Competition and trade law: Favourable position for Bass standard pub leases

United Kingdom

The Commission has published a Notice stating its intention to take a favourable position in respect of a standard form of beer-tie pub lease (with fixtures and fittings) notified to it by Bass. Before doing so, the Commission has invited all interested third parties to submit their observations.

The leases are generally of ten years' duration and the fixed rent is reviewed after five years. The lessee agrees to buy all specified beers from Bass or its nominee with the exception of one brand of cask conditioned draft beer and, by the end of March 1998, one brand of bottled conditioned beer. The lessee may sell any type of beer other than the specified types if it is packaged in bottles, cans or other small containers or if it is in draft form and the sale of that beer in draft form is customary or is necessary to satisfy a sufficient demand from the lessee's customers. As well as the restrictions on the choice of beer sold in any pub the Commission found that there was a price differential between the price of beer purchases for tied operators and for individual free house operators, due to differing discount schemes.

The leases therefore contain clauses which are potentially anti-competitive. However, the Commission Notice acknowledges that since 1991, when the standard leases were introduced, the UK brewing and pub retailing markets have changed, there has been a fall in overall demand and demand for on-trade beer sales, and in particular Bass have reduced the number of tied pubs which it owns. Also the Commission found that the leases contain a number of countervailing benefits including a rent subsidy, value-added services (such as bulk buying and procurement services including discounts on glassware, gas supply, rating, banking, insurance and paint), a joint investment programme in co-operation with lessees, funding for repairs, support franchise (such as business planning performance review and development initiative services for lessees), direct operational support, assistance with set-up and development costs, promotional offers, and other benefits.

As a result of these factors, the Commission intends to grant a retroactive exemption from EU competition rules. A final decision on the proposed exemption is likely by the end of 1998.