1999/473/EC: Commission Decision of 16 June 1999 relating to a proceeding pursuant to Article 81 of the EC Treaty (Case IV/36.081/F3 - Bass) (notified under document number C(1999) 1472) (Only the English text is authentic)
Date: 1999-06-16
Institutions: European Commission
Subjects: beverage industry, business lease, exclusive purchasing agreement, restriction on competition, retail trade, wholesale trade

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Official Journal of the European Communities

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 16 June 1999

relating to a proceeding pursuant to Article 81 of the EC Treaty

(Case IV/36.081/F3 (cid:151) Bass)

(notified under document number C(1999) 1472)

(Only the English text is authentic)

(1999/473/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

Having regard to Council Regulation No 17 of 6 February
1962, First Regulation implementing Articles 85 and 86 of the
Treaty (1), as last amended by the Act of Accession of Austria,
Finland and Sweden, and in particular Articles 4, 6 and 8
thereof,

Having regard to the application for negative clearance and the
notification for exemption submitted on 11 June 1996 by Bass
plc pursuant to Articles 2, and 4 of Regulation No 17,

Having published a
summary of
notification pursuant to Article 19(3) of Regulation No 17 (2),

application and

the

After consultation with the Advisory Committee for Restrictive
Practices and Dominant Positions,

Whereas:

I. THE FACTS

A. INTRODUCTION

enquiry into the UK brewers’ wholesale pricing policy.
This enquiry, which also covered Bass plc (Bass),
resulted in the internal OFT report on their (cid:145)enquiry
into brewers’ wholesale pricing policy(cid:146) (hereinafter:
(cid:145)the
OFT report(cid:146)) being adopted in May 1995; a press release
on the report was issued by the OFT on 16 May 1995.

(2) On 11 June 1996 Bass Holdings Limited and the Bass
Lease Company Limited, both wholly-owned subsidiaries
of Bass, notified pursuant to Article 4 of Regulation
No 17 a standard form of lease (the standard lease), the
subject of which is a fully fitted-out, on licensed (3)
public house in England and Wales with a tie for beer
as described below. The parties have also notified
certain related agreements. On 8 September 1997, the
parties notified their
for
Scotland. The parties requested negative clearance, or
confirmation that the agreements could benefit from the
application of Commission Regulation (EEC) No 1984/
83 of 22 June 1983 on the application of Article 85(3)
the Treaty to categories of exclusive purchasing
of
agreements (4)
last
amended by Regulation (EC) No 1582/97 (5) or
individual exemption pursuant to Article 81(3) of the
EC Treaty to take effect as from the date on which the
agreements were entered into. The Regulation contains,
in Title II, special provisions for beer supply agreements.

standard lease agreements

(cid:145)the Regulation(cid:146)), as

(hereinafter:

(1)

In February 1995, the Office of Fair Trading (hereinafter
(cid:145)OFT(cid:146)) started, at the request of the Commission, an

(1) OJ 13, 21.2.1962, p. 204/62.
(2) OJ C 36, 3.2.1998, p. 5.

(3) On-licensed premises are those which are licensed to sell alcoholic
beverages for consumption on and off the premises as opposed to
off-licensed premises, such as supermarkets, which are licensed for
off-premises consumption only.

(4) OJ L 173, 30.6.1983, p. 5.
(5) OJ L 214, 6.8.1997, p. 27.

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(3) The information in the notification has been completed
or supplemented by way of a verification pursuant to
Article 14(2) of Regulation No 17 at the premises of
Bass, and several requests for information. In particular,
the Commission has sought confirmation of the data to
the Commission by Bass.

of 1 430 pubs, 1 186 were let on standard leases, 178
(cid:145)TAWs(cid:146)),
were subject to tenancies at will (hereinafter:
42 were subject
to a short-term tenancy agreement
known as the Foundation Agreement, and the remaining
24 were
agreements or
unoccupied. In the year ended 30 September 1996, Bass
supplied approximately 422 000 barrels of beer to its
leased estate, which represents 1,6 % of the 1996 on-
trade beer consumption (by volume) in the UK.

to other

subject

either

(4) Following the publication in the Official Journal of the
to
the notice pursuant
European Communities of
(cid:145)the
Article 19(3) of Regulation No 17 (hereinafter:
notice(cid:146)),
in which the Commission announced its
intention to grant a retroactive exemption pursuant to
Article 81(3), the Commission received 20 observations
from interested third parties. 16 standard replies were
(cid:145)the model(cid:146)),
submitted using a model
lessees. The
prepared
from three
Commission also received observations
received
lessees.
observations from an accountant.

(hereinafter:
an action group for

Commission

addition,

the

by

In

(5) The information in these observations will be dealt with
in the remainder of this Decision. 16 of the interested
third parties requested the Commission to register their
submission also as a formal complaint against Bass.
Some of the complainants withdrew their complaints,
but the 11 remaining complainants were informed in
November 1998, pursuant to Article 6 of Commission
Regulation No 99/63 of 25 July 1963 on the hearings
provided for in Article 19(1) and (2) of Regulation
No 17 (6) of the Commission’s intention to reject their
complaint. Eight of them presented further comments
on this letter. Those comments are also integrated into
this Decision.

(9)

In December 1997, Bass agreed to sell the majority of
its leased estate (1 190 leased pubs) and a number of its
managed pubs to a management buy-in team led by
Hugh Osmond and backed by BT Capital Partners
Europe,
the private equity arm of Bankers Trust.
Completion took place on 9 April 1998 and legal title
in the properties
is now vested in Punch Taverns
Limited. Bass also agreed the sale of a further 27 leased
pubs
that
to the same group, and completion of
transaction took place on 3 July.

(10)

In January 1998, Bass disposed of a further tranche of
outlets, including 153 leased pubs, to Beechley Limited,
although management control will be vested in a
subsidiary of Beechley, Avebury Limited. Completion in
respect of all but seven of the leased properties has now
taken place.

B. THE PARTIES

(11) Bass has retained just over 20 leased pubs and expects
to convert these into managed outlets in due course.

(6) Bass is a public company listed on the London Stock
Exchange. The Bass Group is an international drinks and
leisure group operating in the hotel, leisure, hospitality,
brewing and drinks sector in Europe,
the USA and
elsewhere in the world.

(7)

In June 1996 Bass owned approximately 4 182 pubs in
the United Kingdom, of which 2 736 were managed
(that is to say, the operator was an employee of the
company) and 1 446 were leased to tenants.

(8) As of March 1997, the Bass leased estate totalled 1 430
pubs, of which 106 are located in Scotland. Of this total

(12) Bass’ worldwide

in

the

turnover

ending
30 September 1997 was GBP 5 254 million, of which
GBP 1 390 million arose from its pub operations (both
leased and managed outlets). Bass’ market share in that
year remained in the region of 23 % in terms of beer
volume production.

year

(13) Details of the actual number of barrels (7) sold by Bass
to and the relevant market shares on the UK on-trade
beer market of
including
(b) managed
those on temporary tenancy agreements,
houses, (c) pubs with a loan tie to Bass, (d) total of Bass’
sales to property tied pubs, managed houses and loan

(a) all property tied pubs,

(6) OJ 127, 20.8.1963, p. 2268/63.

(7) 1 barrel equals 1,63659 hl; 1 hl equals 0,611026 barrels.

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ties, (e) Bass’ total sales to the on-trade and (f) the total
UK on-trade market are given in Table 1 below.

their companies who,
only one on-licensed site.

in general, have an interest in

Table 1

Bass’ position in the UK on-trade beer sector

(a)

(b)

(c)

(d)

(e)

(f)

1991

1 151

1 761

2 433

5 345

7 108 29 553

1997

[(cid:133)]

[(cid:133)]

[(cid:133)]

[(cid:133)]

[(cid:133)]

[(cid:133)]

1990/91

3,9 %

6,0 %

8,2 % 18,0 % 24,1 % 100 %

1996/97

[(cid:133)]

[(cid:133)]

[(cid:133)]

[(cid:133)]

[(cid:133)]

[(cid:133)]

(14) The average length of a Bass loan agreement is eight
years. The average duration of Bass’ loan tie agreements
has, since 1990, been less than half its contractual term
since these arrangements are frequently renegotiated.
Bass estimates that it retains the business with the outlet
after the loan is terminated in a declining number of
instances following renegotiation. Bass’ outstanding-loan
book has fallen from a figure of GBP 361 million in
financial year 1991 to GBP 314,2 million in the
financial year ending 1997.

and Bass has

(15) The Commission observes that the barrelage/percentage
of beer sold by Bass to other operators on the wholesale
level on the UK on-trade beer market is subject to some
form of restriction such as a minimum purchasing
obligation, a must-stock obligation or a (limited) non-
compete clause. These other operators include other
independent wholesalers or non-brewing pub
brewers,
companies,
agreements with such
operators covering approximately 1,2 % of the UK on-
trade beer market. The information available tends to
indicate that the volume accounted for by (cid:145)restrictive(cid:146)
agreements
(minimum purchasing obligations with
penalties) is virtually non-existent compared to the early
1990s, as more recent agreements have tended to
promote discounts as an incentive, with discounts linked
to certain volume or distribution targets. Stocking
obligations (for the managed part of
the estate) and
listing obligations (for the leased part of the estate) still
seem to be included in such agreements, although no
estimate has been made as to the volume this might
represent.

C. THE MARKET

(17) Since 1991,

(cid:145)MMC(cid:146))

the date of

the result of

introduction of

the leases,
significant changes have occurred in the structure and
conduct of the UK on-trade beer market. These are for
the Beer Orders made
the most part
following the Monopolies and Mergers Commission’s
report on the supply of beer,
(hereinafter:
in both overall demand and
together with a fall
particularly on-trade beer
in consumer
demand towards pubs offering a wider choice of drinks
and food, the withdrawal of several companies from
brewing and the redefinition of relationships between
brewers and pub-retail chains on the one hand and
tenants on the other.

shifts

sales,

The 1989 MMC report and the subsequent Beer
Orders

at

tie

the

relaxing

traditional

(18) The 1989 MMC report on the supply of beer led to a
number of recommendations being made which were
aimed
(exclusive
purchasing obligations and non-competition obligation)
between brewers
the MMC’s
recommendations were implemented, mainly by the
Supply of Beer (tied estate) Order 1989 and the Supply
of Beer
licensed premises and wholesale
(cid:145)the Orders(cid:146)). The Tied
prices) Order 1989 (hereinafter:
Estate Order imposed the following changes on the
(cid:145)national brewers(cid:146), which means brewers having an
estate of more that 2 000 on-licensed premises:

and pubs. Most of

(loan ties,

(cid:151) their tenants/lessees would be free of tie for non-

beer drinks and low-alcohol beers,

(cid:151) their tenants/lessees would have the right to buy
one cask-conditioned ale (a beer with fermentation
in the cask) (8) from a source other than the brewer/
landlord (hereinafter: (cid:145)the guest beer clause(cid:146)),

(cid:151) they were allowed to tie only a certain number of
pubs. This forced them to sell or free of tie about
11 000 of the then-estimated 60 000 UK pubs. Bass
are allowed to tie a maximum of 4 752 pubs.

(16) The other parties to the actual agreements that are
based on the notified standard leases, are individuals or

(8) The UK Government extended the scope by also allowing for one

bottle-conditioned beer from 1 April 1998.

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Demand factors

In addition,

(19) Beer can be sold through the on-trade, namely pubs,
hotels and restaurants, or through the off-trade, such as
supermarkets and off-licences.
imports
brought into the UK by private individuals on which
duty has been paid, mainly from Calais, are estimated to
account for almost 5 % of total beer consumption in the
UK in 1997. Volume sales of all beer in the UK fell by
4 % between 1989 and 1997 and volume sales of beer
in the on-trade fell by 20 % in the same period. The
proportion of sales volume accounted for by the on-
trade has thus fallen (from 79,3 % in 1989 to around
68 % in 1997) but, with the exception of
Ireland,
remains the highest proportion in the Community.

(20) Falling beer sales volume in the on-trade has been offset

by:

(a) a rise, in real terms, in on-trade beer prices of 21 %
between 1989 and 1996, only
a negligible
proportion of which was accounted for by tax
increases;

(b) a rise in the proportion of non-beer sales in pubs to
37 % of total revenues in 1996, largely as a result
of the increase in catering sales.

Ireland,

total consumption. This

(21) Consumption of draught beer accounted in 1996 for
63 % of
is also, with the
in the
exception of
Community. In contrast, the figure for Belgium, which
has
the third largest draught consumption in the
Community, was 39 %. UK pubs also offer a bigger
choice of draught beers
in the
Community, with an average of 6,5 brands per pub.

than elsewhere

the highest

figure

Supply factors

Brewing

the

since 1989 is

increasing
(22) The main change
concentration of
the brewing market. The increased
concentration has been caused by companies leaving the
brewing market and selling their brewing operations to
the remaining four
In 1996,
existing competitors.
national brewers, Scottish & Newcastle, Bass, Carlsberg
Tetley Brewing and Whitbread, controlled 78 % of the
UK beer market in terms of supply. The Herfindahl-
(cid:145)HHI(cid:146)), used to help
Hirschmann index (hereinafter:
increased for the UK
describe market concentration,

beer market, on the basis of the market shares of the
national brewers, from 1 350 in 1991 to 1 678 (9) in
1996. With a HHI between 1 000 and 1 800,
the
market is described as (cid:145)moderately concentrated(cid:146). Some
regional brewers (10) left the market between 1989 and
1996, reducing the number of regional brewers from 11
to eight. The model notes that Scottish & Newcastle has
38 % of the market in Scotland and Bass 42 %.

