The PCA has launched a formal consultation on using her powers to issue guidance about the operation of the MRO process for tied tenants seeking the option from the six pub-owning businesses regulated by the pubs code: Admiral, Greene King, Marston’s, Punch, Star Pubs & Bars and Stonegate (trading name of Ei Group).
The launch of the consultation followed an independent study commissioned by the PCA confirming Ms Dickie’s experience that, despite her introducing improvements to the process, tenants were still finding it difficult to take up their statutory right to request an option from their pub company. Barriers for tenants can include uncertainty about the process and its complexity, the up-front costs being demanded for going free of tie and concerns about a negative impact on the relationship between the tenant and the pub company.
Dickie said: “I have taken steps to make it easier for tied tenants to access their right to an MRO option and there is evidence those changes are having an impact. But, as reported to the statutory review of the pubs code, many still feel the process is weighted against them and I believe more regulatory steps may be necessary, including reducing the areas for disputes and the need for arbitrations.”
Bid to remove financial barriers
Tenants and other interested parties are asked to respond to the consultation by 10 December 2021. It covers proposals to ensure fair rents, remove potential financial barriers and reduce concerns that pub companies may take back pubs if a tenant makes a free-of-tie request.
Under the PCA’s proposals, pub companies would be required to provide more documentation on levels of trading over the past three years, detailed profits valuations and forecasts of trading to justify MRO rent offers. In addition, the pub company would have to show how it was treating any previous improvements made by the tenant in determining the rent while rent deposits or advance rents would have to be introduced on an incremental basis.
Dickie is also consulting on the issue of paying for dilapidations, which have proved a hurdle for many tenants.
And she is proposing a higher level of transparency over decisions that pub companies may make on taking back tenancies. Pub companies would have to keep a written, contemporaneous record of any decisions relating to opposing the renewal of a tied tenancy alongside ensuring their business development managers keep full and accurate notes of all conversations with the tied tenant about either lease renewal or the MRO option.
Empowerment for tenant
Dickie added: “Parliament introduced the MRO option to give tied tenants the right to make the best decisions for them and their business. The ability of a tenant to access a compliant MRO offer effectively is central to the success of the pubs code.
“Requesting an MRO may be the start of going free of tie or it may be the beginning of a negotiation over a new tied rent. But, for the tenant to be fully empowered, the MRO process must work smoothly and it must not involve barriers or unnecessary disincentives that can put them off from using it.
“If tenants are frustrated in accessing their statutory right to MRO or there are obstacles which make it an unrealistic option, the commercial pressure exerted on the pub-owning business to offer a competitive tied offer is reduced and the tenant cannot make an effective choice.
“My resolve to ensure the MRO process is accessible and fair for tied tenants remains firm. I am determined tied tenants can negotiate on a level playing field.”