The High Court has recently made a decision considering aspects of the Pubs Code framework relating to Market Rent Only (MRO)
This is the first case of its kind and the Pubs Code Adjudicator (PCA) welcomes the opportunity for clarity as to the operation of aspects of the Pubs Code.
The tenant in this case served a request for a MRO tenancy in November 2016 – shortly after the Pubs Code came into force. The pub-owning business (POB) served a proposed MRO tenancy in response, which was subsequently referred for statutory arbitration and found by the Deputy PCA to be non-compliant with the requirements of the Pubs Code in a number of respects. She ordered the POB to provide a compliant MRO tenancy to the tenant.
The tenant considered that the POB’s revised MRO tenancy then served was still non-compliant and made a second referral for arbitration. The Deputy PCA issued a further award in May 2019, finding that the revised MRO tenancy was non-compliant because the duration of the term offered by the POB, which was not in line with its policy on MRO lease length, was unreasonable. She ordered the POB to provide the tenant with a MRO tenancy of at least five years in duration. This award was challenged by the POB by way of an appeal to the High Court. Judgement in the appeal was handed down by the Court in March 2020. The full text of the judgement can be found here
The judgement makes three key decisions:
The duration of the MRO tenancy that a POB must offer to a TPT must be reasonable in the circumstances and it is not automatically reasonable just because it is the same length as the remaining term of the existing tied tenancy.
It is implicit in the Pubs Code framework that one of the PCA’s powers is the proper resolution of disputes as to MRO compliance through arbitration. There is no absolute separation between the information the PCA knows in the role as regulator and as arbitrator.
The Pubs Code statutory framework does not give an arbitrator who finds a MRO proposal is non-compliant the power to order specific terms to be included by the POB in its MRO revised response. The arbitrator can identify that an offer is unreasonable because it does not contain a particular term (for example as to a specified tenancy length), but cannot order a particular term (such as a minimum tenancy length) must be included in a proposed MRO tenancy in the revised response.
The PCA is committed to ensuring that tenants are able to access MRO on reasonable terms and will continue to arbitrate disputes as to the reasonableness of those terms, or appoint alternative arbitrators to do so, as provided for in the statutory framework. This tenant brought two consecutive Pubs Code arbitrations in respect of MRO proposals made by the POB, and the judgement of the High Court means that arbitration proceedings may not bring finality to the tenant in respect of MRO compliant terms. The PCA is determined to do more to reduce the need to rely on extended and/or repeated adversarial arbitration proceedings at all which, as demonstrated by this case, can contribute to delays for TPTs in seeking MRO compliant terms. This includes engaging with the Secretary of State in respect of the ongoing review of the Pubs Code.