PCA to confront pub owning businesses over MRO blocking

By Claire Churchard

- Last updated on GMT

Concerned: pubs code adjudicator Paul Newby vows to investigate MRO issues further
Concerned: pubs code adjudicator Paul Newby vows to investigate MRO issues further

Related tags Mro Leasehold estate Renting

Pub-owning businesses (POBs) are blocking tied tenants’ access to the market rent only option (MRO) and going against the spirit of the pubs code, according to a report commissioned by the pubs code adjudicator’s office.

Evidence in the report published today confirms that businesses covered by the pubs code have employed a number of tactics to make it difficult for tied tenants to exercise their MRO rights.

The report highlights incidents where POBs have withheld information that tenants need to progress their MRO, offered tenants unreasonably high rents described as “bullish” by one independent assessor and failed to engage in meaningful negotiations, among other things.

Against the spirit of the code

Such behaviours go against the spirit of the code and have forced some tenants to refer their case to Paul Newby, pubs code adjudicator, which extends the process further. A longer process increases the legal costs and stress for tenants, which can, and has in certain cases, pressured them to drop out of the process.

POBs have also made offers that include terms that are not commonly found in tied tenancies or free-of-tie agreements “to make MRO appear as unattractive as possible”, the report said.

“Many respondents noted that the practical effect of these terms is to require significant up-front payments [from the tied tenant] before they can agree an MRO tenancy.

“[People giving evidence to the report] said that the cumulative effect is to deter [tenants] from pursuing MRO because they would find it commercially disadvantageous or difficult to raise the required funding.”

Sources of evidence used in the report

Stakeholder evidence from a range of tenant interests

  • Tenant representative bodies; tenant campaign groups and consumer organisations;
  • Professional advisers (lawyers and surveyors) and MRO independent assessors;
  • Individual tied tenants and multiple operators.

PCA data referenced in the report

  • Information from arbitration cases
  • An analysis of calls to the PCA
  • An analysis of correspondence to the PCA
  • Media reports on the functioning of the pubs code

Most significant barrier

The most “significant barrier” stopping tenants from exercising their MRO option, the report found, was the insistence by POBs that a brand new tenancy agreement was required rather than a deed of variation (DoV). Costly terms can be inserted into a new agreement but DoVs mean tenants can be released from tie, fully and partially, without changing the other terms, making DoVs the preferred option for tenants.

However, POBs’ preference for new tenancy agreements over DoVs is “corroborated by the POBs’ own benchmarking data”, the report said.

These concerns, and more outlined in the report, will be familiar to the tied tenants and campaigning groups that have been raising these issues for almost as long as the code has been in force.

Verified evidence

But this new weight of verified evidence has enabled Newby to question the POBs about their approaches to MRO, which were described as “bullying, antagonistic, delaying and frustrating” by people who gave evidence to the report.

Newby has contacted the POBs to ask them about their processes and practices related to the findings, including how they deal with MRO notices, making an MRO offer and negotiations that relate to that offer.

Newby said: “It is right that [the POBs] should have an opportunity to respond. And I’m not saying that all POBs are bad. This fact-finding exercise has shown us that there are areas of concern that we need to investigate further and then decide what action might be needed.”

Regulatory and enforcement options

Once the answers from the POBs have been assessed, Newby will consider which regulatory and enforcement options may be appropriate. This could include issuing advice - as he did recently over reports that MRO-blocking Calderbank letters were still being sent despite commitments to end their use - requirements and formal investigations.

The adjudicator hopes to provide an update on the situation this autumn and said he is keen to move forward.

In the interim, Newby has issued a number of statements about how he will approach arbitrations to “increase the number of cases that are settled and do not become disputes brought to me for arbitration”.

Less likely to uphold arguments using technicalities

He told POBs that the report’s findings mean that during arbitrations “he is less likely to uphold arguments where technicalities have been used to block or delay requests for MRO options”.

On MRO notices, the statement said: “In line with the core pubs code principle of fair and lawful dealing, the PCA expects pub-owning businesses to take a reasonable and proportionate approach to how they treat MRO notices.

Unhelpful and unacceptable behaviour

“The PCA is aware that some MRO notices have been rejected without providing the tied pub tenants with explanations of their rejection. The PCA considers this to be unhelpful and unacceptable behaviour.”

Tenants should also be told the reasons for rejection in sufficient time to allow them, where possible, to put the MRO notices right, the PCA added.

Newby told The Morning Advertiser​ that people were “testing the code, which you would expect in a functioning commercial market”, but said that the code was not failing and needed time to bed in.

To read the full report and see the PCA's MRO statements visit the PCA website​.

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