HEINEKEN EXPOSED: History tells us the denial of rental support to their MRO ‘free of tie’ tenants is hardly surprising

We reported earlier in the week about how Star Pubs & Bars, the pub-owning outfit owned by Heineken (the worlds second biggest brewer), which owns some 2,500 pubs in the UK, were deliberately excluding MRO (free of tie) pubs from their package of rental support. 

The Pubs Code Legislation that came into law in 2016 was intended to regulate the relationship between large pub-owning businesses and their tenants. One of the underlying principles of the legislation, is that tied pub tenants (who have to purchase their beer from their landlord – often at greatly inflated prices) should be “no worse off” than their free of tie counterparts. It was also meant to ensure “fair” and “lawful” dealing. 

The regulation came about after years of campaigning by various groups who felt that the large pub-owning businesses were not treating their tenants fairly, many of whom struggle to trade profitably – whilst making a healthy return for the pub-owning business. 

The legislation introduced the right for ‘tied’ tenants to become ‘free of tie’ by a tenancy known as a Market Rent Only (‘MRO’) agreement. 

Since the legislation was introduced, Heineken have consistently sought to frustrate their tenants from being able to go free of tie. The Pubs Code Legislation is regulated by the Pubs Code Adjudicator, who launched an investigation against Star Pubs in 2019 (their only such investigation launched to date) – following overwhelming evidence that Star have consistently abused their position to insist on unreasonable stocking demands as a condition of becoming free of tie.

In simple terms, a MRO agreement may include a requirement for the publican to continue to sell some of Heineken’s products – although they may be purchased from any supplier. However the requirement must be ‘reasonable’ and take account of the pub’s circumstances. 

Far from propose reasonable requirements, in the early days Star were asking that pubs be required to stock 100% of the beer products as Heineken owned brands – regardless of what products were already on sale at the site.

This would mean that a pub, such as The Circus Tavern in Manchester – would be forced to stop selling Carling, in spite of it being easily the best selling product on offer. 

This forced pub tenants to have to reject the MRO agreements as proposed, and endure lengthy arbitrations at significant cost and delay. Often these arbitrations took over a year to conclude, during which time Heineken would try and circumvent the legislation and wear publicans down into accepting varied tied agreements. 

Understandably, this often worked, with many fed-up tenants simply giving up.

Whilst not all tied agreements are necessarily bad, the position taken by Heineken meant that tenants were restricted from making a straight-forward choice between the two options. 

The investigation against Star is still ongoing, and we expect a conclusion in the coming months.

Stocking requirements

In the end, the Circus Tavern in Manchester was required to accept a negotiated 50% keg stocking requirement as a condition of becoming free of tie from Heineken. This was their best and final offer.

This means at least half of the products on sale at the bar must be Heineken owned brands – in spite of being the smallest bar in Europe – only capable of stocking 4 products in the first place.

So Landlord Barry will now be required to change some of the products currently on sale when he reopens.

This was eventually agreed between the parties, so as to avoid a significant arbitration process – albeit that the tenant did not actually consider this level of stocking requirement reasonable. 

For example, in an arbitration that just concluded against Heineken recently in Hertfordshire – where Heineken were also asking for 60% of the beer brands – the arbitrator eventually awarded that just one single line must be a Heineken branded product (16.7%). This dispute took well over a year to settle – and yet even now Heineken still continue to propose 60% requirements at similar sites that have not historically stocked many of their products.

One such site is the music venue The Horn in St Albans, which is now facing a similar process – whilst simultaneously now fundraising for it’s very survival.

An even earlier published award at the Woodman in North London established the principle that a stocking requirement may “protect” but not “increase” a brewers route to market. In spite of this, Heineken have continued to propose equally onerous requirements – requiring tenants to take them on at great cost if they wish to challenge the large company.

This has proven to be very lucrative work for their legal representatives DLA Piper, the massive global law firm individual tenants must face up to if they wish to challenge Heineken’s proposed stocking demands.

