The MRO Process explained

1. The Pubs Code Adjudicator 

The Small Business, Enterprise and Employment Act 2015 introduced The Pubs Code etc. Regulations 2016 (“the Pubs Code”). The Pubs Code came into force on 21 July 2016 with the aim of regulating the relationship between tied pub tenants (“TPTs”) and their landlords, the pub-owning businesses (“POBs”) who rent the pubs to them and sell them tied products.

The Pubs Code applies to all POBs owning 500 or more tied pubs in England and Wales. The current POBs caught by the Pubs Code are: Greene King; Marston’s; Star Pubs and Bars; Punch Taverns; EI Group; and, Admiral.

The key principles of the Pubs Code are:

  • Fair and lawful dealing by POBs in relation to their TPTs;
  • That TPTs should be no worse off than if they were not subject to any tie.

The Pubs Code tries to ensure that TPTs:

  • Receive the information they need to make informed decisions about taking on a pub or new terms and conditions;
  • Have their rent reassessed if they have not had a review for 5 years;
  • Can request a market rent only option to go free of tie (by service of a market rent only notice (“MRO notice”) and pay only a market rent in specific circumstances, including at a rent review or renewal of tenancy.

2. The Pubs Code Adjudicator 

The Pubs Code introduced the role of a new independent Pubs Code Adjudicator to enforce the Pubs Code.

The current Adjudicator is Paul Newby.

The Adjudicator has powers to:

  • Resolve individual disputes, in particular on the lease terms following an MRO notice;
  • Award redress to a TPT if a breach of the Pubs Code is found;
  • Investigate widespread abuses of the Pubs Code.

The forms of enforcement available to the Adjudicator after an investigation are to:

  • Make recommendations;
  • Require information to be published;
  • Impose a financial penalty.

3. Referrals to the Adjudicator 

Under the Pubs Code there are various “triggers” that enable a TPT to serve an MRO notice. These are referred to in the Pubs Code as “MRO events”.  For example, the service by the POB of a rent assessment proposal.  The service of the MRO notice starts the MRO procedure, the timetable for which is prescribed by the Pubs Code.  If there is no agreement following an MRO notice, the Adjudicator can be asked to make a decision on the terms for a free of tie tenancy and the level of rent can then be referred to an Independent Assessor.

A key question coming out of this process is whether the MRO tenancies being offered by the POB should be by way of a deed of variation of the existing tied lease or by way of an entirely new tenancy. The grant of a new tenancy, as opposed to a deed of variation, exposes a tenant to additional liabilities such as SDLT, the risk of a dilapidations’ claim, the payment of a deposit and legal fees.

The Pubs Code has also enabled TPTs to make referrals to the Adjudicator in respect of suspected breaches of the Pubs Code. Referrals can be made on a number of different bases, an example being where a TPT considers the POB’s full response to its MRO notice to be defective, and refers the issue to the Adjudicator to make a ruling.

It was to be hoped that precedents would start to be established from the Adjudicator’s decisions such that “golden threads” – a term used by the Adjudicator’s office – could start to be applied to similar cases. The question of a deed of variation v a new tenancy seems to be crying out for such a decision.  However, at this stage, the Adjudicator has said that the very different circumstances of each individual case have made this very difficult.  This may change as more cases progress through the arbitration process.

4. Implications for Lease Renewals

The Pubs Code has also had an impact upon lease renewals of pubs under the Landlord and Tenant Act 1954. The Civil Procedure Rules have been amended to take account of the Pubs Code to provide information as to the contents of the claim form for a new tenancy and the acknowledgment of service and defence where a party is a “Pubs Code tenant”.

For example, the claim form must state that the TPT is a Pubs Code tenant and must state whether the TPT has given an MRO notice. It also provides information on the procedure in both opposed and unopposed claims where a Pubs Code tenant has given an MRO notice and includes guidance on applications for interim rent where a party is a Pubs Code tenant.

Where a TPT has given an MRO notice in a lease renewal context and court proceedings follow, the key point now is that the court must consider whether to stay a claim pending the outcome of the MRO procedure.