MARKET RENT OPTION (MRO), should you go Free of Tie?
The request for an MRO is the wish to be free of supply-tie. The option to do so is contained in all pub leases and triggers an automatic rent review. Be warned, however, that until (and if) Statutory Regulation reaches Royal Assent – which could be some time away – there is a very large sting in the tail. Basically your lease will not alter in its content. This is what will happen because of ‘understandings’ not contained within the wording of the lease.
- The supply-tied leases contain upwards-only rent reviews which currently are not enforced as a result of the Pubco Code of Practice. That Code of Practice does not apply to anyone who is free of tie.
- The Industry Framework Code – which is not referred to in the leases – would be unenforceable in the absence of Statutory Regulation. It does not apply to free of tie leases
- There would be no cheap dispute resolution option through PIRRS. It does not apply to free of tie leases. The implication is that arbitration – which is now very expensive – is the only option available
- There is no opportunity for complaint to PICAS. That only applies if you are supply-tied
- The conversion to supply-free rent should never be a calculation of replacing the Pubco wet rent. The rent should only be calculated on the difference or uplift in genuinely sustainable gross profit margin increases which can be carefully calculated.
There are considerable cost and supply choice advantages of being free-of-tie (“FOT”). However, the calculation as to rent should be considered very carefully before formally confirming the taking up of the option. Being FOT should be researched as to input wholesale price, particularly as to small local Brewers who do not necessarily give (or can afford) substantial discounts. Major Brewers – especially of lager brands – can and do give massive discounts compared with the current levels of discount that are being given by Pubcos.
The MRO is getting very close, but needs very careful study and calculation as to its financial advantages.