Why the Pubs Code MRO procedure and a 1954 Act renewal should not be confused.
Rob Hastie, 23rd October, 2019
Rob Hastie is one of the UK's leading advisers to pub owners concerning the Pubs Code. In this article he clears up some confusion between the Pubs Code MRO procedure and the 1954 Act renewal.
Some tenants have mistakenly argued that either:-
1) The courts under the Landlord and Tenant Act 1954 should grant free of tie renewals to tied leases, or
2) The MRO process should adopt the approach used by the courts in 1954 Act cases.
This article sets out why the two procedures are clearly distinct and should not be confused, one with the other.
The 1954 Act...
This grants all tenants of commercial premises the right to renew their existing lease terms unless either the lease has been excluded from protection or the landlord proves a ground of objection such as disrepair, intenton to redevelop etc.
The Small Business Enterprise and Employment Act 2015 and the Pubs Code etc. Regulations 2016...
These grant tied pub tenants of pub-owning businesses that own more than 500 tied pubs, the right to seek a free of tie tenancy, known as a Market Rent Only (or “MRO”) tenancy.
The two procedures (1954 Act and MRO) are separate and should not be confused.
The 1954 Act is the renewal of the tied terms applying the principles set out in:
Section 35 of the 1954 Act which provides that in determining the terms the Court “shall have regard to the terms of the current tenancy”.
A case called O’May v City of London Real Property Company Ltd (1983) in which the House of Lords concluded that the court should not generally use its discretion to changes lease terms on 1954 Act renewals. The terms should be the same as the old lease and that any changes to those terms must be justified as being fair and reasonable by the party seeking the change.
As the Deputy Pubs Code Adjudicator has set out in the Appendix 4 that appears attached to a number of her published Awards:
“By comparison (with the MRO process) when renewing a tenancy under Section 32 to 35 of the 1954 Act (arguably the closest example on the statute books of a statutory jurisdiction to determine the terms of a commercial tenancy) terms are to be determined by the Court by reference to the existing lease as a starting point. It is for the party seeking a departure from those terms to justify why it is fair and reasonable, having regard to the purpose of the Act. The legislature would have been aware of the criteria used in the 1954 Act when an acting part 4 of the 2015 Act and it is significant that in doing so it did not choose to take the same path.” (Appendix 4).
There are other examples of the two pieces of legislation applying different approaches to the setting of the terms of the respective tenancies. For instance, the provisions for valuation of rent under Section 43 of the 2015 Act and for an Independent Assessor to be appointed under Regulation 35 onwards of the Pubs Code, are substantially different from the court’s approach to setting rent under Section 34 of the 1954 Act.
The Civil Procedure Rules (‘CPR’) Part 56 Practice Direction was amended to deal with the Pubs Code. It provides that “In an unopposed claim where a Pub Code tenant has given an MRO notice, following the filing of the acknowledgement of service, the Court must consider whether to stay the claim pending the end of the MRO procedure.
Therefore, if there is an ongoing MRO claim, the 1954 Act claim will generally be held at a standstill.
Under CPR Part 56 Rule 3.27 “where the Court has stayed proceedings… the Claimant must notify the Court within 28 days following the end of the MRO procedure… where no tenancy has been accepted, whether any terms of a proposed tied tenancy have been the subject of determination by the Pubs Code Adjudicator”. This provision anticipates that if the MRO procedure has finished, then next consideration is the terms of the renewed tied lease.
The MRO process is a complete statutory procedure, with no need for, or possibility of, obtaining an MRO tenancy through the courts.
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Rob and his team have been involved with more than a third of the total number of cases referred to the Pubs Code Adjudicator.
That specialist knowledge and experience is particularly important because the referral process is confidential, and the knowledge gained from the referrals will not be publicly available in a detailed form.
As a result we believe that Rob and his team here at Gosschalks are better placed than any other law firm to advise pub owners on the Pubs Code.