Tenants should be thinking about how they can use their code rights, including in any rent negotiations with their pubco.
This is important because 31 March marked the end of the declaration which all six regulated pubcos signed to pause and protect key pubs code rights during trading restrictions.
As a result, any outstanding rent assessments and Market Rent Only (MRO) processes should be moving forward now.
Pubcos should now be able to comply with their code duties to serve compliant rent assessment proposals. The information tenants must receive under the code is vital in ensuring that rents are fairly set.
Well-advised tenants may be seeking to use their code rights to ensure any uncertainty in the market is properly reflected in the rent at rent assessment.
Of course, tenants and pubcos may have different perspectives on trading potential post-pandemic.
Optimism about a bounce-back to pre-pandemic levels soon may be matched by uncertainty about the public’s appetite for pubs post-pandemic.
Tenants might also have concerns about increased running costs of trading as we live with the virus longer term.
Whatever view the pub company takes, in essence the pubs code means it must be a reasonable one backed up with evidence and explanation, so the tenant is fully informed going into any rent negotiation.
Rent recovery after assessment delay
Where a tied rent will be reviewed under the tenancy terms, the code rent assessment proposal must be sent to the tenant at least six months before the rent review date.
Delays to tied rent assessments during the pandemic do not ultimately give either party an advantage. This is because the code provides for financial reconciliation.
Where the rent review date passes before the new tied rent is agreed, any recoverable rent needs to be dealt with. If the agreed rent has gone up or down on review, any under or overpaid rent from the rent review date must be accounted for.
There are similar rent recovery rules where more than six months have passed after a pubco has served a rent assessment proposal in response to the tenant’s right to request one, for example on the back of a trigger event.
Remember that if as a tenant you expect a significant impact on trade consistently over the next 12 months you should make sure you understand about code trigger events.
These can’t be events likely to affect all pubs in England and Wales. But, for example, if changes in local businesses are having a particular impact on your trade, consider getting expert advice about whether you are entitled to request a rent assessment.
MRO rent negotiations
A tenant can request a market rent only option at any rent assessment. The tied rent payable is then frozen, unless the tenant decides not to accept that MRO option.
I’ve commissioned research with tenants who have recently been through the MRO procedure to see how it has worked for them. I will be saying more about this later, but initial findings show some positivity about the independent assessment process of the MRO rent. This indicates the role the code can play in helping to secure the best option for your business.
The MRO process is designed to move swiftly through negotiation and agreement. I would want to know about any case in which a pub company wasn’t progressing reasonably through the MRO procedure, as any delay could be to the tenant’s detriment.
The clear emerging impression from tenants is that satisfaction with the outcome of the MRO procedure is closely linked to having good professional advice. When you are negotiating your MRO rent all relevant factors need to be considered, such as the length of the tenancy.
An improving MRO procedure and long-term trading optimism might have an impact on tenants’ appetite for MRO. There were more MRO notices served in December 2020 than in any month since May 2018, but the overall picture is patchy.
Pub company support
Remember when you are discussing any rent assessment with your business development manager, or debt repayment plans, you should receive accurate notes of those conversations. You should also be dealt with in a fair and lawful manner.
You can take up any issues regarding these and other pubs code rights with your pub company’s code compliance officer.
The pub sector has experienced huge challenges, but we are all hoping for better times ahead.
I wish regulated tenants all the best in their return to trading, and my team is here to offer support in understanding how code rights can help them.
- 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.