Wholesaling

in

(23) The result of the Orders was the sale of some of the
national brewers’ tied estates. This was expected to lead
to an increase in the free trade and to a greater role for
independent wholesalers. However,
1995/96
independent wholesalers still only accounted for some
6 % of distribution, compared to 5 % in 1985. The
national brewers still dominate the wholesale sector,
with a share of distribution similar to their share of
production. As regional brewers do not require the
services of traditional wholesalers either, this, combined
with the general decline in sales of beer and the
increased efficiency of national brewer-wholesalers, has
resulted in marginal growth in the traditional wholesale
sector.

(24) The pubs that were sold by the national brewers were
purchased mainly by retail pub chains or by regional
brewers. In general, pub chains either have their own
wholesaling operations or are supplied direct by the
brewers. Similarly, regional brewers do not require the
services of
independent wholesalers. This, combined
with the general decline in sales of beer and the
increased efficiency of national brewer-wholesalers, has
resulted in marginal
independent
wholesale sector.

growth in the

Retailing

(25)

In the UK, the retail sale of beer and other alcoholic
drinks for consumption on the premises requires a

(9) The Commission does not have precise information on the market
shares of the other UK brewers. Nevertheless, it does not estimate
that the HHI for all brewers would reach the 1 800 mark, from
which a market is considered to be (cid:145)highly concentrated(cid:146).

(10) Defined in the MMC Report as brewers which (cid:145)have a business
which is mainly, but not necessarily wholly, concentrated in a
single region of the UK(cid:146). The number of regionals in 1996 is
defined by taking as a benchmark the number of owned pubs and
production volume for the smallest regional in the MMC Report.

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justices’
classes of licences are currently in operation (11):

(local courts of

licence. Three distinct

law)

the

lessees

the tenants and lessees of

and the guest beer (12)
purchases of
the national
purchases
brewers made with their landlord-brewer. The figure
does not
include the purchases of guest beer from
another supplier.

(cid:151) full on-licences: where a person can buy an
alcoholic drink without being a resident or having a
meal. There are approximately 83 100 full on-
licences in issue, of which around 57 000 are pubs.
The remainder includes hotels and wine bars,

(cid:151) restricted on-licences: where it is a condition on
buying a drink that the customer is either a resident
or having a meal. This covers some 32 300 private
hotels and restaurants,

(cid:151) clubs: a person has to be a member before buying a
drink. This covers some 31 500 outlets, mainly
jointly owned by their members.

(28) The 18,1 % figure for tied premises’ volume in 1997
does include the total volume that a loan-tied pub
operator buys from the supplier with whom he has a
loan tie. This volume may exceed the tied quantities laid
down in the loan agreement. It is, however, not known
what part of the 18,1 % represents purchases in excess
of
the loan-tie quantity. The 18,1 % figure does not
include the (cid:145)free(cid:146) purchases of a loan-tie pub operator
with other suppliers.

(29) Whilst Table 2 gives an idea of the throughput in the
on-trade by describing the ownership situation of the
premises, it can also be noted that if one refers to the
category of on-licensed premises, 70 % of beer is sold
through the estimated 57 000 pubs, 20 % through clubs
and 10 % through restaurants, hotels, wine bars and so
forth with full or restricted on-licenses (1995 data).

(26) By forcing changes in the ownership of pubs,

(c)

the

the
Orders have also had an effect on the proportion of
beer sold through the different retail channels: (a) the
tied estate of the brewers, (b) the managed estate of the
brewers,
independent pub
tied estate of
companies, (d) the managed estate of independent pub
companies, (e) loan-tied premises and (f) untied or free
premises. This can be seen from the following overview
on beer sales (volume). The 1985 data come from the
MMC Report and can be considered as representative
for the years 1985 to 1989; the 1997 data are from the
Brewers and Licensed Retailers Association (hereinafter:
(cid:145)BLRA(cid:146)), including estimates for non-members.

Table 2

UK on-trade beer consumption

(a)

(b)

(c)

(d)

(e)

(f)

(%)

1985

1997

30,8

24,2

0,0

0,0

22,0

23,0

10,0

17,2

11,4

8,3

18,1

35,0

(27) The 10 % figure for the sales going through the tied
the tied

in 1997 includes

the brewers

estates of

the end of

(30) The Orders also reduced the restrictive scope of loan
ties, by allowing their termination at any time by the
tenant on three months’ notice. The Orders also
introduced the guest-beer right for publicans with trade
loans from the national brewers. Judging by information
supplied by the BLRA (following a specific survey
undertaken in 1996), it appears that the usual period of
a loan is five or 10 years, and the average actual length
is almost four years. 31 brewers had some 37 000 loans
outstanding at
the survey period (almost
35 000 at the start) with over the year almost 8 000
new loans entered into and over 5 000 repaid. The
value of the loans repaid during the period exceeded the
the new loans made (to existing or new
value of
customers); some 2 % of
the outstanding capital was
written off as bad debts. The average value of a loan is
around GBP 30 000. There appear to be two types of
loans, relatively small ones (a value of almost GBP
5 000 at the start of the period, but only an average
value of less than GBP 2 000 at the end of the survey
period) which are often made available to small free
trade pubs and they appear to be very volatile. On the
other hand, there are much larger loans to large volume
outlets
(average value around GBP
60 000) and these are usually non-exclusive. However,
the purchasing obligations are usually for a specific
quantity of beer. No estimate was made by the BLRA as
to the volume split for small/big loans, the number of

such as clubs

(11) The licensing system is slightly different in Scotland.

(12) This is sometimes called a guest beer, although the legal definition
of a guest beer refers to the purchase of a cask-conditioned beer
from another supplier (recital 18).

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the

total

loans,

on-trade

non-exclusive
volume-
percentage accounted for by such non-exclusive loans,
or the percentage of total throughput of the relevant
premises
accounted for by the quantity of beer
stipulated in such loan ties. No information was given
as to the proportion of loans that the publican pays
back with money loaned to him by another brewer (in
exchange for the loan tie). Beer volumes sold through
loan ties have reduced in the last couple of years and,
for
loan
repayments has exceeded the value of new loans.

the years 1994 to 1996,

the scale of

Competition between brewers

(with or without

(31) At the wholesale level, the major brewers have some
guaranteed sales through their tied and managed estates.
The brewers have to compete to supply the remainder
of the market, through individual agreements with free
houses
and supply
agreements with pub chains and other brewers (with or
without (cid:145)ties(cid:146) such as minimum purchasing obligations,
The
non-compete
competition parameters are mainly on price and brand
strength, although the brewers also try to gain sales by
offering other benefits such as promotional support.

and must-stock

obligations).

loan ties)

Market entry at brewing level

(32) The main hindrances to entry at this level are the need
to secure outlets for supplies and to have access to a
distribution system. A new entrant has
to secure
supplies to free houses, pub chains, or to the brewer’s
estates as part of their portfolio of beers or (in the case
of a national brewer) as a guest beer. Possession by
competitors of well-known brands may hinder entry, or
expansion of existing brewers. This may be more
in lagers, which are normally marketed
important
nationally, and where economies of scale in advertising
may make small-scale entry less viable. The difficulties
involved in small-scale entry may be increasing as the
advertising expenditure for the national lager brands has
increased substantially over the last couple of years,
even on a brand basis.

enter supply agreements with a chain rather than with
individual pubs. Whereas it is relatively easy to set-up a
the
distribution system limited to the
wholesale
and/or
the
wholesalers, it is more difficult to reach the individual
retail outlets.

supply of
brewers

depots

other

of

(34) Most

foreign producers of beer (mostly lager) have
chosen to enter
the UK market by entering into
exclusive licensing agreements with existing national
brewers whereby the beer is brewed in the UK and sold
as part of
the national brewer’s portfolio of brands.
These foreign lagers have often been marketed as
premium brands
substantial
advertising budgets. Bass has formed a joint venture in
the UK with the Dutch brewer Grolsch for the brewing
and distribution of Grolsch products.

supported

and

by

Market entry at retail level

(35) Pubs compete only with others in their locality. Broadly
speaking, each area has a local price for a certain type
of package, which comprises
the total pub (cid:145)offer(cid:146)
(facilities, ambience) and not just the price of beer.

(36) Entry barriers in the retail market are relatively low. The
only one of any significance is the presence of licensing
laws, which can prevent new pubs from being opened
unless there is a need for them. These laws are not
applied strictly throughout the UK, but where they are,
they can result
locality being
in entry within that
difficult. Also, in some areas of the UK, licences are now
being refused mainly on public-order grounds. However,
a particular pub company has succeeded in opening
over 100 pubs on green-field sites in recent years.

Changes in arrangements between pub tenants and
their landlords

(33) The need to secure outlets has been reduced since the
implementation of the Orders, owing to the reduction
of the proportion of the market subject to ties and to
the emergence of pub chains (in so far as they are not
tied (cid:151) see recital 24). It is easier for a new entrant to

(37) Historically, pubs were let by means of

(cid:145)traditional(cid:146)
short-term pub tenancies. Brewers retained responsibility
fot the fabric of the building and its fixtures and fittings
and tenants were responsible for selling beer supplied

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by the landlord plus other drink and food. Following
the MMC Report, pub tenants in England and Wales
tenure (13) by being
were provided with security of
brought within the Landlord and Tenant Act 1954.
However, well before the MMC’s recommendation, the
long full repair and maintenance leases, which
first
provided some security of
tenure and the ability to
assign the lease, were offered.

D. THE AGREEMENTS

(38) The tenancy agreements are contracts between Bass and
the lessee, whereby Bass makes available a licensed
public house together with fixtures and fittings to a
lessee for the purpose of carrying on the business of the
public house and under which the lessee pays a rent to
Bass and agrees to purchase the beers detailed in the
agreement from Bass or its nominee.

(40)

(39) The basic Standard Lease Agreement has been in
existence in England and Wales since 1991, with slight
modifications in the form used. The lease is generally of
10 years’ duration (some are of 15 or 20 years), with a
fixed rent that is subject to review every five years and
in certain other limited circumstances. The lessee may
assign his obligations under the lease after two years,
with Bass’ prior consent provided Bass is given first
option to purchase the lessee’s interest. Under the terms
of the standard lease the lessee has full responsibility for
install any amusement machines
repairs and cannot
without Bass’ written consent, but may keep all
the
revenue from such machines. In 1992 a standard lease
was introduced in Scotland. The main differences with
the standard lease in operation in England and Wales
are the following: first, the deed of leasing conditions,
which contains the relevant trading conditions for the
Scottish leases, entitles Bass to review the rent annually
and increase it in accordance with the retail price index.
However, Bass has never exercised this right. Second,
Bass has the right to terminate the agreement five years
after commencement. Third, Bass asks that
in-going
lessees pay a certain sum of money into a (cid:145)retention
fund(cid:146). The maximum amount
so required is GBP
10 000. Bass retains this sum as security for losses or
damages sustained to the premises or to Bass, or any
other amounts owed to Bass by the lessee. Bass
normally pays interest on the fund at a rate of two %

(13) Except for a limited number of specified reasons, i.e. where the
owner of the pub wants to use the outlet for his own purposes as
a managed house, in which case the lessee receives compensation
fixed by law, the parties can negotiate a new agreement. In the
absence of new agreement,
renew the
agreement on similar terms to the existing agreement with the
exception of the rent and the duration, which cannot exceed 14
years.

the UK courts will

if

it

per annum over the deposit rate of Barclays Bank plc
on termination of the lease. Lessees have complained
that the leases contain a stated account and certificate
clause, whereby,
tenants owe Bass
is argued,
monies, a stated account is produced and signed by a
Bass director. When this certificate is registered and an
appropriate certificate served on the tenant it has the
same effect as a decree notwithstanding any court action
disputing the sums in the statement. The lessees argue
that
this effectively prevents tenants from seeking a
remedy through national courts. If tenants do not or
cannot pay the stated sum then their assets will be
sequestrated. However, the Commission notes that this
is a matter for national, not Community law. Finally,
until recently, the deed of leasing conditions contained a
covenant, which Bass has never enforced, restricting the
lessee from competing within a radius of half a mile
from the leased premises for one year from termination
of the lease.

a

a

is

the

latter

10-year

lease may

In addition to the Standard Lease Agreements,
the
parties have also notified certain related agreements.
There are two further forms of tenancy agreement, the
Foundation Agreement and Tenancy at Will
((cid:145)TAW(cid:146)),
where
temporary agreement. The
Foundation Agreement is a three-year agreement used in
be
circumstances where
inappropriate such as unstable economic conditions or
uncertain expense levels relative to trade. The agreement
gives the occupier the opportunity to convert
to a
standard lease during the first two years. The tenant is
fully
not permitted to assign his
responsible for repairs, and shares amusement machine
income with Bass. The exclusive purchasing obligations
in both the Foundation Agreement and the TAW are
from those contained in the
not materially different
Standard Lease Agreement. In March 1997 there were
42 pubs let under Foundation Agreements and 178 let
under TAWs. These agreements
are not used in
Scotland.

interest,

is not

(41) Bass have also notified supplemental agreements relating
the financing of alterations and
to the division of
improvements between Bass and its lessees, into which
approximately 109 lessees had entered by June 1996.

