Opinion

Opinion: 50 ways to avoid an MRO

By Phil Dixon CBII industry adviser

- Last updated on GMT

MRO: legal framework 'will not work'
MRO: legal framework 'will not work'

Related tags: Remainder

Last Saturday in my fifty first season in senior cricket, I was skippering the mighty Cookley Thirds in the Worcestershire League. 

A chap came into bat and from his technique I could see he was going to hit the ball exactly where ‘squinty-eyed Brian’ the leg spinner was fielding.

PhilDixonpicRoadshow_11

Phil Dixon, pre-breakage

‘Brian, swap with me,’ I advised.

Three balls later and smack! Alas not a wicket, but a broken finger for me as I painfully contemplated the pitfalls of experience.

It's just not cricket

Sadly, my advice to MPs and campaigners against forcing publicans into a legalistic framework on market-rent-only (MRO) options went unheeded. I warned it would play into the hands of those who could afford the best lawyers, the pubcos.

I have no doubt that as soon as MRO became law someone set up a think tank in or around Solihull where, probably with Paul Simon music in the background, they came up with 50 (all legal) ways to avoid it. As Mr Simon sang: “You don’t need to be coy Roy” (or should that be Rob) but I expect that’s exactly what happened.

So far we appear to have 171 Ei licensees requesting MRO with a conversion rate of less than 3% (so 4 in total) with Punch at 3.3% (3 out of 90). In truth there have been some cracking offers out there with 4-5% of turnover rents or extra discounts to persuade tenant/lessees to remain in a tied relationship. 

Onerous demands

But I’d say that MRO is simply not working due to the onerous unfair demands of the pubcos and breweries.

Take the case of a local licensee I’ve recently spoken to, the pubco wants to increase the rent by 66%. In my considered opinion it should be about 50%. So there’s a deal to be done but then the pubco requires the following:

New agreement - stamp duty (£2,000)

Legal costs (£3,000)

Three months rent in advance (£15,000)

Three months rent in advance as a deposit (£15,000)

Dilapidations (£25,000)

Licensing (£270)

Some fixtures and fittings (£1,500)

Annual insurance in advance in full (£3,000)

Account paid up in full less deposit (£2,000)

VAT (£9,000)

Affordable?

So your day one payment to enjoy MRO is just under £76,000. How many publicans can afford that? Not that many.

Something needs to be done and I think the solution is simple. Rule out the requirement of a new agreement for fully repairing insuring lease publicans. All tied agreements have a clause where the landlord can release the tie and implement a rent review. In some cases all it requires is a week’s notice.

These changes would mean £76,000 would become just under £28,000. For example:

Three months rent in advance as deposit (£15,000)

Vat (£9,000) but reclaimable. 

Licensing (£270)

Some fixtures and fittings (£1,500)

Account (£2,000)

Dilapidations continue over the remainder of the agreement and the insurance payment can be spread over the year.

It represents a 63% reduction. And it is all achievable if pubcos use the clause they have insisted is in every current agreement.

In addition, there’s a simple way to stop people making money out of hard-pressed licensees. Make PIRRS and PICAS (a fixed low cost speedy resolution service) available to tenants of the big six pubcos to settle MRO rents and other disputes.

It’s the difference between hiring a solicitor and spending two years taking your pubco to court or paying £200 to attend an independent panel hearing (PICAS) within three to four months.

Implement the above and the industry will be a fairer place.

Related topics: Property law

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