Statutory Code: Spirit may be forced to reintroduce upward-only rent reviews

By Michelle Perrett

- Last updated on GMT

Related tags: Statutory code, Free-of-tie option, Renting, Leasing, Government

Spirit may be forced to reintroduce upward-only rent reviews
Spirit may be forced to reintroduce upward-only rent reviews
Spirit Pub Company has told the Government that it may be forced to introduce upward-only rent review (UORR) clauses to leases if a free-of-tie option is made mandatory.

The company said that if a mandatory free-of-tie option is included in the proposed statutory code, “the resulting lease is no different to a commercial leases for any business and we may require the right to implement UORR in accordance with the Code of Leasing Business Premises in England and Wales”.

The consultation into the statutory code proposes that UORR clauses are made “invalid and unenforceable”.

Loss of margin

Spirit, which operates c460 leased pubs, said: “UORR may have to be re-introduced to make up the loss of margin to a pub company to secure a sufficient return for its business owners and therefore in our view there should be no restriction on UORR if a FoT [free-of-tie] option be made mandatory.”

Legal implications

In its response to the consultation, the company raised the issue of the legal implications of Government intervention in the tie.

“If a national statutory code sought to regulate the issue of ties in a more restrictive manner than that envisaged under applicable EU competition law, it is open to question whether such a measure would be enforceable under European law.”

Spirit said it estimates that each publican currently sees a minimum of £1,312 per year in additional net profit through the use of information obtained from the flow monitoring equipment. The consultation proposes banning the use of systems for determining whether a tenant is ‘buying out’.

The company has spent £2.3m this year installing iDraught equipment in its pubs.

Tie is intrinsic

Spirit said: “The tie is an intrinsic part of our tied agreements and we need to be able to utilise technology to help us understand a licensee’s compliance with purchasing obligations.

“Like any other person, we have a legitimate expectation to be able to monitor and enforce our legal rights where those rights are entirely consistent with applicable laws.

“Flow monitoring investment also provides significant benefits to licensees.”

Cost of £200,000

Spirit said it’s already incurring costs of £200,000 per year to facilitate appropriate self regulation.

The company stated: “We believe that some of the consequences of the proposals put forward are far reaching, would drive structural change with unpredictable consequences, and could potentially drive the closure of pubs and cause economic damage to communities across the UK.

“There is a clear conflict where we have a Government which is committed to reducing bureaucracy and yet appears to be attempting to impose costly burdens on a sector which provides high employment but in which all participants are under cost and profit pressure.”

Related topics: Legislation

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