(42)

In addition, Bass have notified an incentive package
scheme available free of charge up to October 1996 to
certain Standard Lease Agreement lessees, the premier
alliance scheme. Under this scheme, which was first
introduced in September 1994,
lessees without any
current debt are eligible for additional volume-based
discounts and enhanced business support in terms of
business planning, development and marketing. The
only requirement
regular
business development meetings. A marketing fund is
also available, which may be used inter alia towards
promotions offered by Bass or promotions run at the
initiative of the lessee. By December 1997 there were

the lessee attends

that

is

L 186/8

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Official Journal of the European Communities

19.7.1999

865 Bass lessees participating in the premier alliance
scheme. In Scotland, the premier alliance scheme was
launched in September 1996 and as a result out of 865
total members, 90 are Scottish lessees. Prior
to
September 1996 Bass offered its lessees the opportunity
to participate in its volume reward scheme. Under the
scheme,
lessees were given a cash sum for purchases
over a certain threshold.

the scope of the tie by adding additional beer products
incompatible with the
to the current price list
requirement that the tied products be specified in the
agreement and furthermore tenants are also unable to
know the extent of the tie at the inception of the lease.

is

The beer tie

(43) The lessee agrees to buy all specified beers from Bass or
its nominee with the exception of one brand of cask-
conditioned draught beer and, by the end of March
1998, one brand of bottle-conditioned beer (guest beer
clause). Specified beers are the beers of the types set out
in a schedule of the lease. These types are light, pale or
bitter ale (known in Scotland as 70-shilling ale, heavy
ale or Scotch ale), export or premium ale (also known
in Scotland as 80-shilling ale), mild ale (known in
Scotland as 60-shilling or light ale), brown ale, strong
ale (including barley wine), bitter stout or porter, sweet
lager, export or premium lager (also known as
stout,
(cid:145)malt lager(cid:146) or (cid:145)malt liquor(cid:146)), strong lager,
(cid:145)diet pils(cid:146) (or
premium low carbohydrate beer), low carbohydrate (or
(cid:145)lite(cid:146)) beer. These types are represented by the brands or
denominations of beer listed in Bass’ current price list.

(44) 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 draught form and the sale
is
of
necessary to satisfy a sufficient demand from the lessee’s
customers.

form is customary or

in draught

that beer

(45) Submissions based on the model

and individual
submissions by other tenants commented on this issue,
in particular, that a brand may build up a favorable
following to a lessee’s consumers on a very local basis,
but marketing decisions are taken by a national brewer
on a national basis. Thus,
if sales are uneconomical
overall,
a brand is discontinued to the potential
detriment of an individual’s customer base.

(46)

It was also indicated that the type definitions adopted
are very wide and cover substantially all beer sold in the
UK. Through the use of so broad a definition, Bass is
able to exclude the right to buy beers of another type as
is required by the regulation. The observations based on
the model gave the example of Caffrey’s and Tennants
Velvet. It is also argued that the right of Bass to increase

(47) The Commission notes that the definition of beer types
is a matter for experts to decide (14). As the specification
of
the 12 types was originally agreed between the
respective federations of brewers and licensed victuallers
in the United Kingdom, experts with regard to beer, the
Commission accepts this definition as an appropriate,
workable way of defining beer types in the UK.

Rent

(48) Under the Standard Lease Agreements, rent

is paid
repay the
monthly in advance and the lessee will
premiums paid by the
insuring the
premises against loss or damage by fire, explosion and
aircraft (including three year’s open market rent of the
premises and expert’s fees) and against other risks, and
the cost of holding the justices’ licence.

landlord for

(49) Observations based on the model have indicated that
the insurance policy

lessees do not have a copy of
offered by Bass.

(50) The Bass insurance covers the entire risk portfolio of
the group, namely buildings, motor, public liability and
so forth. The risk portfolio is insured with Commercial
Union, and as a result the policy and the total premium
are commercially sensitive and are not disclosed to
lessees.

(51) The fixed rent is reviewed every five years. The reviewed
rent is the higher of the existing rent or the market
rental value of
increase
date. The market rental value is defined as an open-

the premises at

the relevant

(14) See also recital 51 of

the Commission notice

concerning
Commission Regulations (EEC) No 1983/83 and (EEC) No 1984/
83 on the application of Article 85(3) of the Treaty to categories
of exclusive distribution and exclusive purchasing agreements
(hereinafter: (cid:145)the notice to the Regulation(cid:146)) (OJ C 101, 13.4.1984,
p. 2).

19.7.1999

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L 186/9

the

market rent but taking into account the terms, and in
obligations,
particular
contained in the lease. In the absence of an agreement
as to the market rental level, any rent review is subject
to determination by an independent surveyor or valuer.

purchasing

exclusive

(52) Numerous submissions have indicated what the parties
consider to be the negative effects of not permitting
downward rent reviews, in particular when turnover in
the
to local
circumstances or an overall recession in the country.

individual pub goes

down owing

(53)

In the case of the Bass lease it is possible for the rent to
stay the same, and Bass has on occasion granted
reductions in rent to lessees where justified. The more
common practice for leases is upward only rent reviews
(hereinafter: (cid:145)UORR(cid:146)).

(54) The OFT report has looked into the issue of upward-
only rent reviews and discussed the general practice of
upward only rent reviews with the Department of the
Environment which at around this time conducted a
major review of UK commercial property leases.
It
appeared that the UORR is a widespread practice for all
sorts of commercial property and thus not special for
pub leases. UORR can be said to encourage property
the more predictable flow of
investment because of
income.
in the absence of
UORR, the level of rent at the time of entry into the
lease could be higher to compensate for the increased
uncertainties over income flow.

is also estimated that,

It

(55) Tenants and former tenants using the model state that
the Landlord and Tenant Act 1954 does not apply in
Scotland and therefore that Scottish tenants are not
provided with security of tenure. This is alleged to affect
their ability to negotiate a new rent.

(56) The standard leases in Scotland also contain a break
clause (see recital 39), which allows Bass to terminate
the lease after five years. Tenants and former tenants
allege that the treat, or fear, of implementation of the
break clause significantly contributes to the tenants’
ability or inability to negotiate a new rent.

(57) Tenants in Scotland enjoy security of tenure according
to the contractual terms of their leases. In the case of
Bass lessees, this means that they have security of tenure
until the end of the lease. At rent reviews, during the
term of the lease, the tenant enjoys the same security of
tenure as a tenant in England.

(58) At a rent negotiation when a lease renewal

is being
discussed, it is the case that the tenant does not have
security of tenure: the renewal of the lease and hence
the continued occupancy of
the pub
depend on the outcome of a negotiation on rent. No
evidence has been submitted by the tenants to suggest
that rent levels in Scotland are, on average, affected by
the alleged imbalance of negotiation power between the
parties.

the tenant of

(59) The

in

break

introduced

clause was

Scotland
immediately after the publication of the MMC Report in
1989, at a time of uncertainty for the industry. The
clause allowed Bass some flexibility during this period of
uncertainty. Subsequently, the clause has only been used
once in exceptional circumstances after
the lessee
persistently defaulted on rent payments. There is no
documentary evidence to suggest that the clause has
ever been used as a lever to review rent. In six cases, the
break clause has been deleted in return for a payment,
but this was done because the lessee wanted to develop
the public house and the banks had refused to lend the
money until the clause was deleted. In any event, this is
a matter for national law.

Discounts and countervailing benefits

(60) As individuals who are not tied for their beer purchases
to another company (individual
free-house operators)
can obtain in the United Kingdom discounts for their
beer purchases which are not available to the tied
operators, the Commission has assessed (i) the net price
differential for beer purchases from Bass between the
price paid by individual free-house operators and Bass’
tied lessees and (ii)
the value of benefits which are
granted by Bass to its lessees and which are not readily
available to the individual
free-house operators. The
starting point for this assessment was the report of the
Office of Fair Trading on their enquiry into brewers’
wholesale pricing policy of May 1995 ((cid:145)the OFT report(cid:146)),
which was supplemented by further investigations by
the Commission.

(61) The price differential

is the difference between the
average discounts in GBP/barrel granted by Bass to its
individual free-house operator-clients (not including loan
ties) across a typical product mix and the discounts
granted to the lessees which include the actual discounts
on beer purchases and the value of the lower Bass list
prices
the leased estate) as compared to the
standard Bass price lists. Discounts to Bass lessees also
include the discounts offered to members of the Premier
Alliance Scheme via volume-related discounts and the
marketing fund. All discounts offered have been
averaged across
excluding
tenancies at will.

leased estate,

the Bass

(for

L 186/10

EN

Official Journal of the European Communities

19.7.1999

(62) Most interested third parties have indicated that they are
aware of higher discounts being granted by Bass to
individual free traders than those indicated in Table 3 at
recital 108 and some of them have supplied copies of
offers made by Bass to such clients. It is not disputed
that in individual cases higher discounts are granted as
Table 3 is based upon averages for all Bass’ individual
free-house
from
recital 61 that the relevant figure in Table 3 is the result
of
to the free trade minus the
discounts granted to Bass lessees, excluding tenancies at
will.

the average discount

operator-clients.

follows

also

It

(63) An important countervailing benefit is the so-called rent
subsidy, the benefit resulting from a comparison with
the rent paid for a tied outlet and property equivalent
costs to be paid by a (cid:145)free-of-tie(cid:146) pub operator. There are
a number of methodologies for calculating the rent
subsidy. The OFT report has
identified three main
methods of comparison. The first is to take an (cid:145)average
pub(cid:146), estimating the value of
the property and the
divisible balance and comparing the resulting mortgage
payments with the rent a brewer would take. The
second is to look at the brewers’ returns on capital
employed from their pub estate and compare these to
some estimate of a normal return. The third is by
calculating the difference between the rent/turnover
ratio for the tied estate with an estimated rent/turnover
ratio for (cid:145)free-of-tie(cid:146) outlets. This third method has been
used by the OFT report as the OFT had the most data
available to use this method. The Commision has
followed this methodology because it allowed the
Commission to build on the work of the OFT which
leads to an obvious economy in procedure.

(64)

the estimated retail

In practice, the rent subsidy is calculated by subtracting
the actual rental income from the tied estate from 15 %
of
the estate (the
for a free-of-tie outlet being 15 % of
assumed rent
turnover). For
tenancies at will were
this purpose,
excluded from the calculation. This is because tenancies
at will are characterised by significantly lower rent levels
than other lease agreements.

turnover of

(65) The estimate of the total retail turnover for the estate
(that is, the aggregate turnover of the pubs let under
Standard Lease or Foundation Agreements in the estate)
was calculated on the basis of the aggregate rent paid
being equal
turnover. The figure of
11,36 % stems from internal Bass documents compiled
for the most part in preparation for rent or rent review
negotations (15),
for a random sample of 30 pubs

to 11,36 % of

(15) Some

observations

questioned whether

has
factual
Bass
It should be
information on the turnover of leased properties.
noted that Bass carries out a detailed assessment of the business of
each public houses in conjunction with the lessee, and therefore
significant factual figures are available and used by Bass. These
may
for
comparable businesses in similar market segments drawn from the
Bass managed house estate.

cross-checked with performance

also be

figures

chosen by the Commission. These documents included
from
individual estimates of
which the average rent to turnover ratio was calculated.

turnover for the pubs,

(66) To arrive at the rent subsidy per barrel, the overall rent
subsidy was divided by the total number of barrels sold
to the estate (excluding TAWs) in each year. To have
included TAWs,
in the case of Bass, would have
distorted the rent subsidy as they typically are let on
nominal rents (cid:151) that is, the rent subsidy would have
been larger. The Commission has taken a conservative
approach in this case and excluded data on TAWs from
the calculations used to provide figures for Table 3.

(67) The methodology for calculating the rent subsidy has
been criticised. Numerous current and former tenants,
using the model, have stated that it is widely known
that the fair and arbitrary rent for an average public
house is between 6 and 8 % of turnover.

(68)

In their observations, an accountant and a couple of
tenants consider that, in practice, rents are determined
by an expert valuer on the basis of 50 % of the divisible
It is therefore alleged
balance, namely the net profit.
that the assumption that rent is properly based on a
percentage of turnover is false, and that the assumption
turnover is
that
therefore also false (16). They consider that
the rent
imposed by Bass, namely the lease rent and the cost of
discounts denied (wet rent), result in the lessees’ being
disadvantaged financially.

is based on 15 % of

free-of-tie rent

(review) negotations

(69) The Commission does not dispute the fact that actual
rent
take place between the
company and the (prospective) lessee on the basis of a
shadow profit and loss account taking into account the
performance achievable by a competent
the
market sector in which the site trades; the product sales
mix; the tied product procurement terms; the size and
condition of the property, and the complexity of the
operation (such as the number of bars).

lessee;

(70) The contractual rent negotiated by the parties is not
automatically determined on the basis of 50 % of the
divisible balance. Resulting from open competition on
the market the parties negotiate a rent typically between
40 % to 60 % of the divisible balance.

