How do surveyors keep pubs pouring pints?

Free houses, which are not beholden to a brewery, make up slightly less than half the UK’s 44,000 or so pubs. The rest are ‘tied’ to a brewery or pub company (pubco), from which they are required to buy at least some of their beer.

Since 2016, tied pubs owned by the biggest pubcos have been governed by the Pubs Code. The code, enforced by the Pubs Code Adjudicator (PCA), seeks to ensure fair dealing between the pubcos and the tenants who lease and run them, while specialist surveyors play a crucial role in providing evidence and professional assessments that enable the system to function. This includes acting as independent assessors when landlord and tenant cannot agree a market rent.

Six companies each owning more than 500 pubs are large enough to be governed by the code: Admiral, Greene King, Marston’s, Punch Pubs, Star Pubs and Stonegate. Together they control more than 8,000 tied pubs. (JD Wetherspoon pubs are classified as free houses and not tied to a particular brewery.)

Tenants taking on a tied lease receive certain benefits. The cost of entry is lower because the ‘ingoings’ – the upfront security deposit, staff and equipment costs – are less. They also pay a lower rent than free houses. In return they are expected to purchase beverages from the pubco, which acts as a wholesaler for its brewery partners’ products. But the price at which they purchase beer is higher than it would be on the open market, providing the pubco with an extra wholesale profit.

Fitted-out pub rents are not valued per square foot like most commercial property. “Pubs are valued on the basis that essentially 50% of the net profit is for the landlord as rent, and 50% of the net profit is for the tenant as profit,” explains Andrew Crease FRICS, founder of leisure property surveying firm, Andrew Crease & Co. In a free-of-tie situation, the tenant pays less for their beer by buying it on the free market, but the landlord is compensated for some of their reduced profit by charging a higher rent.

When an MRO option is triggered, a surveyor acting for the pub company prepares a rent assessment proposal, justifying it in line with the Pubs Code and RICS guidance. If, as frequently happens, landlord and tenant fail to agree on a rent, then an independent assessor chosen from a panel of specialist surveyors is called upon to determine it.

When advising a tenant who is considering going free-of-tie, it is a surveyor's job to ask probing questions, says Crease. “What extra income do you feel you're going to generate from this, and how much of that are you going to be willing to pay in extra rent? Because undoubtedly, the free-of-tie rent will be higher than the tied rent that they've been paying before.”

However, from the pubco perspective, the new market rent will usually be lower than the tied rent plus the wholesale profit. Therefore, pubcos seek to prevent too many of their tied leases changing to market rent. One way in which they do so is by offering shorter leases, reducing the number of tenants with a right to MRO.

“It certainly has influenced the behaviour of the larger landlords in terms of the style of, or the length of, agreement they will issue,” says David Gooderham MRICS, a director at AG&G, which represents pubcos. “Historically, 25 and 30-year tied leases were being granted by the brewers and the big pub company estates. They're not granting that length of lease anymore.”

Other tactics adopted by pubcos include the introduction of franchise agreements instead of leases and selling off free-of-tie pubs to smaller pub owning companies that are not governed by the code, adds Crease.

“Parliament introduced the Pubs Code because it was concerned that tied tenants didn't have negotiating power within the business relationship with these very large pub companies,” says Pubs Code Adjudicator (PCA) Fiona Dickie, a barrister by training who is now in her second term of office as PCA. “So, it introduced the Pubs Code to further two core principles: that there should be fair and lawful dealing by pub companies towards their tied pub tenants, and secondly, that those tied tenants should be no worse off than if they were free-of-tie.”

Nonetheless, some pub tenants still take up their market rent option. Dickie says of the 3,208 gateway events between 2020-21 and 2024-25 around 20% resulted in tenants asking for an MRO option, and around a third of those – approximately 200 pubs – have gone free-of-tie.

That usually means advice from an accountant, says Dickie. But the Pubs Code also emphasises the value of experts in relation to rent assessment and property condition and the PCA is trying to encourage more tied tenants to take property-related advice. 

A PCA survey of tied tenants carried out this year reveals that while 95% of respondents said professional advice is important, only 12% reported seeking advice from a qualified building surveyor before entering into the tenancy. That can leave tenants open to nasty surprises about the condition of the building, which can threaten their business, particularly when they sign a full repairing and insuring lease, she warns.

“Taking on a pub can be an emotive matter. People fall in love with the pub, with the idea of the lifestyle. These are often characterful buildings. People feel passionate about them and about putting something back into their community,” says Dickie. “But that enthusiasm has got to be matched by a realistic assessment of the business proposition.”

The PCA is empowered to investigate code breaches and offers a formal dispute resolution process by arbitration. The Chartered Institute of Arbitrators recommends suitable arbitrators for the PCA to appoint, many of whom are RICS members. A measure of the PCA’s success, claims Dickie, is a sharp reduction in the number of disputes going to arbitration since its introduction, with only ten such cases submitted in 2024-25.

The Pubs Code is reviewed by the secretary of state every three years. The last review, carried out in 2023, concluded the code had been successful and the PCA effective in enforcing it. A third statutory review was published on 14 September.

Dickie argues that the code has had a beneficial effect on the tied pubs relationship over its decade in operation. “It doesn't mean that all is perfect, but tenants going into their agreement are more informed and more empowered, and the temperature has cooled in the industry. Many people within it will say that a great deal has changed.”