Denial of rental support

As if it wasn’t obvious enough how Heineken view these few tenants that have actually managed to conclude the MRO process and become free of tie – they now seek to deny them any rental support during the Covid-19 closures.

Heineken recently introduced a series of rental support measures across their tenanted estate, based upon the level of government grant on offer. Broadly speaking, Heineken are charging 10% rent to those tenants who did not receive any government grant, and 50% to those that did.

However, there was one glaring omission – free of tie tenants, regardless of the government grant received, will receive NO SUPPORT WHATSOEVER.

In an email seen by the Publican’s Post, the reason was explained as follows:

The relationship we have with you is on free of tie commercial lease and this is fundamentally different to the relationship we have with our core tied leased and tenanted estate. We have always been clear that tied agreements are broader commercial agreements with higher levels of support and with a risk sharing element. Commercial leases are where there is no landlord support with the operator taking all the trading risk.

This of course forgets to mention that their free of tie ‘commercial’ tenants are still subject to a stocking requirement – and therefore this is not the same as a traditional commercial free of tie lease.

In another dispute against Heineken, they sought to rely on a similar argument to enforce a greater level of repair liability on a tied pub tenant in Croydon as part of a MRO agreement. 

In this case, the arbitrator noted the following:

The Respondent [Star] also claimed that a tied scenario differed from a MRO tenancy because only in a tied lease is it in the landlord’s interests to ensure the tenant’s business is successful. I decide however that no such differentiation exists in this instance at the very least because the stocking obligation at cl.3.23 of the Second Offer and the obligations.

In other words, the stocking requirement of a MRO lease means that Heineken do have an interest in the success of the business, in a way that a commercial free of tie private landlord would not. 

In another previously featured MRO site, the Briton’s Protection – ironically the landlord chose Heineken as their main beer supplier, in spite of having the choice to shop elsewhere.

At the above featured site in Croydon, shortly after receiving this award, the tenant received a Section 25 notice at his other Heineken site, The Alma Tavern – serving him notice to leave as the Landlord now wished to run that site for themselves. This site would also have been eligible for a MRO agreement at that point – coincidence? 

Circus Tavern, Manchester

The impact that the denial of rental support is having on their MRO sites is cause for great concern. We have already featured the fundraising efforts at the Briton’s Protection in Manchester. 

Another Manchester institution, The Circus Tavern, as mentioned above was featured in the Manchester Evening News this weekend.

The site has the smallest bar in Europe, so for obvious reasons social distancing is entirely out of the question. 

Landlord Barry Hayes is quoted as saying “if they go with this two meter rule I’m gong to be absolutely goosed”.

All joking aside, traditional drinking pubs that lack space will be the very last institutions with any hope of reopening. This smallest of pubs has so far been denied any rental support by Heineken, in spite of the rather misleading quote from Star’s MD in the paper.

Lawson Mountstevens is quoted as saying “We are and will continue to do as much as we can do to help our pubs… Star Pubs & Bars is providing rent reductions to pubs on an individual basis”

“Once the restrictions are lifted, we want to see all of our pubs open, trading and operating as viable businesses as soon as possible. 

We know the rent relief, which represents a significant investment on behalf of Star Pubs & Bars during challenging times for the whole industry, and the support we provide on a pub by pub basis will have a significant bearing on the future sustainability of our licensees’ businesses – and clearly we want to see our pubs thrive in the long-term.”

Ironically, what Mr Mountsteven’s fails to mention – is that the Circus Tavern, about which the article relates – is one such pub being denied any such support whatsoever. 

If anyone wishes to remind Mr Mountstevens, feel free to drop him an email alongside Heineken CEO Jean-François van Boxmeer.

In the meantime, offers of support from the Circus’s loyal customers continue to come in from as far and wide as Norway. However, Barry remains adamant that out of principle he won’t accept anything until after all other avenues have been exhausted.

So come on Heineken, do the decent thing – and support all your tenants, who are all suffering equally at this unprecedented time.