After looking into arbitration disputes and listening to tenant concerns, the PCA has announced statutory guidance to “remove barriers for tenants and ensure a fair and consistent approach” towards MRO.
The guidance is due to come into effect from 1 May 2023, according to the Government website.
Regarding MRO rent information, the PCA stated a lack of information supporting proposed rent could “hinder the tenants understanding” of how this is calculated.
Therefore, the “minimum information” provided should include non-confidential comparable evidence, a detailed profits valuation, barrelage assumptions and more.
Unreasonable
Additionally, the pub company should be clear whether tenant improvements are disregarded, and if so which.
There is no requirement for tenant improvements to be disregarded from MRO rent, although the pub company can offer to, or the tenant can seek to negotiate, but tenants should be clear on the position of the pubco.
With regards to upfront costs, the PCA stated while some companies may require an upfront fee, a relevant factor in considering if proposed MRO terms and conditions are unreasonable, will be the extent to which the pub company has considered any gradual build-up to an increased deposit or less frequent rental payments.
The PCA added some build-up period would be usual and a decision to offer no such period may lead to a finding a term or condition is “unreasonable”.
This means in most cases it will be unreasonable for a pub company to require the tenant to complete terminal dilapidations or compliance issues as a condition of entering the MRO tenancy.
Moreover, a schedule of dilapidations should be avoided, if the pub company chooses to serve one, and should not cause the tenant to incur charges simply for asking for, or taking, the MRO option.
Better tied deal
Additionally, The PCA noted concerns by tenants and their representatives, adding it is a breach of the code for a pub company to subject a tenant to detriment for using or attempting to use their Pubs Code rights, including to break the tie.
An allegation this has happened could be the subject of arbitration or investigation and the pub company would be expected to have a record of its reasons for decisions, such as if it chooses to take the pub back for its own use as a managed operation.
The PCA stated: “A tied tenant’s right to the MRO option is a valuable one, it allows them to break the tie at certain points in their tenancy.
“It means a tenant can check they are no worse off than if they were free of tie, and many have used the MRO offer to strengthen their hand in negotiations and get a better tied deal.
“The PCA must take this guidance into account in carrying out their functions.”
