One month after the pubs code marked its first year on the statute book, a highly controversial report was published that could affect the future of the legislation.
With a benign title that belies its true nature, the Market Rent Only Verification Exercise report detailed evidence that pub-owning businesses (POBs) are blocking tied tenants’ access to a market-rent-only (MRO) option.
The report, published by the pubs code adjudicator’s office, maintains that POBs are going against the spirit of the pubs code and using loopholes to make it difficult for tied tenants to exercise their MRO rights.
Within hours of publication, the criticism of the PCA’s report was fierce. The British Beer & Pub Association slammed it as “one-sided, anecdotal, not evidence-based and lacking in transparency”.
More than one pub company was angry the report had not named and shamed the “worst offenders”, and tenant campaigning body the Pubs Advisory Service was livid that the report contained no criticisms of the pubs code itself or of pubs code adjudicator Paul Newby.
In defence of the report, Newby says its findings are the first step on a journey. But what does this mean for tenants?
The MRO Verification Exercise report has divided opinion, what was the reason for commissioning it?
Paul Newby (PN): People have said a lot of things to us [about how the MRO process is working] in our first year, but a lot of it has been bold statements, anecdotal. This report has been all about finding evidence.
What did it reveal?
PN: The exercise provided evidence of a number of issues and areas that tied pub tenants say are creating barriers to them accessing their MRO rights. It found that tenants reported almost without exception that to varying degrees the POBs are not acting within the spirit of the code.
I’m not saying that all POBs are bad. What this exercise has shown us is that there are some areas of concern that we need to investigate further and ask further questions about and then decide what action might be needed.
How the story unfolded
Read The Morning Advertiser’s news stories on the report and industry reaction online
With evidence of pub companies delaying the MRO process, withholding information from tenants and making ‘bullish’ MRO offers, among other obstructive behaviours, what are the next steps for the PCA?
PN: We have asked the POBs questions in relation to our findings. It’s right that they should have an opportunity to respond. We’ve asked them things around how they deal with MRO notices, how they deal with making an MRO offer and negotiations that relate to that offer. There are also questions related to the process. One that gets mentioned quite a bit is how POBs deal with dilapidations, and there are questions to do with the business development manager function. Once we’ve had their responses we expect to provide an update in the autumn.
If you find MRO-blocking practices are more prevalent at particular pubcos, will you focus more on them?
PN: If you look at what the grocery code adjudicator has done, they have taken a particular look at the practices of Tesco. I wouldn’t rule out that we might do something similar if that is where the evidence takes us.
Does this report mean that the pubs code is failing?
PN: The code is quite complicated in law and, therefore, I think, it was inevitable that it would take more time to bed in. These regulations are being introduced into an existing marketplace and things take time to have effect and to change, and the report is the result of some of that. But no, I don’t see it as a failure of the code. Having said that, the code is new law and people are testing that. You expect that in an otherwise functioning commercial market.
Call to action
Watch Paul Newby’s call to action urging tied tenants to visit the PCA website and look through the range of information available before considering MRO.
Watch PCA videos that explain the role of the pubs code adjudicator.
View a useful flowchart of MRO process that charts the deadlines and options for tied tenants.
Confused about your MRO options? Contact the PCA directly.
A common complaint is that the MRO process is taking too long and costing tenants dear. Can you speed the process up?
PN: I’m concerned that we haven’t got all the answers that people would like. I do have sleepless nights about some of this because there is a very high level of expectation about what this process would do.
The PCA [office] has put quite a lot of information out. Our website is quite well populated (see box). But there are some issues in the code that are being tested by parties on both sides. One of the biggest issues at the moment, and it’s obviously related to MRO access, is the vehicle for an MRO-compliant agreement. That is being tested very robustly within the arbitration process.
Can you speed up the arbitration process?
PN: An arbitration case has to be dealt with in a judicial manner, under strict rules. The parties in arbitration are very much in control of their own proceedings. If they want to stop and go away and negotiate, they can do that. If they really want to push the boundaries and test the law, they can do that. If parties agree on what they are doing, the arbitrator will go with what the parties want.
Can you offer more clarity on what the code means?
PN: I have to remain impartial in arbitration and I have to be extremely careful that I don’t pre-determine or judge any issues. This places some restriction on what I can say at this really formative time about what the code might mean.
For example, the code doesn’t say that MRO has to be a new agreement rather than a deed of variation, we’ve said that. But I have to keep an open mind about that until those arguments are settled. Things like this are coming through the arbitration process.
At the moment, the best answer I can give you is that I hope soon we will be able to start talking about some sorts of precedent. Arbitration is a private process but I think we are able to lift principles out of decisions without compromising the confidentiality of the process.