What do the first Pubs Code Adjudication awards actually mean for pub tenants?

The Pubs Code etc. Regulations 2016 (the “Pubs Code”) have been in force since 21 July 2016, but it was only on 19 December 2018 that arbitration awards granted under them began to be published. One of the main aims of the Pubs Code was to increase the transparency of the relationship between pub owning business landlords (“PBOs”) and their tenants, particularly in relation to the terms of market rent only (“MRO”) leases.

As such, the Pubs Code introduced regulations that allow a tied pub tenant (a “TPT”) to request an MRO lease if certain events, known as “trigger events”, occur during the term of their lease, and also created the role of the Pubs Code Adjudicator (the “PCA”), whose job it is to provide a ruling in the case of a dispute about the terms of an MRO lease between the PBO and the TPT. Initially, the contents of the awards made by the PCA were kept confidential, defeating the point of the Pubs Code as they could not be used as precedents to help increase the transparency of the process. In 2019, the PCA agreed to waive confidentiality and to publish the arbitration awards, to help tenants better understand the extent of their rights under the Pubs Code.

If you are running your pub as a TPT, then it is vital that you are aware of these awards, and the rights they give you, as you may find yourself battling with your PBO over the terms of your lease.

We are highly experienced in these types of disputes and are ready to fight for you to ensure that you get the deal which best suits your circumstances. Part of achieving the best deal involves understanding what rights you have, some of which have been clarified by the PCA in the following ways:

  1. One common disagreement between TPTs and PBOs is whether an MRO lease should be created through a deed of variation to the original lease or by entering into an entirely new lease. The arbitration awards which the PCA has made make it clear that both these options are acceptable, and that a deed of variation should not be the default option.

The published decisions make it clear that it is the particular facts of each unique situation which will determine whether a new lease or a deed of variation is appropriate. The test which the PCA will apply in all cases is one of reasonableness: the PBO will have to demonstrate that their choice of approach is fair in the circumstances of the case. This means that they will have to take into account the costs which each approach will create for the TPT, considering things like dilapidations claims, stamp duty, rent deposits and legal fees.

  1. Another often contentious issue in the MRO process is whether the MRO lease should mirror the terms of the existing tied-lease agreement. Many TPTs try to insist on maintaining as many of the existing terms as possible, but the PCA has ruled that the existing lease terms should not automatically be the starting point for agreeing an MRO lease. Again, the circumstances at the time are key.

As such, although the TPT will not always be able to successfully argue that the terms should remain the same, it is also not the case that it is always reasonable to change terms in the existing lease. If existing terms are reasonable in the circumstances, and are compatible with running a pub free of tie, then they can be retained in the MRO lease.

Therefore, the existing terms of the tied-lease agreements are relevant, but will not always be conclusive in determining the terms of the MRO lease.

  1. It is clear from the published arbitration awards that the PCA is determined that reasonableness is a key factor in any MRO tenancy. Whether or not a provision is reasonable is to be based on all the circumstances which are (or ought to be) known by the parties.

This means that it is not reasonable for a POB to insist on a standard agreement with all TPTs, as what is reasonable in the circumstances of one pub, may not be reasonable for another. It is vital that TPTs are aware of this, as POBs have been known to take a strong line on standard agreements, relying on template leases as evidence that their proposal is reasonable. It is clear that the PCA believes this is unreasonable. The PCA was notably critical of one POB which insisted on a template lease without providing evidence of how it was reasonable in the case at hand.

POBs will now be required to provide evidence that the proposed terms are common in the free of tie market as a whole, how long each contested term has been in operation, and that the terms are reasonable in the specific circumstances of that pub.

  1. The question of reasonableness applies to both parties. The PCA has made clear the importance of achieving a balanced outcome that is fair to both sides, both in relation to the terms of the MRO lease, and in the choice between a new lease or a deed of variation.
  1. One of the key aims of the Pubs Code was to redress the power imbalance between the POBs, which are generally large corporations with experience of negotiating lease agreements, and the TPTs, who are often individuals with limited experience and bargaining power. The PCA has made it clear it will act to ensure that this aim is achieved, and that POBs are not able to take any unfair advantage.

One example of this was the criticism the PCA made of an “MRO Cost Comparison” leaflet which was provided to a TPT by an POB. The PCA ruled that the information was subjective and misleading, and failed to provide adequate and reasonable information to the TPT about the consequences of becoming free of tie. The PCA was also sharply critical of a POB who confirmed that a schedule of dilapidations would always be issued on grant of an MRO lease, accusing the POB of using this liability as a tactical “adversarial weapon”.

The decision to publish PCA arbitration awards was a significant step towards addressing the power imbalance between POBs and TPTs. Although the awards themselves are long, legalistic, and difficult to understand, some key principles are being developed, and it is clear that the PCA is going to act to ensure that TPTs are treated reasonably. Our industry specialists have analysed the awards and are experts in turning the legal jargon into understandable, useful information which can be used to your benefit in negotiations with your POB. We are on your side, and, it seems, the law is increasingly being interpreted in your favour as well. Make sure that you make the most of these valuable PCA precedents by taking advice from people who truly know how to use these principles to your advantage. We are experts in the market rent only procedure, and we are happy to discuss any questions you have about it at any time.

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Frequently Asked Questions

How much does it cost to get expert advice about running a pub?

We offer a free, no obligation initial consultation, which enables us to understand your goals. Following this meeting, we will be able to provide you with a detailed assessment of your prospects and a bespoke fee proposal. We are often able to offer fixed fee arrangements for certain matters, as appropriate.

Get in touch today for your free, no obligation, initial consultation.

Which pubs are covered by the Pubs Code?

The Pubs Code regulates the relationship between TPTs and POBs, providing the POB owns 500 or more tied pubs in England and Wales.

The POBs currently covered by the Pubs Code are:

  • Greene King
  • Marston’s
  • Star Pubs and Bars
  • Punch Taverns
  • Ei Group
  • Admiral

What does MRO mean?

An MRO lease means Market Rent Only and is free of tie. If you are currently running a pub under a tied lease, there are certain trigger points which mean that you can request an MRO lease from your landlord (see our FAQ: “What is a trigger event?”).

What is the difference between a fully tied lease and a free of tie lease?

Fully tied refers to a situation where the tenant is required to buy all their beer (and often other products) from a particular Pub Owning Business (POB) or brewery. Often the terms of leases like this set the price of these products higher than market value, making it hard for pubs to make a profit.

Conversely, a free of tie lease means that the tenant is free to make their own decisions about the products they sell and can communicate directly with suppliers to negotiate prices.

There is also a middle ground called a partial tie, which means that the POB stipulates some of what the tenant must sell.

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