Market Rent Only option for Pub co tenants

Publican’s have campaigned for the freedom to purchase beer from whomever they want to for many years. Thanks to a brand new statutory Pub Code for some tenants their wishes have come true through the Market Rent Only Option (MRO).

It’s been a long time coming but the new code has finally come into force last month. This means tenants of pub chains with over 500 pubs now have the legal right to request an MRO option. This leaves them free to buy direct from wholesalers and regional breweries instead of having to stock only products sold by the pub owners.

I estimate this new Code affects around 150 tenants in Bristol and the surrounding areas. When it’s time for their lease renewal or rent review tenants of Enterprise Inns, Punch Taverns, Admiral Taverns, Greene King, Star Pubs and Bars (Heineken UK) and Marstons can now choose the new MRO option.

Sounds great – but – and this is a big but, in exchange they will probably have to pay more rent. Support previously offered by the pub company or brewer in other aspects of the business may also be withdrawn.

The whole issue of tied pubs not being able to buy beer, wine spirits and minerals from other sources or negotiate on price of supplier or tenancy has been a bone of contention for many years.

The new code without doubt gives tenants of these big pub businesses a lot more protections. Such as increased transparency about the tied deals available and a fair rent assessment. The right to move to a free of tie tenancy is another protection afforded under the new code. The Pub Code has been welcomed throughout the industry. However, it’s important that pubs take professional advice before rushing into the MRO option.

Here are some tips concerning the Market Rent Only option!

Establish how the landlord is proposing to assess the market rent. Then consider engaging an independent valuer with experience in the pub and hospitality industry to advise you on the offer.

Valuing a pub business is complicated. A great deal depends on the valuer having in depth knowledge of both the pub industry and the local area surrounding the premises in question. Things like location, facilities, and competition all have to be factored into the valuation.

Choice has got to be a good thing and being able to purchase products from local independent and other national suppliers could increase profits. However, I would advise tenants to weigh up the pros and cons of giving up their tied status. It will be  one of the biggest business decisions they have faced since taking on the tenancy.

There is a bigger picture that needs to be explored before making any knee-jerk decisions.

Jon Reakes MRICS contact or phone 0117 315 9117