United Kingdom: S&N to give free-of-tie leases on some pubs

S&N, which is owned by brewer Heineken, is offering free-of-tie leases on some pubs which have been dormant for more than four months, The Telegraph posted on November, 23.

The pub trade has had a difficult few years, contending with the smoking ban, declining beer sales, supermarket discounts and now the recession. The beer tie, under which tenants are forced to buy beer from pub companies in exchange for cheaper rent, has become a focus for discontent by lobby groups and tenants, who complain that the agreements are driving lessees out of business by charging above-market prices.

A recent Office of Fair Trading investigation into the beer tie ruled that the obligation for tenants to buy supplies from their landlord does not pose a threat to consumer choice.

However, many tenanted pubs have fared worse during the recession than those managed by companies like JD Wetherspoon and Mitchells & Butlers, which tend to be larger and can offer lower prices through the economies of scale of being part of a chain.

Most of the pubs being offered tie-free by S&N are currently being managed under temporary contracts, which are less profitable for the landlord.

“Having a pub without a permanent lessee is not satisfactory for the individual business, the customers it serves or, given the overheads, for the company as a whole,” said Andy Braithwaite, head of lessee training and recruitment at S&N.

Heineken recently had to clean up the mess at Scottish & Newcastle’s Pub Enterprises division, acquired as part of the takeover of the UK brewer last year. It bought the assets of Globe Pub Company, owned by property entrepreneur Robert Tchenguiz, from receivers for £180m, to stave off further losses on beer supply and management contracts.

S&N has signed an unusual 30-year beer supply and pub management contract with Globe in 2005, under which it only received fees after debt-holders had been paid interest. Globe’s trading significantly worsened this year and it defaulted on a £257m loan in spring. Heineken then found itself in the position of supplying beer and managing the pubs without being paid.

25 November, 2009