Pubcos slammed for using Section 25 notices to block MRO

By Michelle Perrett

- Last updated on GMT

Free-of-tie negotiations: Paul Crossman with Rob Cooke from lawyers Lupton Fawcett
Free-of-tie negotiations: Paul Crossman with Rob Cooke from lawyers Lupton Fawcett

Related tags: Pubs code, Landlord

Pubcos have come under fire for using a specific notice to hinder licensees from accessing the market-rent-only (MRO) option.

The issue has come to the fore following the case of licensee Paul Crossman of the Swan in Bishopthorpe​, York. He told The Morning Advertiser​ that he had to negotiate his free-of-tie deal outside the pubs code, despite it subsequently being labelled MRO, initially by his own solicitor and his pubco, Punch.

What the pubs code adjudicator's office said on the issuing of Section 25 notices:

The right to request a MRO option under the pubs code arises if one of four events occurs. One of those is at renewal of the tenancy. For the purposes of the pubs code, renewal occurs in relation to a tenancy protected by the Landlord and Tenant Act 1954 either where the tied pub tenant (TPT) receives a Section 25 notice from the pub-owning businesses (POB), or the POB receives a Section 26 notice from the TPT. In either case, if the renewal is challenged, the timetable for providing a MRO full response begins once the court has made an order for a new tenancy.​​
 Therefore a TPT who has served an MRO notice at renewal, and who has established their statutory right to a new tenancy, has the same pubs code right to choose between a tied and a market-rent-only tenancy as any other TPT pursuing a right to request MRO.​​

Crossman said that because the notice he received from Punch said it would not be renewing the lease as the intention was for the pub to be taken into its own management, it removed him from the pubs code process. 

“If you receive a non-hostile Section 25 notice that is a trigger as they have not contested your lease renewal. If you receive a hostile notice as we did and they are announcing their intention not to renew your lease – that is not a trigger,” he said. 

He said his only option would have been to go to court to challenge the decision and if he won it would place him back within the MRO process. However, he could not take the risk of court action or a significant delay so entered negotiation outside the pubs code.

'Issued under the pubs code'

“I didn’t get a parallel rent assessment. I didn’t even start the process and I wasn’t even given a rent proposal that was issued under the pubs code,” he told The Morning Advertiser​.  

“We were forced into a situation where I had to get a lawyer involved to look at the fact that Punch had issued a Section 25 and deal with the consequences of that.“ 

A Section 25 is the notice issued from a pubco to a licensee to renew or terminate a lease agreement. 

He has also raised concerns that his rent was now being used as an example of an MRO rent and would be used as a comparable for other pubs.

Unfortunately, his case is not the only one, according to Guild of Master Victuallers chairman Alex Frear.

He said that a number of pubcos have been using various tactics to avoid MRO and Section 25 is “one of the weaknesses” in the code.

'Part of a managed estate'

“By simply saying they want to run the premises as part of a managed estate, they can refuse to renew an agreement,” he said. 

“Ironically, these businesses are then run by ‘self employed’ publicans, expected to maintain depreciating fixtures and fittings, redecorate and repair internally, register for VAT, MGD, etc. In fact, virtually all the responsibilities of a tied tenant.”

A spokeswoman for Punch said: “The issue arose due to us serving a contested Section 25 notice opposing the lease renewal. The publican issued a MRO request, which would be dependent on the courts awarding the grant of a new term. 

“However, through discussion with our publican, and review of our position, we agreed to treat the matter in line with the MRO request received and allow the publican to explore a free-of-tie option as would be the case should the MRO request have been a live matter.

"Whilst procedurally the matter deviated slightly, the matter has proceeded in line with our MRO process for publicans wishing to take on a new free of tie MRO lease."

Related topics: Punch Pubs & Co, Legislation

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