One of the most contentious issues relating to a MRO proposal remains whether the agreement should be settled by a new lease or Deed of Variation (DOV).
From day 1 the Pub Owning Business’ (“POB”) have insisted that, given the complexities, a new lease is the most appropriate mechanism. However, in many of their own leases, there is a clause that allows the landlord to serve a mere ‘written notice’ to effect the release of purchase obligations. Furthermore, as with ‘tie release fees’ – these have also traditionally been effected by a simple DOV – so why not with MRO?
Naturally it benefits the POB to propose the more complicated and expensive new lease, as in most cases a market rental only will dent their profitability from the site.
However, within the Pubs Code itself there is no express method referred to, and the Pubs Code Legislation makes reference to the MRO as a ‘new agreement’. The POB’s solicitors have interpreted this to imply that clearly a new lease was the intention, and cite the further reference to the fact that the ‘new agreements’ may not contain “uncommon” terms as referenced against other free of tie leases. Hence their insistence that this implies a completely new agreement.
Unfortunately the Pubs Code Adjudicator (“PCA”) has failed to provide any real clarity on the matter, instead insisting that the issue needs to be considered on a case-by-case basis. This leaves the issue wide open.
From some of the very earliest referrals to the PCA, the adjudicator did eventually agree that a DOV was the correct method. However, as above will this will not set a precedent, or necessarily mean that this will be the case across the board.
So the best advice at the moment, is to consider the implications to your individual site. For more information please get in touch and I’d be pleased to discuss the pros and cons of each in more detail.