(71) However, the purpose of the current assessment is not
to describe how individual rents are negotiated but to

(16) The accountant provided a guide showing how he would
construct a pub lease rent. However, the accountant provided no
evidence that his model reflects the actual workings of the open
market.

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L 186/11

make a comparative analysis of the average rental levels
the market and another. The
between one part of
advantage of using the rent/turnover
this
analysis as compared to a conceivable methodology
based upon the differences in the average rent/divisible
balance is that the comparison for the first methodology
is based on fewer estimates of variable parameters. No
estimates need to be made for the (cid:145)costs(cid:146) structure of the
pubs in working with rent/turnover.

ratio for

(72) With regard to the result of the different methods,

it
would not be unusual to find that the average (cid:145)free-of-
tie(cid:146) rent as a percentage of turnover for a particular
estate is 15 % and that the average divisible balance is
50 %.

the

procurement services, the value of which has increased
over time. These value-added services currently include
discounts on glassware, gas supply, rating, banking,
insurance and paint. Bass has calculated the annual
benefit of
these services by estimating the potential
value per outlet of the discounts and offers available
range of goods and services, on the
across
assumption that, where
taken
advantage of the services on offer, they have used the
fact that discounts are available to Bass lessees to obtain
equivalent or better prices on the open market. This
potential value per outlet, which has been estimated at
GBP 3 054,9 for the years 1994/1995 and 1995/1996,
is then multiplied by the number of outlets, excluding
TAWs, in the estate.

lessees have not

(73) For

the most

important

remaining variable in the
Commission’s methodology, namely that 15 % rent/
turnover
the
the ratio for
Commission relies on the following facts:

the (cid:145)free-of-tie(cid:146)

rent,

is

(cid:151) Bass had been informed by Fleurets, Chartered
Surveyors for Hotel and Licensed Property Valuers,
by letter of 28 September 1998 that rents on new
lettings of free houses had often been in the 15 %
to 18 % range. This accords with estimates given by
other experts to other national brewers,

(cid:151) these findings support the facts presented to the
OFT, namely that free houses pay 2 to 3 percentage
points more of their turnover in rent than the tied
tenants of brewers and that in the free trade rent
equivalents amounted to between 14 % and 15 % of
turnover. This enabled the OFT in their report to
base their methodology for the calculation of the
(cid:145)rent subsidy(cid:146) upon the difference paid in actual rent
by the tied lessees with an estimate of between
14 % and 15 % of turnover.

(74) The Commission therefore considers that,

for all the
reasons set out above, the rent/turnover methodology is
appropriate for assessing the rent
subsidy to tied
tenants.

(75)

In addition to the rent subsidy, Bass has supplied details
of seven other quantifiable benefits to the Commission.

the value of

(77) Almost all respondents to the notice commented upon
this. Many of those who used the model simply stated
that
these services was zero. Other
observations have indicated that better terms are almost
always available elsewhere, and have thus placed a
minimal value on it (under GBP 1 per barrel in recent
the accountant noted that contact
years). Moreover,
names
frozen food,
the selection of butchers,
for
glassware, chips and nuts can be offered by most local
Licence Victualler’s Associations at no cost. A tenant
alleged that they could get better discounts on all the
items from a group called the Scottish Licensed Trade
Consultants.

(78) The Commission recognises that it may be possible to
negotiative individually better
terms with the same
supplier than those offered by Bass. However, even if
this were to be the case for all items, the fact that an
interested lessee has a preference point based on a
to start price
for a large
negotiated rate
discussions is already an advantage in itself (17).

estate,

(79) The above methodology for calculating the benefit of
the value added services compares the Bass terms with
the wholesale list price of the same supplier, thereby
lessee would
reflecting the benefit
receive if he/she did not actively seek improved terms
and services, and bought at the published price list. The
accepts
Commission
significant
lessees will actively look for cheaper
proportion of
deals, at
the more important cost
for some of
least
items in operating its pubs. On the other hand, many

that an individual

least

that

at

a

Value added services

(76) Since the date of

introduction of the Standard Lease
Agreements Bass has offered its lessees bulk buying and

firms can list

(17) With regard to trade directories, it is noted that in such directories
all
this is no indication
themselves and that
whatsoever as to the quality of the service. It is recognised that
some of the suppliers will be household names to the licensed
trade. For such firms, the main benefit is that the lessee receives a
discount offer based on the negotiated rate for the Bass managed
estate.

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Official Journal of the European Communities

19.7.1999

tenants took up the glassware offer (500), banking
(400), rating and insurance (1 267) and gas (200).

(85)

It is of course correct that the rent increase is for longer
than five years, but so is the benefit of the investment
to the lessee. After the end of the lease, the lessee in
England and Wales has
tenure unless
Bass (18) wants to use the premises for its own purpose.

security of

(80) The Commission considers that on the basis of all of the
above considerations relating to (cid:145)value added services(cid:146) a
reduction should be made to the value of the benefit as
calculated by Bass and represented in the notice,
in
order to take account of the fact that, as was stated in
lessees will
recital 79, a significant proportion of
actively look for cheaper deals than the list price quoted
by the supplier. However, in view of the references in
the paragraph above to the up-take,
this reduction
should be moderate. Therefore, in order to reduce the
margin of possible error as much as possible, and taking
in order to ensure a
all considerations into account
conservative
its
figure,
assessment of the value of this (cid:145)countervailing benefit(cid:146)
on a reduction of 25 % of the benefits as indicated by
Bass and in the notice. The relevant GBP/barrel figures
for value added services, in Table 3 below, are adapted
accordingly.

the Commission will base

Investment

(81) The benefit which is attributed to investment carried out
in the tied estate in cooperation with lessees, excluding
TAWs, is calculated by taking the total cost, including
outside consultancy and project supervision funded by
Bass, and subtracting attributable rent increases over five
years.

(82) Lessees and former lessees, on the basis of the model,
generally claim that as the responsibility for repairing is
investment.
with the
Observations, based on the model, have therefore
concluded that there is no investment by Bass.

carry out

lessee

they

all

to

property

(83) Tenants, on the basis of the work of the accountant,
the expenditure carried out by Bass will
allege that
generally
and
relate
improvements, as the tenant is responsible under the
lease for the fabric of the building. They allege that Bass
are claiming that there is investment in a number of
pubs that are not covered by the capitalised increase in
rental income Bass will acquire over the following five
years (which they will continue to receive in future
thereafter).

extensions

(86) Bass has not included monies used to refurbish empty
public houses. The figures provided to the Commission
were specifically for the growth of the lessee’s business.
Bass has both a total
investment scheme and a joint
investment scheme as noted in the notice.

Repairs

(87) This is the value to existing lessees, excluding TAWs, of
non-rentalised repairs funded by Bass. These repairs are
to fund statutory
investment or
either
requirements,
such
and other
demands
unavoidable expenses.

to support

licensing

(88) Lessees, using the work of an accountant, and the
the leases
accountant concerned allege that most of
contain a full repairing obligation. Bass would generally
only pay for repairs in respect of the short-term lets and
the Tenancy at Will Agreements where Bass retains the
responsibility for
the building. Before
letting, it is Bass’ responsibility to put the property into
condition or to reduce the rent so that the individual
tenant may carry out
the work. Other lessees and
former lessees, using the model, claim that they have
not received any such repairs.

the fabric of

(89)

In response, it should be noted that there is a benefit to
the extent that the works falls outside the terms of the
lease and that Bass does not receive monies in terms of
increased rents.

Support franchise

(84) The accountant and tenants based on this work allege
that Bass has included in the figures for investment the
foregone rental from pubs that are empty. Moreover,
they allege that any improvement in rent is retained for
all
future years under the upwards only rent review
element of the lease.

(90) Since 1994 Bass has provided certain business planning,
performance review and development initiative services
lessees wishing to utilise up to
free of charge for

(18) See recital 9: as of 9 April 1998 it is Punch Taverns Limited.

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October 1996, an additional scheme known as the
support franchise. By the end of the 1995/96 financial
year the lessees of an average of 669 pubs in the estate
had joined the support franchise and for those pubs,
there was an average increase of 0,93 % in barrelage
turnover, compared to a decline of 2,33 % for non-
participating pubs. Bass have estimated that the average
increase in net profit to a typical
lessee receiving the
support franchise was GBP 2 585 in 1995/96. The total
estimated increase in net profit generated by the support
franchise is therefore GBP 1,7 million, which produces a
figure of GBP 4,50 per barrel
if divided by the total
barrelage to the leased estate.

Direct operational support

(94) Bass has estimated the value and benefit of direct
operational support per lessee for each of the relevant
years by taking 75 % of the total remuneration costs
(salaries plus benefits and expenses) of the Bass Lease
Company employees who are directly involved in
supporting and developing the business of the lessee.
These employees include business directors and business
managers, business development managers, property
managers and surveyors and employees dealing with
catering, training of lessees, assisting with assignments,
promotions and public relations.

franchise,

franchise.

the support

for example,

(91) A few observations dispute the methodology used for
In
calculating the benefit of
particular, they allege that the Commission has failed to
assess whether any increase in barrelage is attributable
to the support
it may be
attributable to investment, which the lessee pays for in
increased rent. The tenants and the accountant further
dispute the figures provided by Bass for the average
increase in net profit to a typical lessee, stating that it is
more likely to be GBP 775 per annum rather than the
GBP 2 585 quoted. Moreover, account should have
taken of the fall in barrelage by 2,93 % that occurred in
non-participating pubs. This would translate into a fall
in turnover and GBP 2 639 fall in profit. The tenants
and the accountant therefore claim that there would be
an overall fall of 2 283 barrels and that consequently
there cannot be a benefit to Bass lessees.

the support

(92) The Commission examined a number of methods for
calculating the benefit of
franchise and
determined that the volume and profit uplift was the
simplest and the most statistically accurate for
the
purpose of calculating average values. Any element of
double counting is not statistically significant. There are
similar percentages of lessees participating in support
franchise and lessees who have chosen not to join the
support franchise who have benefited from investment.
are no significant differences between the
There
the two types of outlet. Other
investment profile of
methods
this benefit would provide
comparable results.

to calculate

(93) The data used by the Commision is based on actual
returns and therefore the Commission considers that the
calculations for the average increase in net profit to a
lessee are acurate. The data for the support
typical
franchise show the benefits that can accrue to a lessee
from participation should he/she elect to do so. It is
incorrect to net off the estimated reduction in barrelage
for those lessees who have not chosen to take advantage
of the scheme.

(95) Observations, based on the model, have in general
to the direct

there is no benefit

contended that
operational support offered by Bass.

(96) Other observations of

tenants note that

the Bass
employees referred to in the notice are there to protect
Bass’
interests. They police the tie and the lease.
Moreover, Bass’ operating costs in operating tied houses
cannot be attributable to the tied lessees as a benefit.

(97) The accountant, and a few tenants, further assert that
lessees would be better advised to obtain independent
professional advice and pay less and have the benefit of
professional
indemnity cover that Bass cannot supply
due to their position being in conflict as landlord. The
surveyor employed by Bass will seek to secure his own
future employment by pressing for work to be carried
the tenant’s cost, which may be treated or
out, at
handled in a far more economic manner.

In reaction to these observations

(98) The Commission calculated the direct operational
support benefit on the basis of all
the Bass Lease
Company personnel who have an input into a lessee’s
business. The business manager is the primary point of
communication between the lessee and the Bass Lease
the
Company.
Commission asked Bass for a sample job description
which defines
the business
manager, and the working hours and percentage of time
allocated to each function. Given this, the Commission
has taken a conservative view that at least 68 % of the
working time of the business manager is spend working
for the benefit of lessees. The figures in terms of GBP/
barrel in Table 3 have been re-calculated accordingly.

responsibilities of

the

Set-up and development costs

(99) Bass provides support to new lessees in the form of
including
assessment

schedules,

literature

and

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Official Journal of the European Communities

19.7.1999

administration

development,
costs
associated with new initiatives as well as training costs,
and to existing lessees in the form of annual recognition
awards.

printing

and

(100) Observations, based on the model, generally state that
there is no benefit. No evidence was supplied to back
up the statement.

(101) A few parties, together with the accountant, assert that
the lessor would generally incur most of the costs when
entering into a lease with a lessee. It is a one-off outlay
and should not be allocated as a cost benefit per barrel.
Moreover, it is Bass’ cost of attempting to make uniform
the operation of the leased estate.

(102)

(103)

is

alleged that Bass

It
they produce
assessment schedules, bear printing costs in relation to
new initiatives plus annual recognition costs. These are
costs that Bass should absorb as landlord and brewer.

claim that

In response, it is noted than the observations did not
support their allegations with any factual evidence. It
should be clear that these costs are not incurred in an
attempt to make the operation of the Bass leased estate
uniform. Further, these are costs which a lessee would
normally incur, and not a lessor as the accountant
alleges. Moreover, asserting that these costs are one-off
neglects the contribution of ongoing development and
training.

