This may involve both existing operators and new ones, and there has been recent coverage in the press about new entities readying themselves for investment when the time is right.
I therefore thought it would be topical to talk about how pubs code rights apply when a pub is sold and discuss some related issues.
I am basing this column on theoretical acquisitions – I have no inside information.
Acquisition by a regulated pub company
Where a tied pub is purchased by one of the six pub-owning businesses regulated under the pubs code, the tenant has all code rights from the date of sale. That’s regardless of who the pub is purchased from.
At their next rent review, the tenant will be entitled to all the information that is required in a code rent assessment, they will be entitled to a rent review on request if they haven’t had one in five years, and they’ll be able to apply for the market-rent-only (MRO) option at the same time.
As their tenancy has already begun, they won’t have had all the new tenant information a pubs code tenant receives on signing up, but the new pub company will provide them with information about their new rights.
Disposal by a regulated pub company
Where a tied pub owned by a regulated pub-owning business is purchased by an unregulated pub company, there is extended protection for many existing pubs code rights, including a right to a rent assessment at rent review. But the tenant’s right to take the MRO is lost immediately.
Extended protection lasts until the end of the tenancy (or its statutory renewal), or the end of the first rent assessment after the disposal if that is sooner.
I don’t have the power to investigate a pub-owning business for a suspected breach of the code in respect of extended protection rights. However, with information about any compliance concerns I can consider using my other regulatory powers.
The regulations do not contain a mechanism for me to track those disposals, so I will need to work with the regulated pub-owning businesses to make sure they are notifying the purchaser that they are taking on code duties with the pub.
The 500-pub threshold
If the purchase brings the new pub company above the threshold of 500 tied pubs, and it remains the owner of at least that many tied pubs for six months or more during the financial year, then it will become regulated by the pubs code.
However, this regulation only begins at the start of the next financial year.
So, in this scenario a tenant who had run a pub previously owned by a regulated company would lose the right to MRO, then eventually regain it.
Depending on when the 500-pub threshold was met, it could be as long as 18 months later that full pubs code rights are restored to the tied tenant.
Consultation on more tenant protections
Following the statutory review of the pubs code, the Secretary of State for Business, Energy and Industrial Strategy did consider whether there is a risk that large numbers of tied tenants could lose their rights under the code following a large acquisition of pubs from a regulated pub company.
As a result, the Government will consult on the timing of when a pub company comes within the scope of the code and whether tied tenants should have more protection when their pub is sold in certain circumstances.
The overall number of tied pubs to which pubs code duties apply has fallen since its introduction (though not the number owned by each pub-owning business as there have been significant acquisitions by Star and Admiral in that time).
Our 2020 numbers show an overall reduction of 381 in regulated tied pub estates to 8,745 compared with the previous year.
It may be that the code itself is one driver, though there will be others.
The Secretary of State said in the statutory review report that the Government will continue to monitor industry trends as they emerge. However, we are yet to know what effect the pandemic may have on these.
This column is intended to aid industry understanding about the pubs code and its impact. Nothing in it should be understood as a substitute for the pubs code legal framework.