Our Guide for Tenants

This month we have brought together our guide for pub company tenants that want to go free of tie and commercial tenants with a rent review due.

Our guide for pub co tenants and market rent only options. 

The notice to request the option to go free of tie can be given by the tenant following four specific MRO (Market Rent Only) events:

•  Tenancy renewal.
•  Following receipt of a rent assessment proposal as part of a rent review process.
• A significant increase in a tied product or service.
• An event has occurred that significantly impacts on trade.

Please note: The PCA (Pubs Code Adjudicator) has already confirmed that COVID-19 is not an MRO event as the governments’ closure order applied to all pubs.

The Process

• Once the tenant has been subject to an MRO event, they have 21 days to serve the pubco notice.
• The notice has to include certain information to be valid.
• Once the notice has been sent to the pubco a strict timescale is triggered. Both parties must adhere to it, otherwise rights will be lost.

Although the Pub Code and Market Rent Only process can be challenging and complicated, we believe it is manageable when broken down. It shouldn’t be a barrier to taking the market rent only option. Our advice would be to seek support from a suitably qualified surveyor with experience in the pub industry, those who are members of the AVLP would be able to assist.

If a tenant really wants to pursue the MRO option there is a clear pathway. They might just need a bit of support. It is highly likely, that the result will be a significant increase in profitability if managed correctly. 

Our guide for tenants in commercial properties with rent reviews due.

This our step-by-step guide for tenants completing a rent review:

• Check the rent review provision within the lease
• At least three months before the rent review date contact the Landlord.
• Wait for the landlord to provide an offer to settle the review with supporting evidence which should be a valuation report.
• Review the offer, if it is reasonable and supported accept the offer.
• If not acceptable ask for a second opinion by an RICS Registered Valuer.
• Subject to the advice make a counter offer and wait for acceptance.

What happens if the Landlord will not accept your counter offer?

Our advice would be to wait for the landlords expectations to meet yours however be aware of the following:

• The back rent on any increase will be payable to the rent review date
• The lowest offer the landlord will make will most likely come in the form of a Calderbank offer (a without prejudice offer to settle).

If you are unable to come to an agreement the lease will set out the next stages which are likely to be one of the following:

• Independent Expert (IE) – decision made by an independent expert using their knowledge of the market and evidence available or
• Arbitration – decision made by an appointed Arbitrator based on the strength of the arguments put forward by each party only

In both cases it is advisable to be represented by a local RICS Registered Valuer  who will put the best case forward. Both the IE and Arbitrator will ask for supporting evidence and a valuation report from you and your Landlord.

How is the rent agreed?

The Landlord will probably be looking for an increase in the rent and will normally start the process. If your surveyor suggests that the landlords offer is acceptable and in line with the market rent, then it is best to accept it to avoid further costs. Once the rent has been agreed it should be documented with a signed and dated rent review memorandum.

A rent review memorandum sets out details of the original lease and parties to the lease. The rent review memorandum needs to be signed and dated by both Tenant and Landlord. Rent is then payable backdated to the rent review date.

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If you need any ongoing advice please Contact us.