Promotions

(104) Since the date at which the Standard Lease Agreement
came into operation Bass has made certain promotions
and marketing offers exclusively available to its lessees
on a national, regional or local basis. These promotions
are intended to increase the turnover of the individual
lessee.

(105) Observations based on the model have generally valued
these promotions at zero benefit to the tenants.

(106) A few parties have contended that

is common
practice for all manufacturers to offer promotions to
resellers in an attempt to popularise their wares. The
inclusion of
is
therefore alleged to be incorrect.

this in the Commission’s assessment

it

(107)

In response, the Commission points out that, as was
the promotions and marketing
stated in the notice,
included in the analysis are exclusive to Bass lessees.
Information received by the Commission from Bass
suggests that in fact some of the lessees that have made
a formal complaint have accepted promotional material,
including free stock and some product promotions have
also been made available via weekly telesales calls.

(108) The result of this assessment of the price differential and
the countervailing benefits are shown in the following
table.

Table 3

Price differential and countervailing benefits

1990/91

1991/92

1992/93

1993/94

1994/95

1995/96

1996/97

(GBP)

19

16

2

0

2

0

2

0

0

3

22

15

2

0

4

0

2

0

1

1

26

19

2

0

1

0

3

0

2

1

35

23

3

0

1

0

3

1

2

ﬂ2

41

22

7

1

1

4

5

1

3

3

45

22

7

3

2

5

4

1

4

3

48

24

11

1

0

4

5

0

5

2

Price differential

Rent subsidy

Value-added services

Investment

Repairs

Support franchise

Direct operational support

Set-up costs

Promotions

Conclusion

19.7.1999

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L 186/15

(109)

There are other possible countervailing benefits that are
not included in Table 3. It was not necessary to include
the countervailing benefits described below as
the
countervailing benefits considered above compensate
broadly for the price differential.

(110) Bass offers additional support and benefits to tenants in
the form of fixtures and fittings funding for tenants in
difficulty, one-off PR promotions, a charitable support
fund and, until
late 1994, a legal advice scheme for
tenants and prospective tenants. A few observations
commented that there was no need for a legal advice
scheme as a competent tenant could follow the legal
It was also pointed out that
obligations in the lease.
Bass should not be advising its own tenants on legal
matters that may give rise to a conflict of
interest.
However, it should be noted that the Bass business and
the legal advice providers were separate entities.

(111) Finally, Bass

lessees also have reduced beer-derived
profit volatility as the result of a reduced profit margin
on beer
to free-house operators which,
combined with lower fixed costs (rent), reduces the risk
of an investment in a Bass tenancy.

relative

II. LEGAL ASSESSMENT

A. ARTICLE 81(1)

1. The relevant market

1.1. The relevant product market

(112) The relevant product market includes, in principle, all
goods or services which are perceived by the consumer,
on the grounds of their characteristics, price or intended
purpose, as being reasonably interchangeable with each
other (19). As the Court of
Justice has stated in the
Delimitis judgment (20), (cid:145)the relevant market is primarily
defined on the basis of
the economic
activity in question, in this case the sale of beer. Beer is
sold through both retail channels and premises for the
sale and consumption of drinks. From the consumer’s
point of view, the latter sector, comprising in particular
public houses (21) and restaurants, may be distinguished
from the retail sector on the grounds that the sale of

the nature of

(19) Case 27/76, United Brands, [1978] ECR 207, paragraph 12.
(20) Case C-234/89, Stergios Delimitis v. Henninger Br(cid:228)u, [1991] ECR

I-935, paragraph 16.

(21) The German (procedural language) version of the judgment uses
In the French version, being the

the term (cid:145)Schankwirtschaften(cid:146).
working language within the Court, the term (cid:145)cafØs(cid:146) is used.

beer in public houses does not solely consist of the
purchase of a product but
is also linked with the
provision of services, and that beer consumption in
public houses is not essentially dependent on economic
considerations. The specific nature of the public house
the breweries
trade is borne out by the fact
organise specific distribution systems for this sector
which require special installations; and that the prices
charged in the sector are generally higher than retail
prices(cid:146).

that

(113)

(114)

as all

is stated that

these outlets,

clubs are also included(cid:146). This

In view of the specific licensing system in the UK, it has
the three distinct
to be specified which sections of
form the relevant
classes of on-licences (recital 25)
product market of (cid:145)public houses and restaurants(cid:146).
In
this respect, reference is made to paragraph 43 of the
notice to the Regulation where it
(cid:145)the
concept of (cid:147)premises for the sale and consumption of
this
drinks(cid:148) covers any licensed premises used for
purpose. Private
is
understandable,
including the
restricted on-licences, have the common feature that the
drinks are purchased for consumption on the premises
and that there is an important service element provided
for. The Commission recognises that the beer price in
clubs, being in December 1994 some 82 to 83 % of that
prevailing in pubs,
than that charged in
lower
pubs (22). However, this reflects to a large extent the fact
that these clubs operate on a non-profit basis. It remains
that the case that, in view of the service element, the
price in clubs is still in excess of the price of beer in
specific distribution
supermarkets. Furthermore,
system for the whole on-trade,
is the
same: the special installations for draught dispense, the
brewers’ beer list prices, and the operation of loan ties.

including clubs,

the

is

for

is that

in premises

follows that

the reference market

for the
It
distribution of beer
the sale and
consumption of drinks (the whole on-trade market). As
was stated in the Delimitis judgment (23), that finding is
not affected by the fact that there is a certain overlap
between the on- and off-trade, namely inasmuch as
retail sales allow new competitions to make their brands
known and to use their reputation in order to gain
access to the market constituted by premises for the sale
and consumption of drinks.

1.2. The relevant geographic market

(115) The objective competitive conditions of supply and
demand for the supply of beer to the on-trade vary
considerably in the different parts of the Community.
Justice has noted in the Delimitis
As the Court of

(22) Extracts from Stats MR’s survey of retail prices, submitted by a

national brewer to the OFT.
(23) See footnote 20; at paragraph 17.

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Official Journal of the European Communities

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judgment at paragraph 18, most beer supply agreements
are still entered into at a national level. It follows that,
in applying the Community competition rules to the
agreement, account is to be taken of the UK market for
beer
and
consumption of drinks.

distribution in premises

sale

the

for

(116) The UK market is also distinct from beer markets in
other Member States in view of the Orders (recital 18),
the high consumption of draught beer (recital 21), the
presence of pub-management companies (recital 24), the
pub-licensing regulations (recital 25) and the variety in
types of ale offered (recital 43).

(120)

same type as a specified beer but which is not
supplied by Bass or its nominees; or (b) any other
beer unless either (i) it is packaged in bottles, cans
or other small containers; or (ii)
it is in draught
form and the sale of that beer in draught form is
customary or is necessary to satisfy a sufficient
demand from the
(non-
lessee’s
competition obligation).

circumstances

the

It can be noted that, apart
from the explicit non-
competition obligation with regard to specified types of
beers,
so
formulated that
it already includes implicitly a non-
competition obligation by reference to the general
wording (cid:145)such specified beers(cid:146).

exclusive purchasing obligation is

2. Agreement between undertakings

(117) Bass and the lessees are undertakings within the

meaning of Article 81(1).

(118) The individual leases, in a form similar to the standard
leases described above, between Bass and each of its
lessees are agreements in the sense of Article 81(1).

3. Restrictive effect on competition of the principal

restrictions

3.1. Description and nature of

the principal

restrictions

(119) A beer supply agreement such as the leases is generally
qualified by referring to the
exclusive purchasing
obligation which is generally backed by a non-
competition obligation (24). These clauses are formulated
in the lease as follows (recitals 43 and 44):

(cid:151) the tenant shall purchase from Bass or its nominee
and from no other person or firm such specified
beers (with the exception of the guest beer clause)
as he shall require for sale in the premises;
in
practice, the brewer is free to add, replace or delete
the actual brands of a specified type in the
company’s
purchasing
obligation),

(exclusive

price

list

(cid:151) the tenant shall not sell or expose for sale in the
premises or bring on to the premises
the
purpose of sale therein (a) any beer which is of the

for

(121) Because of

the exclusive purchasing obligation,

the
lessees are precluded from accepting offers of contract
goods from other suppliers. Competition for the lessees
between the brewer and other beer wholesalers who
offer the same brands is precluded (restriction of intra-
brand competition).

(122) The explicit and implicit non-competition obligation for
specified types of beer, that is to say, the prohibition on
the lessees’ purchase of other brands of specified types
from other producers of beer
inter-brand
competition. The contractual provisions on the purchase
impose certain administrative
of non-specified types
constraints on the lessees but do not in effect restrict
their ability to offer such non-specified types on their
premises. These clauses therefore lack a restrictive effect
on competition.

restricts

3.2. Restrictive effect

(123) Having identified the nature of

the restriction of
competition brought about by the network of
the
brewer’s leases, the restrictive effects on retailers and
suppliers
be
demonstrated (25).

relevant market

need

the

to

in

(124)

In the case of Brasserie De Haecht v. Wilkin (26), the
Court of Justice held that the effects of a beer supply
agreement had to be assessed in the economic and legal
in which they occur and where they might
context

(25) See also paragraph 13 of

the Delimitis

such
[exclusive beer supply] agreements do not have the object of
restricting competition within the meaning of Article 85(1), it is
nevertheless necessary to ascertain whether they have the effect of
preventing, restricting or distorting competition(cid:146).

judgment:

(cid:145)If

(24) See footnote 20; at paragraph 10.

(26) Case 23/67, [1967] ECR 407.

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L 186/17

combine with others to have a cumulative effect on
competition. It is therefore necessary to assess, as a first
the overall effect of all networks in the UK.
step,
it also follows from that judgment that the
However,
cumulative
agreements
constitutes one factor among others in ascertaining
whether
or
distorted (27).

competition

prevented,

restricted

similar

several

effect

of

is

3.2.1. Cumulative effect of several similar networks

foreclosure of

the UK on-trade market,

(125) The purpose of this assessment is to measure the degree
of
thereby
measuring the hindrance of the opportunities for other
producers of beer, national or foreign, to reach the on-
from the
trade market
cumulative effect of all brewers’ networks.
In other
words, the assessment relates to the opportunities open
to such other brewers to reach the final consumer in
competitive conditions (28) defined independently by the
brewer in question.

independently,

resulting

foreclosed another 22 % of

represented in 1985 about 55 % of sales in the on-trade.
the on-trade
Loan ties
market in that year. As there have been only limited
changes in the situation on the UK on-trade beer market
prior to the Orders, the 1990 data are considered as
representative for at least the years 1985 to 1989. In
1990, the Orders were still not fully implemented so
that, although the situation was starting to change
compared to the previous years, it can be estimated that
still around 70 % of consumption of beer in the UK on-
trade occured in tied outlets.

(129) For the year 1997, the last year for which this kind of
data is available, brewers’ property tied and managed
houses account for 27,2 % of volume throughput. Loan
ties account for 18,1 %. An unidentifiable part of the
volume for loan ties is not supplied subject to a legal
binding commitment of the retailer to buy the volume
of the tying brewer (see recital 28) (29), but it is most
likely that the binding commitment will at least cover
the
10 % of on-trade volume throughput. Therefore,
conclusion must be that the UK brewers tie themselves
directly to a maximum extent of 45,3 % (but most likely
at least 37 %). This volume throughput of the UK on-
trade market offers no direct
for
independent access by other brewers direct to the retail
level.

opportunities

(126) Furthermore, as Bass notified the leases in order to
obtain an exemption to take effect from the date on
which the agreements were entered into, this assessment
must go back to 1991, the year of introduction of the
leases.

(130)

It has been argued that since the Orders made it
possible to terminate a loan tie on three months’ notice,
such ties should no longer be regarded as hindering any
opportunities for access.

(127) The foreclosure resulting from the brewers’ networks
has different forms. First, there is the vertical integration
by UK brewers down to the retail
level. This vertical
integration takes the form of managed houses and
property tied houses. Secondly,
the network includes
also (cid:145)vertical agreements(cid:146) on either of two levels: either
directly, with retail outlets via loan ties, or on the
wholesale level, via (cid:145)tying(cid:146) supply agreements, namely
agreements containing exclusive purchasing obligations,
minimum
must-stock
obligations and so forth with (cid:145)traditional(cid:146) wholesalers,
non-brewing pub companies or other brewers in their
wholesale function.

obligations,

purchasing

(131) The Commission accepts that independent access to the
loan-tied outlets in question is not always excluded as
there are an unidentified number of non-exclusive loan-
tie agreements (30). However, for the volume covered by
non-exclusive loan ties, the possibility for other brewers
to reach directly the final consumer in competitive
conditions defined independently by the brewer
in
question is limited.

(128) From Table 2 (recital 26) it can be seen that sales of
the property tied and managed houses of brewers

(132) The Commission also recognises that the Orders make it
the average
easier to terminate a loan tie. However,
duration of
the contractual
relationship is not a temporary one. Furthermore, the

four years indicates that

(27) See footnote 20; at paragraph 14.
(28) With regard to competition policy, the main parameters are what
is called the (cid:145)above the line(cid:146) parameters: overall positioning of the
brand (including pricing), general marketing policy (advertising
concept, national advertising, promotions) as opposed to (cid:145)below
the line(cid:146) which is more (cid:145)point of sale(cid:146)-related marketing.

