The first thing to know about Market Rent Only (MRO) is that there are a number of “time is of the essence” conditions.
IE get a professional involved well in advance of any trigger event notices or talk to one IMMEDIATELY on receiving one as there are only 21 days available to request one.
There are a number of issues rising from the MRO. Getting free of tie may not out weigh the impact of a toxic lease.
In todays market, a COVID 19 clause should be considered – a clause which identifies no trade, no rent. However this may be bitterly resisted by landlords.
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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?
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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.
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there is evidence of user clauses widened to use restaurant rents as comparables.
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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 is also the effect of annual RPI increases to consider.
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There are many other small landlord leaning clauses that could add up to a poor deal.
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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.
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A new lease will ensure a surrender of the existing agreement and there could be Stamp Duty Land Tax (SDLT) implications. A deed of variation may be more cost effective.
The MRO option may not be for everyone, but it is an invaluable tool for the purposes of negotiation. Securing the option is likely to put an operator in a stronger position than if he had not.
Pub Innsite has dealt with a number of MRO applications. Most are used as leverage to secure better existing deals.
IMPORTANT NOTE: many pub companies are using dilapidations at lease renewal to object to the provision of a new lease. Ensure you are up to date with dilapidations and H&S documents.