ALMR, BII and FLVA
Q&A on the pubs code & MRO: What it means for licensees - and how it will impact your pub
Q. Who is affected by the new Statutory Code?
A. The new rules apply to companies owning 500 or more tied pubs – currently Greene King, Punch, Enterprise, Admiral, Marston’s and Star Pubs & Bars.
Q. When do the new regulations for companies with more than 500 pubs come into force
A. 26th May 2016
Q. I have a rent review due, after what date can I request a Market Rent Only (MRO) free of tie assessment
A. If your rent is due after the 26th May 2016 you are entitled to request an MRO free of tie assessment. Even if your pubco has already started the process, they must send you a new tied rent proposal and as soon as you receive it, you can ask for an MRO.
Q. When can I request an MRO assessment?
A. You can request MRO
1. At your next rent review providing it is due after the 26th May 2016 and you have not already completed the review process. This will apply whether your rent is staying the same, increasing or decreasing. The trigger is the date on which you receive your tied rent proposal
2. On renewal of your agreement providing your agreement is contracted into the Landlord and Tenant Act and the renewal date is after 26th May and you have not already completed the process. The trigger is the serving of a renewal notice
3. If there has been a significant increase in price (See explanation below)
4. If there has been a substantial change in circumstances. (See explanation below)
Q. What do I need to do?
A. You must request an MRO proposal in writing within 21 days of one of the trigger events. There is a standard format which the request must meet. If you don’t request an MRO within this time period or fail to provide all necessary information, you lose your right.
Q. My rent review is due in July and I am already negotiating with my pub company. What do I do?
A. You have two choices: you can either continue negotiating and reach agreement, but you will lose your MRO right if you reach agreement on the new tied rent before 26th May. Or, you can pause and wait until the new legislation is in place. If your rent review is due before 1 September 2016, the pub co must provide you with a new tied rent proposal by 8 July. If your rent review is due between 1 September and 26th November, the pubco must provide you with a new tied rent proposal by 18 August. At that point, you can write asking for an MRO and negotiate both a tied and free of tie deal.
Q. My rent review is due next year but my pubco has already sent me the paperwork. Does this mean I lose my right to ask for MRO because they have proposed a tied rent before 26th May?
A. No. The relevant date is the date on which the rent review falls due, not when the paperwork is sent out. Unless your review is due on or before 26th November 2016, the pubco must send you a new tied rent proposal at least 6 months before review date. When you receive it, you can ask for an MRO.
Q. Can my pubco bring forward the date of my rent review to before 26th May?
A. No, the relevant date for compliance with the Code is the date on which the rent review is due. The pubco cannot change this unless you agree to negotiate and conclude the rent review prior to that date and earlier than scheduled in the lease.
Q .When I make an MRO request how long does my pubco have to provide it.
A. When one of the events above occurs, you must make your request in writing with a number of details specified in the code within 21 days. Your pubco must then respond within 28 days either with a new MRO proposal or explaining why they think the MRO trigger is not met.
You then have up to 56 days to negotiate and try to agree a free of tie rent. If you cannot agree, you can decide to appoint an independent assessor to determine the market rent for you. There are strict timetables governing each step which must be met.
Q. I am intending to request the MRO assessment. Does my company have to provide me with a rent assessment under my current terms so I can compare them?
A. Yes. You must wait for the pub co to send you your tied rent or renewal proposal before you can trigger the MRO process. You will be able to see both assessments to help you make your decision.
Q. What happens to my tied rent or renewal proposal if I trigger MRO - do I lose it and have to take a free of tie agreement?
A. No. Your tied rent proposals remains on the table throughout the MRO process and can decide to accept or reject the MRO offer and revert to the tied offer at any time.
Q. If I choose the MRO option, will I get a new lease?
A. Not necessarily. This will depend on the provisions of your old lease or tenancy and the degree to which these are affected by changes to the tie. There is no requirement to issue a new agreement
Q. Will my repairing liabilities and benefits change under an MRO agreement.
A. Almost certainly. You can expect that an MRO agreement will be on a full repairing basis and the majority of benefits enjoyed under any present agreement will be removed. We expect the new MRO agreements to be strictly run on a property based basis. This will mean that apart from property inspections and rent collection processes you are unlikely to receive any other communication with the owning company.
Q. I have been told that if I chose MRO, I can only get a 5 year agreement – is that correct?
A. No. There is no requirement to have a new agreement as a result of MRO, but adjustments will need to be made to your existing one. However, the new agreement must be at least the same length as the remainder of your original tied lease and the pubco cannot change the nature of your tenure e.g. require you to have a contracted out tenancy. In addition, there is a general catch all which protects the tenant from being disadvantaged as a result of using the new rights.
Q. If I choose an MRO agreement, does any part of the tie remain?
A. No, an MRO agreement contains no tie or any kind. This would not stop you negotiating a partial tie release with your pubco as part of your tied rent negotiations.
Q. I’ve been told my beer prices will go up by 3% this year – is that a significant price increase?
A. Any price increases announced before 26th May will not be covered by the Code. After that date, if the price of tied beer, other tied alcoholic products or other tied products or services is increased by an amount over and above the relevant Producer Price Index, then you will be able to ask for an MRO assessment mid term. However, you will need to make a comparison between the average unit cost of all tied beer or tied product invoiced during the relevant period and so an increase in price on one tied product may not, in itself trigger MRO.