(29) The intrinsic link between the loan tie and the actual volume
purchased cannot be denied, the best evidence of this link is the
inability of the brewers to dissociate the two in their internal
accounts.

(30) This access could be excluded in practice by way of multiple non-

exclusive loans.

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19.7.1999

brewer that wants to enter independently into loan-tied
premises needs to offer the individual pub operator the
finance to pay back the first loan (by way of, most
likely, a new loan tie). Competition between such
brewers is thus not restricted to the quality and (direct)
price of the beer, but requires the other brewer to also
offer loan ties. In addition it needs to be remarked that
such an independent entry in loan-tied premises would
only make sense for a brewer that offers all or most
types of beer typically offered by a pub retailer to the
public, because otherwise the total finance cost of the
loan would need to be recouped by the sale of one
brand (or a limited number of brands).

considerable effect on the opportunities for gaining
independent access to the UK on-trade beer market.

3.2.2. Other factors

(133)

(134)

It is not disputed that the tied volume might still offer
indirect access for other brewers in so far as the
(property or loan) tying brewer/wholesaler is prepared
to supply to its tied outlets beer from other brewers.
However,
the assessment on foreclosure focuses on
opportunities for independent access for other brewers
from (cid:145)horizontal(cid:146)
which clearly
cooperation
Such
cooperation may
inter-brand
competition between the brewers in question and the
tying brewer will only allow an other brewer’s beer in
his outlets when this is in the tying brewer’s interest.

competitors.
of

actual
the

does not

between

result

limit

level

In addition to the direct (managed and leased houses
and loan ties)
ties by UK brewers of retail outlets,
reference has to be made to the 19,7 % (in 1997) going
through the non-brewing pub companies’ property tied
and managed houses. It is estimated that around 13 % is
accounted for by (cid:145)tying(cid:146) supply agreements between pub
companies and brewers. This percentage includes the
volume throughput of
Inntrepreneur Pub Company
Limited, Spring Estates Limited and Allied Domecq
Retailing, all of which had to buy in 1997 (31) almost all
the beer requirements of their estate from one national
brewer. Also included are the estimates of
the four
national brewers of their supplies subject to contractual
restriction to other pub companies.

(135)

It can thus be concluded that a maximum of around
58 % (but most likely at least 50 %) of the UK on-trade
volume was
in 1997 by tying
restrictions of brewers. Therefore, the bundle of tying
since 1990, had
agreements of UK brewers has,

still accounted for

(136) The Court of

Justice also held that, as was

last
confirmed in the abovementioned Delimitis judgment,
the effect of
the network of exclusive purchasing
agreements is only one factor, among others, pertaining
to the economic and legal context
in which an
agreement must be appraised. The other factors to be
taken into account are, in the first instance, those also
relating to opportunities for access and, secondly, the
conditions under which competitive forces operate on
the relevant market.

3.2.2.1. Opportunities for access

(137) Paragraph 21 of the Delimitis judgment referred to the
(cid:145)real concrete possibilities for a new competitor
to
penetrate the bundle of contracts by acquiring a
brewery already established on the market together with
its network of sales outlets, or to circumvent the bundle
of contracts by opening new public houses. For that
purpose it is necessary to have regard to the legal rules
and agreements on the acquisition of companies and the
establishment of outlets, and to the minimum number
of outlets necessary for the economic operation of a
distribution system. The presence of beer wholesalers
not tied to producers who are active on the market is
also a factor capable of facilitating a new producer’s
access to that market since he can make use of those
wholesalers’ sales networks to distribute his own beer(cid:146).

(138)

It is not easy to open a substantial number of new pubs
within a couple of years, in view of the licensing laws
(see recital 36). Moreover, although there is an active
trade in UK pubs and substantial numbers of pubs have
been sold off in single deals, it has to be noted that the
investment
that would need to be borne by a new
competitor to acquire a network of sales outlets or to
open new public houses is a considerable one (32) and
would, in fact, involve a change in focus from being a
to also being a UK retailer. This would,
brewer

(31) The exclusive supply agreement for the Inntrepreneur and Spring
Estates ended on 28 March 1998; that for Allied Domecq on
12 December 1997.

(32) The average sales price of a private freehold UK pub is around

GBP 200 000. (Source: Fleurets).

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Official Journal of the European Communities

L 186/19

furthermore, require additional horizontal
links with
other UK brewers to provide all the different types of
beer that a retail outlet would need to offer as new
competitors (and especially foreign competitors) will
tend to offer individual brands rather than the whole
range of types of beer common in the UK.

(139) Direct takeovers of UK brewers (and their tied estate) by
foreign brewers has occurred a few times in recent
years, but in most cases the foreign brewer has since
divested itself of its interest again (the Dutch brewer
Grolsch in Ruddles, and the Australian brewer Foster’s
in Courage).

overall demand for beer as well as the on-trade market
are likely to continue to decline or remain, at best, static
(recital 19). Moreover,
the ever-increasing advertising
expenditure to support a single brand (a sunk cost),
gives a further incentive to foreign brewers to enter via
licensing agreements. Finally, the possibilities of building
on a reputation in the off-trade beer market to gain
access to the on-trade market is more limited in the UK
than in most other European countries in view of the
fact that the off-trade represents only 27 % of total beer
sales (paragraph 19).

3.3. Conclusion on first Delimitis test

(144)

(145)

(140)

the

relatively

In addition,
role played by
(cid:145)traditional(cid:146) wholesalers in the distribution of beer in the
UK (recital 23), make it difficult for a foreign brewer, or
for a new brewer, to enter the market independently.

small

(141) Therefore,

in most cases,

foreign breweries license a
major UK brewer to brew and distribute their products
within the UK, thereby having access to their public
houses and distribution facilities to free houses. In such
the UK brewer will have a strong
circumstances,
influence on the positioning
and the marketing
(advertising) of the foreign brewer’s brand.

(142) The Commission accepts that the increased importance
of
retail sales volume in outlets operated by non-
brewing pub companies offers, at least theoretically, an
increased possibility for other brewers to access the UK
on-trade beer consumer. It is indeed a lot easier for a
newcomer on the market
to conclude an agreement
with a pub company, even if the newcomer only had
one brand, and thereby gaining access to all the pubs in
that network as compared to concluding agreements
with individual outlets. However, as stated at recital 135,
this segment of the market
the concrete opening of
In addition, a brewer
cannot be estimated accurately.
its own
wishing to supply a pub company without
distribution facilities would need to organise
the
distribution (see also recitals 24 and 33).

3.2.2.2. Competitive forces on the market (33)

(143) The UK brewing industry has been going through a
process of concentration (recital 22). Furthermore, the

It can thus be concluded that an examiniation of all
tying agreements,
limited to beer-
included but not
supply agreements entered into, and the other factors
relevant to the economic and legal context of the UK
on-trade market
tying
agreements had in 1990, and still have today, on the
basis of
the
cumulative effect of considerably hindering independent
access to that market,
for new national and foreign
competitors.

recent available information,

the most

brewers’

shows

that

the

3.4. Significant contribution

into

entered

It is now necessary to assess, as the Court clarified in
(cid:145)the extent to
paragraph 24 of the Delimitis judgment,
which the agreements entered into by the brewery in
question contribute to the cumulative effect produced in
that respect by the totality of
the similar contracts
found on that market. Under the Community rules of
competition, responsibility for such an effect of closing
off the market must be attributed to the breweries that
make an appreciable contribution thereto. Beer supply
agreements
breweries whose
contribution to the cumulative effect is insignificant do
not
under
Article 81(1)(cid:146). Therefore, in assessing the extent of the
contribution made by the brewery in question, in this
case Bass, the brewer’s total tied network, including but
not limited to the exclusive purchasing obligation and
the inherent non-competition obligation in the leases,
must be assessed. In other words, it is the network that,
according to the Delimitis judgment,
(cid:145)must make a
significant contribution to the sealing-off effect brought
about by the totality of the brewers’ tying agreements in
their economic and legal context(cid:146) (34).

prohibition

therefore

under

the

fall

by

(33) See also paragraph 22 of the Delimitis judgment; see footnote 20.

judgment.

(34) Penultimate sentence of paragraph 1 of the operative part of the

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(146)

In so doing, consideration will be given to the effect of
the finding of a
the network of Bass as a whole;
restrictive effect
for the network would then apply
equally to each of its constituents (35).

has thus based itself primarily on the broader concept
of the overall market share.

3.4.1. The beer deminimis notice (36)

(147) Bass is clearly not a (cid:145)small brewer(cid:146) as defined by the
notice as it produces more than 200 000 hl, and its
the UK on-trade
market share is more than 1 % of
market.

3.4.2. Individual assessment

In paragraphs 25 and 26 of

(148) The Court has ruled in the Delimitis judgment (37) that
(cid:145)the extent of the contribution made by the individual
agreement depends on the position of the contracting
parties in the relevant market and on the duration of
the agreement(cid:146).
the
judgment, the Court has clarified that (cid:145)that position is
not determined solely by the market share held by the
brewery and any group to which it may belong, but
also by the number of outlets tied to it or to its group,
in relation to the total number of premises for the sale
and consumption of drinks
found in the relevant
market(cid:146). As to the duration, the Court held that (cid:145)if the
duration is manifestly excessive in relation to the
average duration of beer supply agreements generally
entered into on the relevant market,
the individual
contract falls under the prohibition under Article 85(1).
A brewery with a relatively small market share which
ties its sales outlets for many years may make as
significant a contribution to a sealing-off of the market
as a brewery in a relatively strong market position
which regularly releases sales outlets at shorter intervals(cid:146).

(149)

In the German ice-cream cases,
the Court of First
Instance, in assessing the significant contribution of the
companies in question, referred to (cid:145)the strong position
occupied by the [company concerned] in the relevant
market, and, in particular, its market share(cid:146) (38). The CFI

(35) The Court of First Instance pointed out in Cases T-7 & 9/93,
Langnese-Iglo and Sch(cid:246)ller, [1995] ECR II 1539 and 1611, at
paragraphs 129 and 95 (hereinafter: (cid:145)the German ice-cream cases(cid:146))
that (cid:145)where there is a network of similar agreements concluded by
the same producer, the assessment of the effects of that network
on competition applies to all the individual agreements making up
the network(cid:146).
(36) Paragraph 40 of

the notice to the Regulation (OJ C 121,

13.5.1992, p. 2) see footnote 14.

(37) Last

sentence of paragraph 1 of

the operative part of

the

judgment.

(38) Op.cit. paragraph 87 for Sch(cid:246)ller and paragraph 112 for

Langnese-Iglo. See footnote 35.

(150) An assessment of

the contribution by the brewer
therefore needs to take into account his position on the
relevant market, and in particular his contribution by
way of
to the foreclosure and,
secondly, the duration of his restrictive agreements, and
in particular his standard agreements.

tying arrangements

(151) The assessment of the contribution of the brewer takes
into account the managed estate of the brewer, although
this latter part in itself does not fall under Article 81(1)
concern an agreement between
it does not
as
In considering the notified
independent operators.
agreements (as part of
is
the brewer’s network),
particularly important that due account is given to the
foreclosure resulting from the managed estate of a
national brewer as the total number of property ties is
limited by the Orders. However, within that number the
brewer is free to choose whether he wants to operate
the house by way of a tenancy/lease agreement or by
way of a managed house. The brewer has thus the
possibility of offering at any moment a lease agreement
for a currently managed house, and, after the end of a
lease,
the brewer may turn the leased house into a
managed house.

it

(152) The other segments of the (cid:145)tied network(cid:146) of Bass are
loan ties and the amounts of beer for which its
Bass’
(cid:145)wholesale partners(cid:146) are under an obligation to buy
(exclusivity, minimum purchasing, must-stock, non-
compete and so forth). Furthermore,
in assessing any
brewer’s role on the market, consideration can also be
given to his overall market share of the UK on-trade
market, and its share on the related UK beer production
market.

(153) The 5 555 pubs (of which 2 402 were leased) owned by
Bass in 1991 and the 4 182 (1 446 leased) owned in
1996/97 account for 3,8 % and 2,88 % respectively of
the total number of on-licensed premises. Moreover,
they account, as was indicated in Table 1 (recital 13),
for 24,1 % and 25,6 % respectively of
the on-trade
volume in 1990/91 and 1996/97 respectively (the
property tied part accounting for 3,9 % and 1,8 %
respectively). The Bass
for which the
Commission has
the data, namely the above and
including the loan tie sales, account for 18 % and 13,7 %
the UK on-trade market volume. The
respectively of
(cid:145)tied(cid:146) part (property,
loan and managed) thus accounts
for over half of Bass’ total sales on the on-trade market
share of 25,6 %. To these already significant (cid:145)tied(cid:146) market
shares should be added the (cid:145)wholesale partners ties(cid:146) as
described at recital 152.

tied sales

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(154) With regard to the duration of the segments of Bass’
tied network, it has to be understood that all the houses
that Bass owns are, in principle, always (cid:145)locked in(cid:146) to the
company. This is not only the case for the managed
house, but also the leased houses will after the end of
to another
one (short or long term)
operator on a tied basis. Bass’ loan ties last on average
eight years.

lease, be re-let

(cid:151) to avoid advertising goods

supplied by other
undertakings in a higher proportion than the share
of those goods in the total turnover realised in the
premises (hereinafter: (cid:145)the advertising clause(cid:146)).

