72 pints issue finally being dealt with by the Pubs Code Adjudicator

The Forum of private business is pleased to see that one of the key issues it raised with the PCA is finally being dealt with.

THE RULING

The U.K. government has ruled that Marston’s PLC, one of the U.K.’s largest breweries and pub landlords, has been lying to its tenants about the amount of beer in the brewery’s barrels, potentially voiding its tenancy contracts and opening it up to thousands of lawsuits for loss of earnings.

According to the official regulator’s ruling, Marston’s has been selling casks to its pubs claiming there were 72 pints of beer inside, despite knowing that around 5% of the contents were unsaleable yeast sediment. Marston’s also calculates its rent according to how much beer a pub should sell, which means it is charging publicans twice over for “pints” that will never exist.

Experts and publicans see the decision as a huge victory for Britain’s 12,000 tied pubs and hope it will help current publicans secure better rental agreements as well as offer the chance for those whose businesses failed to recoup some of their losses through the courts. Both options are now on the table because Marston’s knowingly supplied false information, potentially allowing pubs to renegotiate agreements or sue for lump payments.

The revelation surfaced during a disagreement between Marston’s pub tenant Edward Anderson and the brewery. This case ended up in arbitration in front of the Pubs Code Adjudicator, a government body that deals with disputes between publicans and their landlords. Anderson was challenging a rent review at the Railway Inn in Cheltenham, which was raised in 2016 without any indication of the workings behind it—a breach of the Pubs Code, and another out-of-line action by Marston’s.

Marston’s is not the only pub company that has been misrepresenting its volumes. Price lists obtained by Good Beer Hunting show that both Star Pubs & Bars (owned by Heineken) and Shepherd Neame Brewery have done so in the past. The judgment sets a precedent that any pub estate could be subject to contract reviews, cancellations, and damages claims from tens of thousands of licensees who have had the value of their rents and products unfairly inflated, and their profits hit. The prospect won’t please the new foreign investors in the sector like Stonegate Pub Company, which bought Ei Group for £1.3 billion ($1.7 billion), or Hong Kong property company CKA, which bought Greene King for £2.7 billion ($3.55 billion).

 

WHY IT MATTERS

By law, a brewery landlord must tell publicans exactly how much beer is in a barrel so they can price their beer correctly. In its rent calculations, Marston’s claimed there were 72 pints of beer in each cask, but made no adjustments to account for undrinkable sediment volumes, despite the fact that it calculated those quantities accurately when writing them off in tax payments to Her Majesty’s Revenue & Customs (HMRC). Tracking exactly how much sediment is left in each barrel is tough for publicans because of varying wastage levels from line cleanings and spillages, but Marston’s had to show its hand when it was forced to give those figures during the arbitration. It revealed that up to 8% was unsaleable sediment, depending on the beer in question. The brewery’s most popular beer, Pedigree, typically clocks in at around 5.3%, or 2.17 litres, of sediment—around £15.60 ($20.53) worth of beer over the bar.

It was a shock,” says Anderson. “There’s a lot more sediment in there than you’d expect. So I’ve always been rented on the sale of beer that doesn’t exist—I’ve always suspected it and now it’s in black and white. Not only do you not have the money from those sales, but also you have to pay extra rent. You’re hit from both sides.”

In the ruling, Pubs Code Adjudicator Paul Newby said the 2.5% wastage allowance given on cask beer by Marston’s was “inappropriate and inadequate” and “whether intentionally or not,” Marston’s had breached the Pubs Code by basing its rent and pricing on this generic calculation.

The Forum of private business estimates in its own research that an average pub with average sales could be losing roughly £17,920 through overpayment and their rent could be overestimated to the tune of 5k a year meaning an additional £25,000 in a 5-year tenancy deal, these kinds of figures could have contributed to the 13,000 British pubs that have closed since 2001.