Last month the Department for Communities and Local Government published a consultation paper relating to the use of restrictive covenants in the pub industry and their impact on local communities.

Although the consultation exercise is very narrow in its focus, the fact that the consultation has even been launched raises a number of issues in relation to both the competition rules and their impact on the real estate sector and also the Government’s proposals for the “Community Right to Buy”.

The primary purpose of the consultation paper is to gather evidence as to the extent to which restrictive covenants are imposed on the disposal of pubs which prevent future use as pubs and whether this has a negative or harmful impact on local communities (for example who might want to operate a local community owned pub from the premises in the future).  

The paper also sets out four different options which could be used to deal with the issue (assuming there is an issue).  These are self regulation within the pub industry relating to the use of covenants, a nationwide ban on the use of such restrictive covenants in relation to pubs, a local ban against such covenants imposed by a local authority or a ban on an individual pub by pub basis (whereby local authorities are able to decide on a case by case basis whether a pub is considered to be a community asset, assess the impact on a particular community of any restrictive covenants which affect the relevant pub and ban these covenants where applicable).  This last approach is clearly the Government’s preference and would involve using the List of Community Assets.

Although narrow in its particular application, the fact that the consultation paper has been launched raises a number of important questions including:-

  1. Land agreements used to be excluded from the scope of the rules on anti-competitive agreements under the Competition Act 1998.  However, that exclusion ceased to apply on 6 April 2011.  Since the competition regime now applies to land agreements, why is it not sufficient to rely on the enforcement of the competition rules, rather than creating an extra layer of regulation just for the pubs sector?
  2. The pub sector is clearly the focus of this particular paper.  There are suggestions in the consultation paper that the approach of using the Community Assets List is something which could be looked at and applied to other community assets such as local shops and community centres in the same way so there are wider obligations for the industry if this approach is adopted in relation to the pub sector.  For example how is the asset to be valued prior to community acquisition (with or without the covenant?)

For those interested in the detail of the consultation itself and wishing to comment, the consultation period expires on 25 October 2011.  For a copy of the consultation paper please see the following link.