4.2. Evaluation

(155)

notified

agreements

It is therefore concluded that Bass’ tied sales, of which
part,
the
contribute
a
significantly to the foreclosure of
the UK on-trade
market. The exclusive purchasing obligation and the
non-competition obligation in the leases therefore have
restrictive effect on competition.

are

4. Restrictive
restrictions

effect

on

competition

of

other

4.1. Description

(156) The leases contain the following clauses for which it has
been argued by some of the respondents to the notice
that they have a restrictive effect on competition:

(cid:151) to put and keep the premises and the fixtures and
fittings in good repair in the case of the standard
lease,

(cid:151) to use the premises only as a fully licensed public

house,

(cid:151) restrictions on assignments (recital 39),

(cid:151) to sell

trade fixtures and fittings,

furniture and
effects and stock on the termination of the lease to
Bass or to the new lessee,

(cid:151) not

to place amusement machines without

the

consent of Bass,

(cid:151) not to compete within a radius of half a mile from
for one year post-

leased premises

the former
termination of the lease,

the object or

(157) The first four of the above clauses cannot be considered
to have
restricting
competition in a particular market. The clause with
regard to the amusement machines is not restrictive in
view of the influence of amusement machines on the
character of the premises (39).

effect of

the

(158) The covenant in the Deed of Leasing Conditions which
restricts the former lessee from competing with half a
mile of his
former premises can be considered to
protect the goodwill of the new lessee and the ability of
its beer, and the restriction is therefore
Bass to sell
the
ancillary to the lease agreement.
Commission understands that the covenant has never
been used and thus
an
cannot be
appreciable restriction of competition.

In any event,

regarded as

(159) Whether or not

to

all

the advertising clause falls foul of
is only relevant for the market for the
Article 81(1)
other
beer. With regard
distribution of
neighbouring markets for the supply of goods to on-
licensed premises in the UK, such as non-beer drinks,
crisps and amusement machines,
the clause is not
restrictive. The leases,
in the absence of an exclusive
purchasing obligation and a non-competition obligation
for
restrict
competition on such markets, if such were considered
to exist,
extent by the mere
imposition of an advertising clause.

such products do not

to an appreciable

supply of

the

the object of

(160) With regard to the supply of beer, the advertising clause
limiting the advertising of beer
has
supplied by other undertakings. The only beer that the
Bass lessee is entitled, pursuant to his lease, to buy from
other undertakings is the guest beer and beer of non-
specified types. In particular the brands of beer of non-
specified types may not be well known to the UK
consumer and therefore would require specific on-the-
spot advertising. The letter of the clause would make
advertising for these new products impossible, as the
clause requires the advertising to be proportionate to
is
the turnover of these goods, which, by definition,
the
virtually zero as the goods are new. However,

(39) See also paragraph 53 of

the notice to the Regulation: see

footnote 14.

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that

possesses

information

Commission
the
no
advertising clause has been this strictly applied. On the
contrary, Bass has confirmed in a letter of 6 October
1998 that (cid:145)Bass does not enforce this clause, and has no
intention to enforce it, as will immediately be apparent
from the fact that lessees have freedom to advertise,
promote and market according to the marketing mix of
their choice as appropriate to their chosen business
lessees have
plan(cid:146). This is confirmed by what several
indicated in their
they
submissions, namely
consider that they receive more (cid:145)proportional support(cid:146)
from their guest beer supplier. None of
them has
indicated that Bass has ever opposed the use of that
material
the
advertising clause is not considered to be an appreciable
restriction of competition.

in the pub.

circumstances

In these

that

(163) The quantification of

the restrictive effect

to the
cumulative networks and the other factors contributing
to the foreclosure of the UK on-trade beer market, and
of the significant contribution made by Bass’ network to
in recitals 126 to 161,
that
in restricting
demonstrate
competition and trade between Member States with
respect to the UK on-trade beer market.

appreciable nature

effect, as

laid out

their

7. Conclusion

5. Effect on trade between Member States

(164) The

exclusive

non-competition
obligations of the leases fall foul of Article 81(1) since
the introduction of the leases in 1991.

purchasing

and

than would

(161) Where, for the reasons described above, the effect of the
exclusive purchasing and non-competition obligations in
the leases in question is to eliminate the freedom of the
lessees to stock and offer for sale to the consumer
specified beers of competing suppliers, those suppliers
are impeded, irrespective of their geographical location
and the origin of the goods,
in gaining access to the
they have concluded a
premises concerned unless
specific agreement with Bass. This restriction has the
effect that the level of trade in beer may be at a lower
case. The
otherwise
level
opportunities
establish
foreign
independently in the UK on-trade beer
themselves
market are in particular affected; the (cid:145)tying(cid:146) agreements,
including the exclusive beer-supply agreements, are
likely to protect a substantial part of the UK market
goods
from direct
originating in other Member States.
Indeed, as was
noted at recital 34, most foreign producers have chosen
to enter the UK market by entering licensing agreements
with existing brewers, including Bass, to gain access to
their on-trade network (40). Accordingly, the leases affect
trade between Member States.

be
suppliers

from competing

competition

the

for

to

6. Appreciability

(162) The

exclusive

purchasing

non-competition
obligations only infringe Article 81(1), however, if they
affect competition and trade between Member States to
an appreciable extent.

and

(40) Commission Decision 90/186/EEC (cid:151) Moosehead/Whitbread (OJ

L 100, 20.4.1990, p. 32, at recital 16).

B. ARTICLE 81(3)

1. Regulation (EEC) No 1984/83

(165) The Court has confirmed in the Delimitis judgment
(recital 36) that Article 6(1) of the Regulation requires
that the exclusive purchasing obligation on the part of
the reseller shall relate solely to certain beers or to
certain beers and drinks specified in the agreement. The
purpose of requiring that
they be so specified is to
the supplier form unilaterally extending the
prevent
scope of the exclusive purchasing obligation. A beer
supply agreement which refers, for the products covered
by the exclusive purchasing agreement,
to a list of
products which may be unilaterally altered by the
suppliers does not satisfy that requirement and thus
does not enjoy the protection of Article 6(1). The Court
thus concluded (recital 37) that the conditions for the
application of Article 6(1) of the Regulation are not
satisfied if
exclusive
the
purchasing terms are not
agreement itself but are stated to be those set out in the
price list of the brewery or its subsidiaries, as amended
from time to time.

listed in the text of

covered by

the drinks

the

(166) The standard leases provide for a specification of the
beer tie by type which allows Bass to add to, delete or
it supplies to the
substitute the brands of beer that
lessees by amending the contents of its price list from
time to time for specified beers. The specification of the
beer tie by type thus allows Bass unilaterally to extend
the scope of the exclusive purchasing obligation and
therefore do not fulfil the conditions of Article 6 of the

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Regulation, which requires a specification by brand or
denomination (41).

character of premises used for the sale and consumption
of drinks in accordance with the wishes of customers.

(167)

It is for this reason that the standard leases do not fulfil
the conditions of the Regulation.

2. Individual exemption

2.1. Improvement in distribution

2.1.1. General considerations

In

(170) With regard to the long-term duration of the exclusivity
obligation and non-compete clause contained in the
lease it has to be noted that special rules are applied in
cases where
the sale and
the premises used for
consumption of drinks are let by the supplier to the
to
this
reseller.
Article 8(2)(a) of
that
(cid:145)exclusive purchasing obligations and bans on dealing in
competing products
specified in this Title may be
imposed on the reseller for the whole period for which
the reseller in fact operates the premises(cid:146). On this basis
the long-term duration of the exclusivity obligation and
the non-compete clause contained in the lease therefore
does not constitute an obstacle to exempting the
exclusive obligation and non-compete clause.

is made
reference
respect
the Regulation which states

(168) A beer

for

leads

supply

agreement generally

to an
improvement in distribution as it makes it significantly
easier to establish, modernise, maintain and operate
premises used for the sale and consumption of drinks
(see also recital 15 to the Regulation). This is true for
the brewer/supplier who does not need to integrate
vertically as well as
the lessee. The letting of
premises at an agreed rent as in the Bass standard
leases, particularly in view of the restrictive UK licensing
system, is a method of providing the means for a lessee
to operate such premises and, as such, allows the low-
cost entry of a newcomer on the on-trade market for
the distribution of beer. The system whereby brewers in
the UK allow an independent business person to operate
a licensed property owned by the brewer
thereby
increases the options for entry into the market. In a
way, property tied houses are sometimes described as a
(in a
(cid:145)half-way house(cid:146) between being a manager
managed pub owned by the brewer/pub company) and
owning one’s own pub (which may be loan tied or
totally free).

(169) The incentive for

the

purchasing

following from the
the reseller,
exclusive
non-competition
and
obligation, to devote all the resources at his disposal to
the sale of the contract goods will thereby generally lead
to an improvement of the distribution of the contract
goods. In other words, as is stated in recital 15 to the
Regulation, such agreements lead to durable cooperation
between the parties allowing them to improve or
maintain the quality of the contract goods and of the
services to the consumer and sales efforts of the reseller.
They
and
consequently a cost-effective organisation of production
competition
and distribution and the pressure of
between products of different makes obliges
the
undertakings involved to determine the number and

allow long-term planning

sales

of

(171) Furthermore,

the specification of

the tie by type is
considered to enable a more practical operation of
exclusive beer-supply arrangements in the UK than the
specification provided for
in the Regulation. The
specification of
the tie by type makes it easier to
introduce the brands of foreign or new brewers to their
price lists because it does not require the consent of all
the tenants (42). This is particularly the case in view of
the large number of beers supplied by Bass to the
lessees and of the frequency with which Bass adds or
substitutes a beer on its price list,
including foreign
brands. This is important in view of the high percentage
of all beer sold in the UK as draught beer in pubs, and
the foreclosure of some 70 % (in 1989) or a maximum
of around 58 %, but most likely at least 50 % (in 1997)
of the UK on-trade by UK brewers; nevertheless, foreign
or new brewers may still find it particularly difficult to
penetrate the UK market independently. It has further to
be noted,
in a
position to introduce new brands as the brewer would
anyway be able to prohibit sales by the lessee of the
other brands of the same type in his outlet, using the
non-compete
under
Article 7(1)(a) of the Regulation. The tenant is therefore
in no position to affect, whether positively or
negatively, the level of foreclosure in the UK on-trade
beer market.

clause which

in any case,

the tenant

exempted

is not

that

is

(172)

this

is correct

that a lessee might be forced to buy
It
unfamiliar products when Bass sells his tied house to
another company. Where
change takes place
(cid:145)overnight(cid:146),
it may have a considerable impact on
turnover in the respective house, and thus for the
from a
lessee
individual
competition point of view,
the contractual structure
offers, in such circumstances, an opportunity for new or
increased entry for other brewers, national or foreign. If
such a change takes place on a gradual basis, it might
not have a detrimental impact on the individual lessee’s
position. In this respect, it can be noted that a gradual

concerned. However,

(41) Paragraph 41 of the notice to the Regulation: see footnote 14.

Article 81.

(42) In so far as the underlying agreements are in conformity with

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19.7.1999

change of brand portfolio will probably even occur in a
in order to take new or changing
declining market
consumer preferences
it
into account. Furthermore,
would not be in the long-term commercial interest of
the (cid:145)new(cid:146) owner to ruin the profitability of his newly
owned premises by offering brands the customers would
not be interested in.

2.1.2. Price differentials

(173) However, the Commission considers that where there
are appreciable price differences, faced by the tied lessee,
the above-
it has
described advantages can materialise.

to be further assessed whether

(174) Price discrimination is an important element

in the
economic justification for an exemption to exclusive
purchasing agreements. This is because,
in the first
place, the possibility of discriminating is facilitated by
the exclusive purchasing agreement, which for
the
duration of the agreement gives the purchaser, unlike
the other clients of the producer, no alternative legal
source. A brewer might therefore decide to (cid:145)cash in(cid:146) on
his leverage vis-(cid:224)-vis his tied customers.

become unprofitable. The impact of this adverse effect
on profitability, either at the moment of entering as a
newcomer into the market or during any considerable
period in time during the operation of his business,
means that the lessee may be unable to keep up with
his competitors, who can make use of the beer price
discounts either by passing them on in part to the final
consumer by lowering temporarily or permanently the
price at which they sell the same beer, or by investing
in their total pub (cid:145)offer(cid:146)
family
lead, all other
facilities, and so forth). This will
conditions being equal,
loss of
competitiveness for the lessee, whose clients will receive
a better offer for the same price in other pubs.

