Market Rent Only - MRO
The MRO came into effect on 21/07/2016 as part of the Pubs Code etc. Regulations Act 2016. This will give the option at lease renewal or rent review for a free of tie option where a pub co has more than 500 tenanted pubs. It is policed by the Pubs Code Adjudicator useful information can be found on their website.
There appear to be a number of self proclaimed "experts" in the market place, but really the market place has existed only for a relatively short period of time, and it is highly unlikely anyone can be considered an expert in this time frame, indeed the lack of transparency and clarity regarding the MRO is still evident in my experience and only after the Pubs Code Adjudicator (PCA) has provided some precedent can we really come to understand fully how to interpret the legislation.
The first thing to know about the MRO is that there are a number of time is of the essence conditions in the timetable of events. IE get a professional involved before you receive any trigger event notices or talk to one IMMEDIATELY on receiving one as you have only 21 days to respond.
There are a number of issues rising from the MRO. Getting free of tie may not out weigh the impact of a toxic lease.
The MRO lease may not actually be compliant with the Pubs Code - do you have the resources to fight this? Might it be worth waiting for other parties to fight these battles and for precedent to become available?
Many of the rents proposed by pub companies have in my opinion breached the Pubs Code - you need professional advice to prove this and potentially secure compensation.
Many pub companies include Annual uncapped RPI - this compounds the effects of inflation and is likely to create an unsustainable or unjustified annual compound increase in rent.
I have seen user clauses widened to include A3 as well as A4 use, this will allow pub companies to use restaurant rents as comparables
Upward only rent reviews - what if the drink drive legislation in Scotland comes to the rest of the UK, the impact on rural destination pubs in Scotland has reportedly been costly
There are many other small landlord leaning clauses that could add up to a poor deal.
It may be beneficial to take a short lease to benefit from upward/downward rent at lease renewal, thus rebasing the rent at a lower open market level if applicable.
Don't forget that at this point in time you will have to surrender your existing agreement and sign a new lease with Stamp Duty Land Tax (SDLT) implications.
The above may suggest MRO is not a good option, however it is hoped that over time, leases will become standardised, and rent assessment proposals will become fairer as the PCA clears the backlog of complaints and fines temper the actions of the pub owning businesses.
Pub Innsite has recently completed its first MRO Third Party Application and the result is a rent over 50% lower than the figure quoted by the landlord, a fair result but one which wouldn't have been achieved without our involvement.
" For all you Licensees, who feel that Market Rent only (MRO) is just a pipe dream, be advised it’s not. We contacted Pub Innsite after commencing negotiations and were let down by an “MRO Expert” who subsequently walked away once a negotiated settlement was clearly unobtainable. We spoke to Chris Whirledge from Pub Innsite who was extremely helpful and advised us of our options. We instructed Pub Innsite to act on our behalf in mid March. Chris acted in a determined, professional manner at all times, he assisted us in the preparation of all the necessary documentation & Pub Innsite prepared a report and referred the matter to an Independent Assessor with a determination secured before the end of May, at a rent of 50% less than the figure quoted for a free of tie lease by the landlord. We have been delighted with the result and with the excellent service provided by Pub Innsite, we continue to be assisted by them with regards to completion of the lease despite reaching the cap on our fee basis. We would 100% recommend Pub Innsite to you without any hesitation." - Ron Hartley
IMPORTANT NOTE: many pub companies are using dilapidations at lease renewal to object to the provision of a new lease. If you have a mountain to climb at lease renewal in terms of dilapidations, you could be forced to accept a deal from your landlord which effectively prevents you from ever being able to go for a free of tie option. Don't let this happen to you, ensure you keep on top of dilapidations to ensure the pub co doesn't have the option to object, it just makes it too easy as other reasons to object are much more difficult to action and result in statutory compensation (this is a reason not to mess about with your Rateable Value a few years before your lease renewal). Finally note that even Asbestos Reports, EPCs, Fire Risk Assessments, Electrical Reports, PATs and Gas Certificates are all requirements which could be considered grounds for objecting if they are not produced .
In the interim, you should contact a Chartered Surveyor with experience in the Pub rent review market to give you advice on your own situation, the return on investment for using a professional to deal with your pub rent review or lease renewal is normally substantial and Pub Innsite will consider capping fees and spreading payment to give you peace of mind.