THE GIST
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 was 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.
In a prepared statement, James Edwards, Marston's pubs code compliance officer, says that the "very complex case" includes "two very different aspects" to its story, but declined to elaborate what those aspects were or the specifics of their complexity. He notes that Marston's doesn't agree with how events and details were interpreted and presented by the Pubs Code Adjudicator, but also didn't expand on what that meant.
Edwards tells GBH that it's important to recognize Anderson's pub "remains in occupation and continues to successfully run established Marston’s pubs on (market rent only) terms."
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 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 liters, 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.
Chris Wright, managing director of the Pubs Advisory Service, which helps pubs through arbitrations such as this, has been campaigning for years around the topic. He even conducted his own temperature-controlled tests to work out the exact volume content of casks, and measured sediment quantities. He sees the lack of transparency around beer volumes in cask as a key reason that around 13,000 British pubs have closed since 2001. A Vianet study of U.K. cask quality in 2016 found that pubs were losing an estimated £111.9m a year in profit, based on 2% wastage. If 5% of that same cask is also undrinkable, the losses to tied pubs could be almost triple that.
“This is why tied pubs don’t make any money,” he says. “They’ve been lied to. They don’t even know how much beer is in their barrels. From the very start their rent is wrong, their pricing is wrong, their net profit is wrong. They’ll never hit their targets.”
In February 2019, Newby ruled that Marston’s had to supply Anderson with a code-compliant rent proposal within 21 days. Despite having the information to hand after three years of negotiation with Anderson, it failed to do so, breaching a requirement of the code once again.
Marston’s would only comment to confirm it later reached an agreement with Anderson, which meant the new proposal was no longer needed, but it’s clear that the ruling sets a dangerous precedent for the company. The brewery operates around 400 tenanted pubs, all rented according to their potential barrel sales. Each one can now challenge their rental agreements, tangling Marston’s in legal disputes and costing it millions in rent reductions—but Wright believes that is the least of its problems.
“Sure, they can adjust rent for the pubs that are still going,” he says. “But how are they going to compensate those who lost their pubs? This is PPI for pubs. It will probably sink a couple of family brewers. They won’t have the money to pay their way out of it.”
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).
The Pubs Code Adjudicator also has powers to fine breweries for non-compliance with its code, but has been unwilling to do so. Though the body has been regularly criticized for being on the side of the large pub companies, this latest judgment implies that its stance might be changing, and fines of up to 1% of a pub company’s turnover could be issued. Despite being behind this major development, Anderson still isn’t hopeful after his experience.
“A lot of work went into this and it was a horrible period of my life,” says Anderson. “But because some of the information would contradict claims in the original rent proposal, Marston’s haven’t done it. They don’t like the Pubs Code and they don’t think they should have to give the information.I complained to the PCA on numerous occasions. ”
Anderson was lucky enough to secure a free-of-tie rental agreement with Marston’s over the summer so is now buying beer from companies he trusts. He hasn’t ruled out taking Marston’s to court, but for now the impact of this new precedent on the country’s thousands of remaining tied tenants has yet to be felt.
Words by Jonny Garrett