(new kitchen, toilets,

to an even further

into

account

(177) Unjustified price discrimination will only have an
appreciable negative impact on the competitiveness of
the lessee, and will therefore only affect the appreciation
of any lack of improvement in distribution, if and when
it is significant and lasts over a considerable period of
time. It is estimated that the level of discounts (before
taking
justification)
any
traditionally found on the UK on-trade market up to the
mid 1980s (MMC report of 1985: individual free houses
receiving a discount from 3 to 5 %) were not of such a
significant nature. However, since that date, and over
the situation has
the period of
receive
altered and certain groups of purchasers
discounts of a substantially higher level
than those
granted to the tied lessees. This was looked at in some
detail in the OFT report.

the standard leases,

possible

appreciable

someone who faces

they cannot outweigh in the longer

(175) Secondly, with regard to the condition related to the
improvement in distribution, the Commission considers
(cid:145)net(cid:146) price
that
discrimination might face difficulties in competing on a
level playing field. Consequently, any improvements in
distribution resulting from such agreements may remain
theoretical, or be structurally inhibited in such a way
term the
that
anticompetitive features of the agreement. This idea that
price
incompatible with
Article 81(3)
is also expressed in the Regulation, of
which recital 21 points out that (cid:145)in particular cases in
which agreements
this
Regulation nevertheless have effects incompatible with
the Commission may
Article 85(3) of
exemption(cid:146). These
withdraw the
the
circumstances,
Regulation, include unjustified price discrimination (43).

satisfying the conditions of

down in Article 14 of

benefit
laid

discrimination

the Treaty,

can

the

be

of

(176) The relevance of

the above considerations

to the
standard leases, in the context of the UK on-trade beer
market, is that the lessee who faces (unjustified) price
differentials may not be in a position to compete on a
level playing field. His business, all other conditions
being similar, will be less profitable or might even

(43) See Article 14(c)(2) of
favourable prices or
objectively justified reason(cid:146).

the Regulation:
conditions of

(cid:145)the application of
[(cid:133)] without
sale

less
any

(178) Such higher discounts

available

exclusive

agreement with

to all other
are
operators in the UK on-trade market who do not have
purchasing
similar
an
obligations and with whom Bass trades: wholesalers,
pub management companies and other brewers, and the
individual
the discounts
granted to wholesalers, the own managed houses, and
pub management companies and other brewers are, on
average, higher than those granted to the individual free
traders.

Furthermore,

traders.

free

(179) Most of

the direct competitors of

the tied lessees,
namely brewers’ managed pubs, managed houses of pub
companies,
loan tied houses and free trade operators,
(being only to a limited extent direct
and clubs
competitors of the tied lessees in view of the restricted
access) are thereby enabled to buy their beer cheaper
than the tied lessees.

(180) As for the above competitors, only the free trade-
operators (the non-loan-tied supplies to clubs have been
included in the Bass data on the discounts for the free
trade operators) directly purchase their beer on market
terms from Bass; this group is considered to be the
(cid:145)reference group(cid:146). They are indeed the only group where
(cid:145)the supplier [(cid:133)] applies less favorable prices [(cid:133)] to
resellers bound by an exclusive purchasing obligation as

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compared with other
distribution(cid:146) (44) (italics added).

resellers at

the

same

level of

(186)

(181) Table 3 (recital 108)

indicates clearly that

the price
differential between the price paid by tied lessees (the
Bass list price minus discounts on cask-ale purchases)
free-trade
and the average price paid by individual
the
operators has increased every year
in view of
free
increasing discounts granted to such individual
traders.

2.1.3. Countervailing benefits

(182) However, Bass has argued that the relationship with its
lessees should not only be judged by reference to the
price the lessees pay, and that
the whole business
relationship should be taken into account in order to
judge whether the lessee is able to (cid:145)survive(cid:146)
in the
market place, and, hence, whether the improvement in
distribution can be argued.

(183) The Commission accepts this argument. However, this
implies an inherently difficult comparison between on
the one side clearly quantifiable price differentials and
on the other side more (cid:145)quality(cid:146)-related aspects of the
business relationship.

(184) The

of

so-called

description

(cid:145)quantifiable
the
countervailing benefits(cid:146) in recitals 60 to 108 reflects the
difficulties involved in such quantification. However, in
view of the arguments described there in support of the
methodology for each of the benefits and the factual
these
information which backs up the results
different
the
the Commission considers
result, described as (cid:145)Conclusion(cid:146) in Table 3, provides a
reasonable instrument for the Commission to decide,
within its discretionary margin in applying Article 81(3),
whether the (cid:145)practical(cid:146) operation of the standard leases
brings about an improvement in distribution.

for
that

items,

It is apparent from Table 3 that for the years up to
the price
1992/93 and from 1994/95 onwards
differential
is more than compensated by quantifiable
countervailing benefits. The (cid:145)average(cid:146) lessee is therefore,
on an overall assessment of the business relationship
with Bass, in a position to compete on a (cid:145)level playing
field(cid:146) with his free trade counterpart. For the year 1993/
94, the price differential was not totally offset by the
countervailing benefits, the shortfall being around GBP 2
per barrel. However, the Commission considers that this
figure in itself is not sufficient to warrant the conclusion
that the average tied lessee faced a significant handicap
in his capacity to compete. This view is based on (a) the
fact that such figures represent between 1 and 3 % of
the beer price and (b) the existence of (cid:145)unquantifiable(cid:146)
countervailing benefits, mainly the different risk faced
by a tied lessee as compared to a free trader (recital 111).

(187) The Commission therefore concludes that for the whole
duration of the standard leases there are no arguments
to support
the improvements in
distribution described in general terms above have not
been obtained.

the conclusion that

(188) The standard leases,

thus

have
distribution on the UK on-trade beer market.

contributed

an

including the tying restrictions,
of

improvement

to

2.2. Benefits to the consumer

recital 16 of

the Regulation indicates

(189) With regard to the general benefits created by tied
that
leases,
(cid:145)consumers benefit from the improvements described, in
particular because they are ensured supplies of goods of
satisfactory quality at fair prices and conditions while
being able to choose between the products of different
manufacturers (45)(cid:146).

(185)

In its assessment of the conditions of Article 81(3), and
in particular where a retroactive exemption is requested,
the Commision cannot make an overall assessment for
the whole (cid:145)retroactive(cid:146) period, but
should evaluate
whether at all times the conditions of Article 81(3) are
fulfilled. The Commission considers in view of
the
(cid:145)standard(cid:146) nature of the notified agreements which cover
several hundred individual agreements,
the intrinsic
complexity of the data and the limited availability of
data on bases other than annual, that it is reasonable to
limit
the conditions of
Article 81(3) are fulfilled to a year-by-year assessment.

its assessment of whether

(44) Article 14(c)(2) of the Regulation.

(190)

In addition to these general references, it can be noted
that property ties create an incentive for brewers to
invest, or maintain investment, in outlets that may be
too small to be economically run by the brewers’ own
a means of
managers. The
maintaining pubs that might otherwise close, or not
attract the investment made by Bass and/or the lessee.
The continued availability of those outlets and/or the

system is

therefore

(45) This refers to the possibility under Article 6, read in conjunction
with Article 7(1)(a) of the Regulation, whereby lessees can buy
beer brands of a different type from those supplied under the
agreement and can offer these to the consumers. This possibility is
equally maintained by the standard leases, i.e. the procedure for
the non-specified types.

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improved facilities following from an investment are a
clear benefit to the consumer. It is self-evident that the
property ties of a particular brewer can only be
considered to contribute to this benefit if the long-term
operation of the houses is not endangered.
In other
in market circumstances where there are price
words,
differences, such differences are broadly offset by other
specific benefits. As indicated above, this is the case
with Bass.

2.5. Conclusion

(196) The standard Bass leases, and the beer tie (exclusive
purchasing and non-competition obligations) which
they contain, fulfil the conditions of Article 81(3).

(191) With regard to the specification of

that

tie by type,
the
Commission also notes
in 1997 alone Bass
introduced 36 brands into its leased public houses,
including such specialised beers as the ales Orkney
Raven and Caledonian Christmas which were only
introduced in Scotland. Other brands
include well-
known brands such as Guinness and Caffrey’s Irish Ale
and less well known brands such as Staropramen.

(192) The Commission therefore concludes that consumers

benefit from the operation of the leases.

2.3. Indispensability of the restrictions

(193) The exclusive purchasing obligation,

together with a
non-compete clause, is indispensable to the advantages
produced by beer
supply agreements, as noted in
recital 168. As described in recital 17 of the Regulation
these advantages cannot otherwise be secured to the
same extent and with the same degree of certainty.

(194)

It can also be noted that the specification of the beer tie
by type is indispensable for the ease of introduction of
brands to the tied networks of the brewers on the UK
on-trade beer market (recitals 171 and 191).

2.4. Possibility

of

in
eliminating
respect of a substantial part of the market in
question (46)

competition

(195)

is evident

It
that Bass cannot eliminate competition
from a substantial part of the market as they account
for only 24 % of the UK on-trade beer market in 1997.
Moreover, even taking into account
in
1997 at most 58 % of the UK on-trade beer market was
foreclosed through the parallel networks of brewers’
agreements, Bass’ agreements do not
lead to the
elimination of competition in respect of a substantial
part of the UK on-trade beer market.

the fact

that

C. RELATION WITH ARTICLE 28

the procedure under Article 226 of

(197) The current and former lessees who used the model
consider that the Commisison cannot grant a retroactive
exemption given the Commission’s established position
by way of
the
Treaty against the (cid:145)guest beer clause(cid:146). On the basis of
the Metro (47) judgment, it is argued that it would be an
improper exercise of the Commission’s powers under
Article 81(3) to permit a retroactive exemption which
would bless, under
is
considered to be a clear breach of Article 28.

the competition rules, what

is without prejudice to a final

(198) The compatibility of the guest beer law with Article 28
for Article 81 purposes. First of all, a
is irrelevant
decision pursuant
in respect of an
to Article 81(3)
agreement that incorporates up to April 1998 only the
(cid:145)old(cid:146) guest beer clause, namely the cask-conditioned
beer,
judgment on the
Article 28 matter. Furthermore, the Regulation exempts
agreements for use in all Member States whereby the
brewer/landlord does not have to grant a right similar
to the (cid:145)guest beer(cid:146) clause. This is because the brewer/
landlord can impose a non-compete obligation for all
brands of beer of the same type than the brands he tied
for in the agreement. The inclusion of the (cid:145)old(cid:146) guest
beer was thus already a liberalisation of what was
allowed under the Regulation and cannot,
therefore,
give rise to a concern under Community competition
law.

(199) As the Article 28 issue is irrelevant,

for the reasons
stated above, it was not necessary for the Commission
to refer to this issue in the notice. The notice was,
therefore, complete. Moreover,
interested third parties
are entitled to submit observations not only on explicit
points mentioned in a notice pursuant to Article 19(3),
but on all other points they consider relevant.

(46) A different

concept

from (cid:145)significant

contribution to the

foreclosure of the market(cid:146).

(47) Case 26/76, Metro v. Commission [1977] ECR 1875.

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D. RETROACTIVE NATURE AND DURATION OF THE
EXEMPTION

HAS ADOPTED THIS DECISION:

(200) The standard leases are agreements in the sense of
Article 4(2)(1) of Regulation No 17 where (cid:145)the only
parties thereto are undertakings from one Member State
and the agreements [(cid:133)] do not relate to imports or to
exports between Member States(cid:146).
from
Article 6 of Regulation No 17 that for such agreements
the date from which a decision pursuant to Article 81(3)
takes effect may be earlier than the date of notification.

follows

It

(201) The Court has held in its

judgment

in Fonderies
Roubaix (48) that (cid:145)the fact that the products involved in
[the agreements to be assessed] have previously been
imported from another Member State does not by itself
these agreements must be regarded as
mean that
relating to imports within the meaning of Article 4(2) of
Regulation No 17(cid:146). Therefore, the application of that
Article should not be excluded in view of the brands on
Bass’ price list
that are imported from outside the
United Kingdom.

(202) Since it has been found above that the standard leases
fulfil the conditions under Article 81(3) since the date of
first introduction of one of the notified agreements on
the market on 1 March 1991,
this Decision should
apply from 1 March 1991.

(203) Pursuant

the

that

considers

to Article 8(1) of Regulation No 17, an
exemption should be issued for a limited period. The
Commission
until
31 December 2002 is appropriate, as the Bass leased
estate has been sold off with only just over 20 leased
properties
to be
converted into managed houses. The exemption period
therefore allows Bass to make its commercial decisions
on the remaining tenanted houses with a reasonable
level of legal certainty,

remaining which are

expected

period,

Article 1

The provisions of Article 81(1) of

the Treaty are,
1.
to the
to Article 81(3), declared inapplicable
pursuant
individual lease agreements in the standard form of (a) the 10-
year lease, (b) the three-year foundation agreement and (c) the
tenancy-at-will lease, and to the exclusive purchasing and non-
competition obligation ((cid:145)beer tie(cid:146)) which they contain.

This Decision shall apply from 1 March 1991 until

2.
31 December 2002.

Article 2

This Decision is addressed to:

Bass plc
20 North Audley Street
London WIY IWE
United Kingdom.

Done at Brussels, 16 June 1999.

For the Commission

Karel VAN MIERT

Member of the Commission

(48) Case 63/75, Fonderies Roubaix v. SociØtØ Nouvelle des Fonderies

[1976] ECR 111, at paragraph 8.