In order for a Tied Pub Tenant (‘TPT’) to request a Market Rent Only (‘MRO’) offer, a ‘trigger’ event has to occur, and there are 4 such events defined within the Pubs Code.
In the vast majority of cases, the most likely event will either be at a rent review or a tied agreement renewal. I have listed the 4 events below in order of most likely.
Within most leases is a defined rent review cycle, and most typically these will occur every 5 years. You can check your lease to see when the next review is due. Some agreements may be subject to 3 yearly review cycles, and some may not have any (such as some rolling tenancy agreements).
When a rent review date is approaching, no later than 6 months beforehand, the Pub Owning Business (‘POB’) is required to send a Rent Assessment Proposal (‘RAP’). This will usually be sent by a recorded delivery service.
On receipt of a RAP you may request a MRO offer within 21 days.
For assistance with serving a compliant MRO notice, or if you’ve missed this deadline – please get in touch, as sometimes we can work around this.
If you’ve not had a rent assessment concluded for a period of over 5 years, such as because you don’t have this provision within your lease, then you are now entitled to request a RAP, thanks to regulation 19(2)(a) of the Code. On receipt a trigger event will have occurred as above.
Sometimes the POB may object to such a request, so once again if this is the case please call us for assistance.
TIED AGREEMENT RENEWAL
The renewal trigger event applies to TPT’s who have an agreement protected by the Landlord & Tenant Act (‘LTA’) 1954.
Under LTA protection, legal notice must be served on the lease to formally bring the agreement to an end, with either the offer of a renewal, or objecting to a renewal.
Either party can serve notice to effect this process. Usually the notice is served by the Landlord (‘POB’) which is known as a ‘Section 25’ notice.
Assuming the POB does not object to the granting of a new agreement, the Section 25 notice acts as a trigger event, to consider a MRO agreement alongside the proposed tied lease renewal.
On receipt of the ‘Section 25’ Notice – you may request a MRO offer within 21 days.
However, given the potential for this to act as a ‘trigger’ event, one of the unintended consequences of the Pubs Code is that we have noticed a trend whereby POB’s are more inclined to object to renewals. This can mean for some tenants approaching the end of a lease, they are potentially less secure than they may have been pre-legislation.
You may have noticed Enterprise Inns recent re-brand to Ei Group – as they diversify their business to seek out more pubs to bring in-house and manage themselves, often in partnership with more established operators.
If you have received a Section 25 notice objecting to a renewal it’s important to seek specialist legal advice, and we can recommend a suitably qualified solicitor. It may be as your landlord has identified the site as having more profit potential to bring under owner management. In such circumstances you will be entitled to some compensation, but it’s vital to seek specialist advice.
If your lease is coming towards the end of term, please get in touch and we can discuss your options moving forward.
Within the Pubs Code, there is a defined set of circumstances that could qualify as being a significant impact to your business, and entitle you to a MRO offer. The impact must be significant enough to warrant a decrease in forecasted trade for every month over the next 12 months.
To date we’ve only dealt with 1 such case, as the requirements to qualify are complex. The request will also likely be fiercely contested by the POB, so it can also be a costly process, with no guarantee of success – and the arbitration can also take a long time to resolve.
To try and simplify the process, there are effectively two sets of circumstances that could qualify you:
Firstly, does the impact affect other pubs in the local area?
If yes – then the impact either has to be directly related to a change in the tie imposed by the POB, or be directly related to changes in the local area. For example a change to the local infrastructure or a change to local employment.
So for example, if a major employer responsible for much trade left the local area, this could qualify.
If the impact doesn’t affect other pubs in the local area, and assuming it isn’t related to your personal circumstances – then once again it could qualify, assuming it couldn’t have been reasonably foreseen.
For advice or to run a case by us please call our office and ask to speak with Michael Erridge.
If you aren’t due a rent review for 2+ years it could be worth considering. If you are due a rent review within 2 years, given how long this process can take, unless we are confident the case is very strong we may advise you are better to wait for a more certain event.
SIGNIFICANT PRICE INCREASE
This is probably the most unlikely trigger event, and acts more as a safety net.
For example, let’s say that a TPT settles a rent review with an improved tied deal, such as within our own case studies, this provision gives assurances that the POB won’t just raise prices. Should they do so, you would be entitled to request another MRO offer.
The actual formula to calculate whether a price increase qualifies is quite complicated, but if you feel prices has increased significantly beyond inflation please get in touch and we can advise.