Statutory Pubs Code and Pubs Code Adjudicator

Chris White Excerpts

Thursday 26th January 2017 Commons Chamber

[Greg Mulholland]

The hon. Lady is absolutely right. I am afraid that the intention is not the reality, and that is why this House and the Government must take action.

[Chris White (Warwick and Leamington) (Con)]

As the hon. Gentleman mentioned, I have seen some of these things at first hand, and it has been an unsatisfactory experience. I would like to share with the House the following quote from a pubco:

“Moving to a Market Rent Only commercial free of tie lease agreement, means larger upfront payments and the loss of our award-winning, business-friendly services and support, aside from business insurance.”

Without naming the pubco or the pub involved, does he agree that this could be interpreted as threatening, and is not a business-friendly approach at all?

[Greg Mulholland]

The hon. Gentleman is absolutely right. I welcome the support that he is giving to his publican constituents. I have that quote in my speech.

Let me remind right hon. and hon. Members that the pubs code and the adjudicator were introduced in the Small Business, Enterprise and Employment Act 2015. The code came into force last year. It applies only to businesses owning 500 or more tied pubs in England and Wales, of which there are six, and governs their relationship with their tied pubs. The quasi-judicial statutory Pubs Code Adjudicator was created to uphold and enforce the pubs code so that it is properly implemented, and to act as an impartial arbiter when there are disputes on certain issues.

I wish to praise the current Government and the civil servants in the Department—formerly Business, Enterprise and Skills, now Business, Energy and Industrial Strategy—for their very hard and diligent work in bringing through the pubs code, which is a strong, clear document. At this stage, six months in, Ministers and civil servants should not have to intervene given that the adjudicator’s role, as laid down in primary and secondary legislation, is to implement and enforce the code. The role of Ministers should now be to oversee and scrutinise that activity, but I am afraid that they now have to intervene because the Pubs Code Adjudicator is not doing the job as laid down in the pubs code and in the law.

Regulation 50 of the pubs code specifically states:

“A pub-owning business must not subject a tied pub tenant to any detriment on the ground that the tenant exercises, or attempts to exercise, any right under these Regulations.”

This regulation is being routinely ignored and flouted by pub companies. Let me give some examples.

Pub companies are refusing to allow a simple deed of variation to leases if tenants suggest that they want to exercise their right to a market rent only option. This forces them to accept a new lease, which is offered only on unfavourable and clearly detrimental terms, clearly flouting regulation 50. Enterprise Inns is doing this systematically and then telling tenants that they will have to go to arbitration over what is clearly not an arbitration matter but a legal breach of the code’s regulation.

Tenants seeking the market rent only option are being presented with unreasonable charges and terms by pubcos, making it unviable to take or even pursue the option—for example, unreasonable and unaffordable demands for up-front, quarterly payments of rent, or unjustifiable and excessive dilapidations charges. Pubcos are also, as the hon. Member for Warwick and Leamington said, presenting so-called free-of-tie offers, sometimes calling them MRO offers as though they were the same thing as the market rent only option, which they are not; they are deliberately confusing the two. I remind the House that the market rent only option gives the tenant the right to an independent assessment of the market rent, and the right then to take the option on an existing lease with no other changes to the lease or the terms. Yet pubcos are insisting on shorter leases on detrimental terms, clearly breaching the pubs code. In addition, I can tell the House that that document being given to tenants is a Punch document.

Brigid Simmonds, the chief executive of the British Beer and Pub Association—the trade association of the pubcos—has said that it is “inevitable” that free-of-tie agreements would have

“terms that more closely reflect commercial rental agreements elsewhere in the marketplace”.

With the market rent only option, that is not allowed; it constitutes detriment. The lease has to continue on a free-of-tie basis, with the payment of independently assessed rent.

One thing that is putting people off is the fees proposed by assessors for carrying out that independent assessment. I have been sent a document from a surveyor that suggests that the fee can be up to £6,000. Under self-regulation, the maximum fee was £4,000, which was split into a maximum of £2,000 for the tenant and a maximum of £2,000 for the pub company. That was transparent and fair, unlike what the Royal Institution of Chartered Surveyors is presenting. Who is a member of the Royal Institution of Chartered Surveyors? Mr Paul Newby, the Pubs Code Adjudicator. It is a clear case of jobs for the boys, because the people demanding those unjustifiable and excessive fees are his former colleagues, associates and friends. I have to say to the Minister that that shows us again why a surveyor was a wholly inappropriate choice to be the adjudicator.

Pub companies are confusing and misleading tenants so that they miss their trigger point—the very limited window in which they can seek to take the market rent only option. Pub companies are putting pressure on tenants by sometimes bribing and sometimes bullying them into signing on the dotted line, so that they stay tied and do not have the chance to exercise their rights.

Returning to the adjudicator, I remind the House that Paul Newby, the director of pub estate agents and surveyors Fleurets, was appointed as Pubs Code Adjudicator and started work in March 2016, despite the majority of tenants’ groups objecting to his appointment, and despite the fact that he had ongoing financial links to the pubcos that he is supposed to regulate. Mr Newby failed properly to declare the conflict of interest when he applied for the role. As well as being a former director, which he did declare, he astonishingly —and completely unacceptably for someone in a quasi-judicial role—retains shares in Fleurets and has outstanding loans of more than £200,000 to it, with a repayment agreement that is set to last until 2023. That information had to be dragged out of him, and he published it only in December. Just to be clear, Fleurets declares that 20% to 23%—a fifth or more of its income—comes from the regulated pubcos.

