enhancement over what went before and there was some more wiggle room over what beer products he was permitted and those he not allowed to buy, in frustration he abandoned his attempt to go down the route of applying for the MRO option.
The reason being the sheer costs involved and lengthy delay to actually get a decision. Added to that the cheaper MRO rents only kick in from the date an MRO agreement is signed – and is not backdated.
Clearly, it would seem to be in the interests of the pubcos to delay and spin out matters as long as possible. “In the deal I settled in March 2018 I got a better tied deal, but I didn’t secure the fair rent that I should have been able to obtain using the legislation,” he said.
Murphy explained: “What the pub companies did, was say that if you [a tenant] wanted a ‘free-of-tie’ agreement you have to sign a new lease. But obviously there are huge costs involved in that. On top of that the pubcos can put in much more onerous terms to that lease.”
In order to dispute the new lease and obtain a so-called Deed of Variation, which is a change to an existing lease, a pub tenant has to go through an arbitration process that is organized by the Pubs Code Adjudicator.
Delays in the process “have been very long” in many cases, Murphy confirmed, and anywhere between one to two years.
Indeed, the satirical magazine Private Eye in its issue of 14-18 December pointed that out of 112 disputes being overseen by the office of Paul Newby, the Pubs Code Adjudicator, over half have gone on for “more than six months”, according to the latest figures.
In refusing to accept a tied-rent arbitration from pubco Greene King, when Murphy attempted to obtain an MRO for his pub last year, the Glaswegian spent around £15,000 (c.$19,000) of his own money on legal advice.
A resulting legal opinion was gained from Maurice Rifat, a barrister at 1 Chancery Lane, a leading civil common law set of barristers’ Chambers. Though the details are complex, in essence it means that a tenant who has MRO ought to be able to use new rent as the basis for backdating, if they have lost out due to a lengthy delay.
As Murphy put it: “The tenant is put in a situation where they either accept a new lease on more onerous terms, or dispute that lease and take up to 2 years and lose backdated rent.” (Note: In order to calculate the back dating, the pubcos say that if you have to have a separate arbitration to determine the rent for the delayed period).
The cost for the typical tenant for a one-year delay could according to the Glaswegian be around £40,000 (c.$50,800) – i.e. the difference between the tied rent for the delayed period and the MRO rent figure.
“The arbitration process can cost anywhere around £20,000 (c.$25,400). And, given the level of these costs it makes accessing the MRO option very difficult,” he added. And, to date, the success rate of tenants accessing the MRO option is less than 6%, which has been documented in Parliament during a Scrutiny Committee meeting this summer.
Regulation 28 of Pub Code
In the legal advice from barrister Maurice Rifat, it showed discrepancies between how Regulation 28 of the Pubs Code was being interpreted. This relates to arrangements during the MRO procedure and rent for a tied-pub tenant.
Furthermore, a complaint submitted by Murphy on this discrepancy to the PCA in April 2017 was responded to over a year and a half later in September 2018 by the regulatory body. And, when it came, they disagreed with the interpretation of Regulation 28 by Murphy’s lawyer. Hence, why the opinion of the High Court is now being sought now over the matter.
“I am looking to progress Declaratory Relief proceedings in order to ask a court to determine the true, fair and correct meaning of Regulation 28, which has far-reaching implications for the way the Pubs Code is being administered,” said Murphy. (Note: By seeking a declaratory judgment, the party making the request is effectively seeking an official declaration of the status on a matter in controversy).
In terms of the risks facing Murphy from taking this case on, he said: “By taking this matter to the High Court I risk tens of thousands of pounds. But I feel that I cannot let it go…because of what the PCA has said, which appears to be very wrong.”
He would also be the first person in England to question Regulation 28. But, he said, he was “not surprised” by this. “Most publicans are working on the bread line. They don’t have money to get any sort of legal advice. And, that gives me a duty – as I have done it – to try and resolve it,” he Murphy asserted. But losing might mean his liability could be up to £100,000 (c.$127,000).
However, should Ye Olde Mitre’s landlord win the case, the upshot is that MRO should be much more accessible than it is today.
Further, winning will mean money to fight other battles like dilapidations. This is when pubcos charges a tenant for repairs at the end of their lease. In one case, a pubco tried to charge £1,700 (c.$2,159) for just two door handles to a pub landlord. “It’s a hornet’s nest and there are so many difficult issues between these large Pubcos and individual tenants” Murphy said.
Another issue concerns pubcos not renewing leases, for example, when a pub tenancy can be terminated if the tenant exercises their right MRO. But they have performed all their obligations perfectly well.
At the time of writing the crowdfund had raised just over a quarter (£2,640/c.$3,353) towards an initial target of £10,000. Murphy has the support of his local MP, Theresa Villiers, a former Cabinet Minister, as well as other MPs and campaign groups.
For more information and to pledge to the Gary Murphy’s campaign at Ye Olde Mitre in High Barnet, London, via Crowd Justice see this link. The campaign runs until midnight on January 20, 2019. Note: Your card will only be charged if the case meets its £10,000 target by the crowdfund deadline.