The government is to introduce a market rent only (MRO) review option for tied tenants that can be triggered by “a significant impact on trade” alongside other key events such as lease renewal.
Clarifying what it meant by a “significant impact on trade”, the government said: “This will arise where written analysis of the level of trading forecast for 12 months or more is sent to the pub owning business by the tenant which demonstrates that a trigger event has occurred.
We have clarified that the effect of the trigger event is to decrease the level of trade that can reasonably be expected to be achieved at the tie pub in each month over a continuous 12 month period.
We have agreed with the respondents who said that the requirement for tenants to mitigate potential trigger events is too strict and could frustrate their entitlement to an MRO offer.
Therefore we have replaced this with a duty to mitigate substantially. We also wish to clarify here that extrinsic price increases – whether national or local – cannot be trigger events.” The government intentions have been published after a consultation on the introduction of a pubs code and pubs code adjudicator.
The government stated today it would introduce a Pubs Code to “ensure 12,000 tied tenants of the six largest pub-owning companies can secure a fair deal and a better livelihood”.
The code provides: the right to consider a tied rent in parallel to a MRO offer’; protections in the event of a sale of a pub to a non-code company; an exemption for pub franchise agreements from MRO and the regulations for setting and negotiating of rent; but also a deferral of the MRO option of up to seven years in return for significant investment by the pub-owning business.
Minister for small business Anna Soubry stated: “Pubs are an important part of life in this country. They are the hub of local communities in both rural and urban areas. Beer and pubs contribute £22bn to UK GDP.
It is crucial that pubs operate in a fair environment which allows them to thrive.
Over the last decade, tied pub tenants have raised concerns that the sector has become increasingly difficult to operate in.
The key issue for them has been the relationship with large pub-owning businesses.
Some positive changes resulted from the introduction of industry self-regulation, but the measures did not go far enough.
So the previous government consulted on proposals for a statutory Pubs Code and an independent adjudicator and enshrined these in the Small Business, Enterprise and Employment Act 2015.
Our most recent consultation process gathered views on how to implement the Pubs Code and Pubs Code adjudicator, and on the draft regulations. I have had to take some tough decisions, and I am certain that parties on different sides of the debate will find they disagree with some of the conclusions.
However, it is my job to strike a balance which ensures that tied tenants of the largest pub-owning businesses are no worse off than free-of-tie tenants, that there is fair and lawful dealing between pub-owning businesses and their tied tenants and that all this takes place without placing undue burdens on businesses.
I hope all parties will agree that, on balance, this package of measures works to the benefit of our pubs sector and represents a fair outcome for all.
I ask everyone in the pub business to get behind the Pubs Code, and work with the Pubs Code Adjudicator, so we can ensure that this country’s pubs continue to thrive.”
The reports states: “The government has decided to make a number of changes and improvements as a consequence of the consultation.
The principal ones are: to remove the proposed restriction that the MRO option should become available only when an increased rent was proposed but to allow it regardless of the level of rent proposed;
Deliver the effect of a Parallel Rent Assessment to enable tied tenants to consider a free-of-tie rent offer alongside a tied rent review proposal;
Refine and improve the basis on which a ‘significant price increase’ would be calculated for the purpose of triggering an MRO option;
To change the basis on which a ‘significant price increase’ would be calculated for the purpose of triggering an MRO option;
To cut back the weight of information requirements on pub-owning businesses in ways that would still offer similar protections to tied pub tenants;
To clarify that pub-owning businesses would be permitted to carry out routine checks – though not to negotiate terms – before providing stipulated information to prospective tenants;
Conditions for allowing an exception to the right to an MRO option in exchange for a significant investment in the tied pub through an agreement between the pub-owning business and tied tenant – including the minimum size of such an investment and the maximum period for the exception; the maximum length of short agreement which should be exempted from most Pubs Code provisions (12 months); and which provisions should still apply to these short agreements;
The definition of those tied pub franchises which would be exempt from some parts of the code; to make some code provisions non-arbitrable: relating to the role and duties of compliance officers and the training of business development managers;
Issues about the level of fees and charges and also the financial penalty following an investigation by the Pubs Code Adjudicator.”