Q. What is the “Producer Price Index” and what would constitute a significant increase in price under the new Code.
A. The “Producer Price Increase” (PPI) is a monthly survey measuring factory gate inflation and the price at which pubs will buy beer, alcohol and other tied products & services (minerals, food and financial services). If you are notified of a price increase in any of those products, you need to compare the % increase (including duty) in average unit cost of all tied beer against the % change in the relevant index over the last year. The comparison should be done on a Like for Like basis looking at the cost of all beer invoiced in the 4 week invoice period when the price increase took effect with the same period the preceding year.
If the act was in force now, PPI for beer stands at 1.122% and has fallen -1.92% year on year. This means that the average cost of beer invoiced in the 4 week period in March would need to increase by 1.08% to be considered excessive and trigger MRO. For other alcoholic drinks the price increase would need to be 6% more than the PPI for alcohol, for food and minerals 20% more than the PPI for those products and for other tied products and services 20% more than the Consumer Price Index.
Q. Only one of my tied beers has seen a big hike in price – what does that mean?
A. This may still trigger an MRO request if the change is significant enough, but you need to compare the average price at which you bought all tied beer 12 months ago with the average new price of all tied beer before comparing it the PPI for beer.
Q. What is a substantial change in circumstances
A. You can request an MRO assessment mid term and outside a normal rent event if there has been an event which has a significant impact on trade on your pub or pubs in your immediate local area. This must be an event that will see long term change to local economic, environmental or employment factors or as a direct consequence of changes in the tie imposed by a pub owning business for example the removal or a particular tied product. You will have to provide written evidence and forecast the impact it will make on trade for the next 12 months to justify the request.
Q. I have a long lease at present what term does my company have to offer me on renewal or at rent review if I opt for MRO.
A. An MRO-compliant tenancy must be for the greater of a period of at least 5 years or the remainder of your existing tied tenancy. So, if you have a 25 year lease which expires in 2030 and you opt for MRO at rent review in 2020, the pubco cannot give you an MRO tenancy of less than 10 years. Equally, the pubco cannot remove contracted in rights when you switch to MRO tenancy.
Q. Will I still be tied for Gaming Machines
A. Yes if your lease pre-dates 26th May 2016 and already contained a gaming machine tie. From that date, no new lease or tenancy may contain a gaming machine tie, but you are still free to enter into a supply agreement with your pubco to purchase or rent machines.
Q. Can I still refer my rent to the Pubs Independent Rent Review Scheme (PIRRS) and a breach of the IFC 6 to Pub Independent Conciliation and Arbitration Service (PICA Service)
A. PIRRS and PICA Service are the only bodies who can resolve disputes arising from rent negotiations or pubco behaviour before 26th May 2016. The Adjudicator cannot hear cases arising before that date.
Q. My lease explicitly mentions the Industry Framework Code of Practice (IFC 6) – what does that mean?
A. We are clarifying this with the Government and will be liaising with the Adjudicator’s office.
Q. I am being offered a Tenancy at Will (TAW) will the new Code apply?
A. No. Agreements of less than 12 months will not be covered by the new Code.
Q. I am taking on a TAW what information must I be supplied with.
A. You must receive the following
- Information on your repairing liabilities including maintenance of the Inventory
- The condition the owning company expects the pub to be in on termination.
- Details on who is paying for electric, gas, water, sewerage and any obligations regarding environmental impact and health and safety.
- Details of the extent of the tie, current price lists, discounts applicable to the agreement and terms on which any machines are offered on.
- Full details of the rent and any deposit required.
- Details of any other fees, service charges etc that may be payable by the TAW.
- Obligations under the Transfer of Undertaking Protection of Employment Regulations (TUPE).
You must have completed Pre Entry Awareness Training (PEAT) unless you have held a tied lease in the past or can demonstrate business abilities in another industry.
Q. My Company says I have a genuine franchise and am exempt from the Code, is this true.
A. It is true if the agreement is a genuine franchise. It must meet the following tests:
- The agreement allows you to sell the business to a third party at market value.
- You are permitted by the owning company to use the relevant business model which you may pay a for and where there is an element of IP involved in running that model
- You receive a fixed share of turnover or a relevant share of turnover
- Your pub owning company offers marketing, training and other business support.
- You are not required to you pay to the pub-owning business any other amount in respect of your occupation
- 6. Your owning company does not require you to make any other payments in connection with the supply of products or the services unless you have agreed to do so.
Q. What can I do if I disagree with my pubco on any of these points?
A. The new Statutory Adjudicator has been set up to arbitrate on disagreements over the new Code. – for example, if the parties disagree about whether a price increase is sufficient to trigger MRO, if the agreement is a genuine franchise or whether the market rent has been properly calculated. It costs £200 to lodge a case with the Adjudicator and the maximum amount of costs which may be awarded against the tenant if they are unsuccessful is £2000.
Q. Do you know if there will be any assistance given to understand the new regulations?
A. The ALMR, BII and FLVA are intending to run conferences throughout the country over the next 6 months please watch the ALMR, BII and FLVA web sites and twitter feeds for details.
Q. Will the Pre Entry Awareness Training (PEAT) be available for new tenants?
A. Yes, the Pub Governing Body will work closely with the various trade bodies to introduce a new PEAT as soon as possible. All tenants will be obliged to complete appropriate training before taking on a new agreement unless they hold a current tied tenancy, have 3 years’ previous business experience or are a previous tenant of the pubco.
Q. I have a pub belonging to the Companies with less than 500 tied pubs. Will there be any changes with their agreements and can I apply for an MRO assessment.
A. The under 500 companies are producing an updated Code of Practice which will be applicable to all signatories to the new Code. We expect this to be released in the next few weeks. The new MRO assessments however only apply to companies with more than 500 pubs.
