Pubs code

10 things we've learnt about the pubs code

By Michelle Perrett

- Last updated on GMT

Related tags: Mro, Renting, Rental agreement, Leasehold estate

10 things we've learnt about the pubs code
The Government has published its first draft of the pubs code and how it proposes the market rent-only option (MRO) will work in practice. Here are 10 key points from the draft code.

The Government has published its first draft of the pubs code and how it proposes the market rent-only option (MRO) will work in practice.

Read the original story here.

Here are 10 points we've picked out from the draft code:

1. Parallel Rent Assessments (PRA) have been removed

The PRA was intended to give licensees the opportunity to compare free-of-tie (MRO) against tied agreements. But the Government has rejected the introduction claiming it sees “no need for PRA” as it would provide complexity to the operation of the code and “impose significant additional burdens”.

It states neither pub-owning businesses not tenants’ groups supported the PRA approach. "The right to request MRO in the circumstances required by the code will already deliver the principle of ensuring that the rent assessment procedure leaves an existing tied tenant no worse off", it states.

2. MRO and rent reviews

The tenant will gain the right to request a MRO offer following the receipt of a rent review proposal. But only if the rent proposed by the pubco is higher than the existing rent the tenant is paying. The tenant has only 14 days from receipt of the rent review proposal to request an MRO offer. The consultation is asking for views on whether an MRO compliant tenancy agreement should provide for an open market rent review every five years.

3. MRO rental agreements

The consultation said it does not prescribe a one-size-fits-all approach for MRO, but expects agreements to be modelled on the standard type of commercial agreements that are already common for free-of-tie tenants.

4. Increased beer prices

The code says that tenants have the option to request MRO if they have experienced a significant increase in the price of any tied product. It states that a "significant increase" in price should be based on wholesale pricing from breweries. "Pub-owning businesses should be able to increase the price at which they supply beer to tenants by the same percentage as the wholesale price has increased, plus a small margin for tolerance. We propose five percentage points".

5. Increased prices on non-beer tied products

On non-beer products it proposes a “two-tier approach”. Where the cost to the tenant is 20% more as a proportion of pub turnover it would be a price increase in excess of 30% to trigger an MRO. For those that are less than 20% “significant” would be a price increase in excess of 40%. Frequent small price increases that have the same cumulative impact than a single “significant” increase could not be used to avoid the MRO trigger, it states.

6. Change in circumstances

A licensee can ask for MRO rent assessment where an external event has had a "significant impact" on the tenants’ expected level of trade.

7. Investment waiver

The consultation proposes a waiver on MRO for “significant” investments. Pubcos have argued that the introduction of MRO would have a “chilling effect” on the investment they make in tied estates as they would not know whether a tenant would choose to go MRO, meaning they could not recoup their investment.

The report proposes a maximum period between a tied tenants entitlement to a rent assessment to be extended beyond five years but said it should not go beyond 10 years. It considers a “significant” investment to be based on the size, location and turnover of the pub and is seeking views on how this this should be measured.

8. Pubs code adjudicator

The adjudicator, yet to be appointed, will resolve disputes under the code, including MRO agreements. It proposes that both the tenants and pubcos can refer MRO disputes to the adjudicator. "In particular, the adjudicator will deal with disputes about whether the eligibility criteria for MRO have been satisfied; whether an agreement is MRO-compliant; and whether the correct procedures have been followed".

9. Lease assignment

If a tied tenant assigns a lease during the term of an MRO waiver, a prospective licensee must be made aware of this. The new licensee will not be entitled to be offered an MRO option until the next rent assessment, which could be more than five years away.

10.  What happens next?

This first consultation closes on 14 ​December. The second part covering the remaining elements of the code will be published in November. The Government said it would publish its response as quickly as possible and within 12 weeks of both consultations closing. The final draft will be debated in Parliament.

Read the full consultation here.

Related topics: Other operators, Legislation

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