MRO process ‘better than it was’ but far from perfect

By Fiona Dickie, pubs code adjudicator

- Last updated on GMT

Operator opinion: 'I have just launched a short research project to hear from those who have started the MRO process since April 2019 about how it went'
Operator opinion: 'I have just launched a short research project to hear from those who have started the MRO process since April 2019 about how it went'

Related tags Pubs code Pubs code adjudicator Legislation Pubco + head office Tenanted + leased

The pubs code was introduced to ensure that tied tenants of the biggest pub companies get treated fairly and are no worse off than if they were free of tie.

They can judge if they are worse off by looking at both options side by side in the market-rent-only (MRO) option process. They then have the right to choose the option best for their business.

Tenant take-up

MRO is a powerful tool for tied tenants. Yet the number of them using the process has reduced year on year since the code’s introduction in 2016. 

So why aren’t more tenants making use of it? 

There may be a number of reasons, including reductions in tied estates covered by the code, the impact of Covid-19 in 2020, and the complexity of the code. 

As PCA, I would be concerned if tenants are deterred by historic accounts of intractable and lengthy disputes.  

It is important to me to demonstrate to tenants that much has changed about accessing the MRO, to give them information about the current process, and to build their confidence to find out about their rights and use them.  

In the interests of tied tenants, I want the conversation to be up to date.

Making changes

When I was appointed deputy PCA in November 2017, the arbitration backlog was substantial. I heard the frustrations of tenants caught up in it. 

Since then, the PCA team has worked hard to improve our systems to ensure fair, impartial and timely dispute resolution.

Improvements include publishing decisions to support better information for the industry and setting up arrangements for alternative arbitrators. 

Our actions in issuing statutory advice, the Regulatory Compliance Handbook and the Compliance Checklist and Declaration are aimed at ensuring the pub companies make lawful MRO offers, and have made it clearer what tenants can expect.

Fewer disputes

The figures show this hard work has already had significant success. 

When comparing 2018 with 2020, disputes by tenants over the MRO tenancy terms offered have reduced by 65% from 101 arbitrations to 35.

Cases involving Marston’s have fallen by a whopping 92%, from 13 cases to 1, and those involving Star by 80%, from 25 cases to 5. 

Ei Group has the largest regulated estate, more than 3,100 tied pubs, and its dispute numbers have dropped a hefty 60%.  

These numbers cannot merely be explained by the reduction in MRO notices served, which are 12% lower comparing the 12 months ending November 2018 to that ending November 2020, the last month for which statistics have been published.

Pub company progress

The plummet in disputes over MRO terms is good news for tenants.

I believe this change also stems from the hard work of the pub companies’ Code Compliance Officers who have been driving the message of compliance home within their businesses, as well as from the clarification of legal principles considered in arbitrations and appeals.

Pubs code arbitration awards do not set binding precedent, but I’ve shown through the Star investigation that there can be consequences for a pub company which does not have good reason for arguing the same points of law repeatedly in successive cases. 

I found that Star had accepted the principle in my early arbitration decision that its 100% keg stocking restriction was not code compliant, while it continued to argue the opposite in successive arbitrations. 

My latest pubs code action story shows an improving response from Star​ in relation to a more recent issue.

Tenant choices

Can anything be learned from the number of tenants choosing the free-of-tie option? 

In 2017 only 8% of tenants ending the MRO process went free of tie. In 2018 that figure was 20% and by 2019 it was 31%.

This could suggest the process has got better at offering tenants a real choice. The figure to November 2020 is 24%. 

Perhaps that suggests the pandemic has caused some tenants, who have had support from their pub company during Covid trading restrictions, to think carefully about taking on commercial free of tie terms. 

It is important to remember that tenants can use the MRO even if they have little or no interest in breaking the tie and can use it only as a negotiating tool at their tied rent review. 

No complacency

While the MRO process is better than it was, it is far from perfect and the secretary of state will be consulting on important changes. 

I am certainly not complacent. I want to understand if my regulatory measures so far have done enough to make the process balanced, accessible and valuable to tenants.  

I want to know what impact the MRO rents and terms proposed are having on their experiences now. 

I’ll be asking tenants about these matters directly. 

I have just launched a short research project​ to hear from those who have started the MRO process since April 2019 about how it went. 

Our user research company Hive IT will be asking tenants why they chose to serve a MRO notice, how the process went for them, and why they made the choice they did at the end of it. 

I’ll be discussing what I learn with the pub companies. 

This research is designed to help me identify where outstanding problems now lie and inform my future focus as regulator. 

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