The Pubs Code etc. Regulations 2016 came into force on 21 July 2016 and seek to regulate the relationship between pub landlord businesses that own 500 or more pubs and their tied tenants.
Most pub tenants are “tied” tenants. Tied tenants not only let the premises but are obligated to purchase certain products such as beer and other drinks from their Pub Co Landlord. The landlord may also have some degree of control over the running of the business.
This is advantageous for the landlord as they can plan for a regular demand for their products from their tenants without the risk of the tenants opting to change supplier. The tenant will often pay a premium on these products when compared to the price that the same products are supplied to non-tied premises.
Whilst this often results in the tied tenant paying a lower level of rent by restricting the tenant’s purchasing options the tenant may be placed at a commercial disadvantage to nearby businesses without similar ties or be left unable to sell alternative products for which there is a demand.
The new regulations allow a tied tenant to change this relationship by instead paying market rent only and being free of ties to the Pub Co Landlord.
In order to move to a market rate only arrangement the tenant must serve an MRO Notice on their landlord. Such a notice can only be served in the following circumstances:
A Pubs Code Adjudicator has been appointed and is able to arbitrate disputes between Pub Co Landlords and their tenants including any Market Rent Only disputes. With 77 disputes being accepted by the adjudicator during the first four months of the code it looks like it will be far from straightforward for tenants to reach an agreement to free them from the traditional ties.
The Pub Code Adjudicator has released several fact sheets offering guidance but a set process for any arbitrations to follow is yet to be established. However, MRO disputes will doubtlessly involve expert evidence in attempting to identify the new level of rent where a tenant seeks to become free of ties.
If you are a tenant considering serving an MRO notice, a Landlord in receipt of an MRO Notice or you find yourself in dispute over any aspect of a tenancy agreement you should take legal advice to protect your position.
If you would like to discuss this article or would like any further information, please contact Phillip Feather, Senior Solicitor.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.