What does the Market Rent Only option mean for pub tenants?

Around 12,000 pub tenants in England and Wales are ‘tied’ to their landlords. Under legislation announced last July, the government says that they no longer have to be. We take a look at the Market Rent Only (MRO) option and what it means for tenants.

Background

The tenants of tied public houses were formerly required to buy the majority of the beer they served from a particular pub company or brewery. They were also under an obligation to pay the rent which the pub company demanded, regardless of the level of income the pub provided.

As part of a new code of practice, which was introduced in July of 2016, tenants in England and Wales now have new rights and levels of protection which enable them to take advantage of information about any tied deals on a prospective pub, as well as the ability to move to a ‘free-of-tie’ tenancy and a fair assessment of their rent.

Pubs Code Adjudicator

Six pub companies own around 500 tied pubs in England and Wales – these are the pubs which will be affected by the new code. The government has appointed Paul Newby as the country’s first Pubs Code Adjudicator in an effort to improve the relationships between the chains and their tenants in order to assist the latter in getting a fair deal in both their supplies and their accommodation.

Under the new code, tenants have the right to opt for an MRO, effectively ending the ties with the breweries, and request an MRO option when their leases are up for renewal or the rent is to be reviewed. The current ‘benefits’ for tenants are that they pay lower-than-market rents (dry rent) but pay a premium to their suppliers for the products they sell (wet rent). Critics of this system argue that tenants are paying a disproportionately large amount of wet rent which may not offset the amount they save on the dry rent they pay, and that if rents were reflected in the open market, they would actually be saving money.

Trigger points

Tenants whose rent review or lease renewal falls after the introduction of the code can now request an MRO option – this is known as the trigger point. However, it is not retrospective and those tenants whose review/renewal came before July 2016 will not be eligible to apply until the next review/renewal. Similarly, tenants of landlords who own less than 500 pubs will not be eligible to request an MRO although this is being considered as an option for the future.

The purpose of introducing the MRO option is to align pub tenants’ right to those of ‘traditional commercial tenants and remove the interference from landlords about how their business can be conducted. The landlord’s responsibility for insuring the building remains unchanged.

The government have brought in these changes in order to halt the closure of many pubs over recent years – an impact that has repercussions on the immediate community as well as on the wider economy.

If you’re a tenant of a pub and would like clarification on the new code, or are seeking to opt for an MRO, speak to one of our team. Our independent, specialist chartered surveyors can offer you guidance and support in all aspects of this matter.

Written by: Paul Gagan on Tuesday 08/11/2016