To make matters worse, Mr Newby has been allowed to construct his own conflict of interest policy, and—surprise, surprise—it falls well below the industry standard for such documents. Surprisingly, it even falls well below the standards of his own professional body, the Royal Institution of Chartered Surveyors. The conflict of interest policy should be similar to that of the Groceries Code Adjudicator, but, unlike the GCA, the Pubs Code Adjudicator has chosen to publish a separate register of interests, along with an explanation of how his conflict of interest policy will be applied in relation to the register and, specifically, to his own conflict of interest. Mr Newby is setting his own rules to avoid having to disclose fully his conflicts of interest when he takes on cases.

The Select Committee was clear in July 2016 that not only was Mr Newby evasive, but he could not command the necessary confidence of pub tenants, and the appointments process should be reopened. Mr Newby also misled the Select Committee on important points, and has not responded properly to letters asking him for an explanation.

To return to the key point that the right hon. Member for West Dorset made, Mr Newby is the adjudicator, and his job is to uphold and enforce the pubs code. The Government state on the website:

“The Pubs Code Adjudicator (PCA) is responsible for enforcing the statutory Pubs Code.”

He is failing to act as an adjudicator; he is refusing to make rulings on important, basic matters such as the deed and variation versus new lease issue; and he is failing to uphold, never mind enforce, the code. Does he not understand the role—does he not properly understand the code and the legislation—or is this a deliberate attempt to undermine the whole statutory code, as many tenants now fear? The case-by-case approach that he is taking means that there will be no opportunity to look at many of the issues being raised repeatedly by tenants about the way in which pubcos are trying systematically to flout and thwart the code.

--- Later in debate ---

[Mr Wright]

The right hon. Gentleman makes an incredibly important point. The adjudicator has to redress the balance in the power dynamics in the industry and there is evidence to suggest that that is not happening.

I want to be clear: Mr Newby’s professional credentials and expertise are not disputed. His knowledge of the industry, having worked in the pub property business for something like 35 years, is not in doubt and cannot be questioned. However, having looked at the matter in the Select Committee, we believe that there is a significant reason why Mr Newby will find—and is finding—it difficult to command the confidence of all parts of the industry, namely a strong perception of a conflict of interest, made worse by Mr Newby’s ongoing financial interest in his former firm.

[Chris White]

During the speeches of the hon. Member for Leeds North West (Greg Mulholland) and the Chair of the Select Committee, a number of criticisms have been made of the Pubs Code Adjudicator. Does the hon. Gentleman think that he should be called before the Select Committee again?

[Mr Wright]

The issue has attracted enormous interest, not just from our Select Committee but from predecessor Select Committees, which helped to change the law. As Chair of the Select Committee, I maintain that, given the hard-working and determined members of the Select Committee such as the hon. Gentleman and the hon. Member for Cannock Chase, the issue will not go away, but continue to command our attention. We want to put pressure on the Government to look again and reopen the appointments process so that this important appointment is seen as fair and impartial, and that is not happening.

I want to touch on an issue that came up in the Select Committee’s consideration. Simon Clarke is a tied tenant and a surveyor, and both he and Mr Mountford expressed surprise and concern that Mr Newby, as a chartered surveyor, even applied for the job. Both said that someone from outside the industry was needed. Mr Mountford told us that they had said to the Department that the post required

“a judge, a retired lawyer or somebody with legal experience. We definitely said it should not be a surveyor.”

Mr Clarke said that it definitely should not have been a chartered surveyor, because there would always be a conflict of interest as surveyors would, in all likelihood, have advised one of the parties.

That brings me to the central concern about Mr Newby’s appointment. Before becoming the Pubs Code Adjudicator, Mr Newby was a director of Fleurets, a firm of business property valuers and surveyors. As the hon. Member for Leeds North West mentioned, in giving evidence to the Select Committee Mr Newby said that about 20% to 23% of the firm’s fee income—a material amount—derived from advice provided to the large pubcos. That alone lends itself to accusations of potential and perceived conflicts of interest. However, Mr Newby also continues to have financial interests in the company. He gave evidence to the Committee in May and then clarified some of his self-confessed inaccuracies in a letter to me in November—at, he said, the instigation of the Minister. Mr Newby has both shares in Fleurets Holdings Ltd and debenture loan notes owed to him by the company.

The Committee asked Mr Newby if he would provide a clean and definable break with his old firm by divesting himself of those financial interests. He stated in his November letter to me that the company is unwilling to do so in order to avoid putting

“undue strain on capital resources”—

it is probably more accurate to call it the firm’s cash flow. That is very serious and really undermines the ability of the adjudicator to command the trust and respect of all sides of the industry. He has a significant financial interest in shares and loans from the company, which derives a significant part of its revenue from large pubcos, but he cannot alter that situation because that would put strain on cash flow. In other words, he retains an ongoing financial interest, and it is in Mr Newby’s interest for the firm to do well to secure the moneys owed to him. That could mean that his judgments would assist large pubcos that have commissioned Fleurets to advise on tenancy arrangements so as to maintain the firm’s cash-flow position and profitability, and thus allow payments to be made to Mr Newby.

When Mr Newby came before the Committee, he said:

“I have taken off my previous hat and thrown it away.”

But he has not: the ongoing financial interests mean that he is still clearly wearing that hat. There is a clear perception of conflict of interest. This is like a referee officiating at a football match between Chelsea, who are top of the premiership, and Newport County, who are bottom of league two—