Decision

Award Summary – December 2021 - 1

Published 15 March 2022

Applies to England and Wales

Publisher’s Note: The Pubs Code Adjudicator encourages openness and transparency in the operation of the Pubs Code etc. Regulations 2016. Publication of awards made in Pubs Code arbitrations, or summaries of those awards, enables the industry to better understand previous decisions and consider how the Pubs Code is being applied in individual cases. Neither the Pubs Code Adjudicator nor an arbitrator is bound to follow published awards in applying the law, but such awards can be used to support the industry’s consideration of the proper interpretation of the Pubs Code. Parties are encouraged to take independent professional advice about their situation.

The outcome of an arbitration is based on its own facts and the evidence produced in the case and is not binding in other cases where the landlord and tenant are not the same. The Pubs Code Adjudicator does expect a regulated pub-owning business to consider its understanding of the law in light of each award that makes a finding on the interpretation of the statutory framework and to adjust its behaviour towards tenants as appropriate. The publication of an arbitration award or an award summary does not mean the Pubs Code Adjudicator endorses the decision and it does not form legal advice about any issue.

This summary is provided to assist in understanding the arbitration decision. It does not form part of the decision or reasons for the decision.

This summary should be read in conjunction with the Pubs Code Adjudicator Guidance: Beer Waste and Duty.

1. Summary of Findings

The arbitrator held that failure to refer to the correct benchmarking data and lack of clarity in respect of wastage issues in profit and loss accounts contained in a Rent Assessment Proposal (the “RAP”) produced by a Pub Owning Business (the “POB”) meant that the RAP was not compliant with the Pubs Code etc Regulations 2016 (the “Pubs Code”).

The arbitrator upheld 2 out of 6 complaints raised by the Tied Pub Tenant (the “TPT”) which meant that the RAP was not compliant in respect of those points, and that a compliant RAP was to be provided within 28 days of the arbitrator’s decision.

2. Background Information

The POB served a RAP on the TPT in relation to a rent review under the tied lease. Following receipt of the RAP, the TPT wrote to the POB stating its view that the RAP was non-compliant on 6 grounds and giving the POB 21 days to reply. The POB did not reply within those 21 days, and the TPT referred the complaint for arbitration under the Pubs Code.

3. Arbitrator’s Findings

3.1 Issue 1 – The Disruption Issue

The TPT argued that non-financial information contained in a section of the RAP entitled “Details of any restrictions on the use of the premises” omitted to make reference to future planned works in the town where the pub is located and to COVID-19 restrictions.

The POB argued that, in accordance with paragraph 10(d) of Schedule 1 of the Pubs Code, it was only obliged to mention restrictions in place at the date of the RAP and not references to future changes in this section of the RAP. The POB also argued that it had made reference to the planned works in the town elsewhere in the RAP. The arbitrator held that, in relation to the omission of details of future planned works, the POB’s argument that only current restrictions should be placed in this section of the RAP was persuasive and reasonable. The planned works were a future event and the POB placed such information in a separate section of the RAP covering all foreseeable material changes.

In respect of information about COVID-19 restrictions, the arbitrator was not persuaded by the POB’s argument that the RAP only needed to include information about restrictions relating to the pub in question, rather than a wider range of pubs. However, they held that the omission of information relating to national restrictions resulting from COVID-19 would not invalidate the RAP if the TPT was already aware of that information, which the arbitrator considered it inconceivable they were not.

3.2 Issue 2 – Wastage Issue

The TPT argued that the RAP did not follow the Pubs Code guidance document on wastage dated 1 July 2019. The Arbitrator noted that the Profit and Loss account section of the RAP had Operational Waste and Cask Sediment Allowances, and had a table showing the allowances for each product. However, it was not clear how the number and length of the lines of the had been used to calculate the allowances. They found that there was no indication on the Profit and Loss account part of the RAP that the specific circumstances of this pub had been taken into account in calculating wastage, which made it impossible for the TPT to fully assess the RAP. The arbitrator considered this was in breach of the Pubs Code and reiterated that the Pubs Code required that Profit and Loss Statements should be “sufficiently clear and detailed to allow the tenant to understand the basis on which the estimated figures have been calculated”.

3.3 Issue 3 – Benchmarking Issue

The TPT claimed that the RAP referred to benchmarking data from the Association of Licenced Multiple Retailers (the “ALMR”). However, the ALMR did not exist at the date of the RAP. The POBconceded it had referred to the wrong body and had meant to refer to UK Hospitality. However, it argued that this did not invalidate the RAP. It submitted that the correct information could be found via a Google search and that the POB subsequently emailed the TPT making them aware of how to access the information (which was sent after the 21 day referral period). In addition the benchmarking report was available on the POB’s website.

The TPT argued that it was unreasonable to expect the TPT to find such information through a third party website or via a Google search.

The arbitrator held that it was not reasonable to expect the TPT to find the information needed to interpret the Profit and Loss account on a third party website, or from a Google search. The arbitrator noted that as the information was on the POB’s own website it would be relatively simple to provide a link to the correct website page in the RAP. It was held that the lack of an accurate reference to the correct benchmarking information was a breach of the Pubs Code.

3.4 Issue 4 – Salary Issue

The TPT argued that the omission of the manager’s salary in the profit and loss account of the RAP was unreasonable given the size and scale of the pub’s operation, which employs 3 managers.

The POB argued the RAP was correct, submitting that: (1) estimated manager costs should only be included if the pub is part of a chain or could be attractive to multiple operators, which it argued was not the case for this pub; (2) the valuation should not be based on the TPT specifically but rather on how the hypothetical ‘reasonably experienced operator’ would run the pub; and (3) this should be a matter for a valuer to decide.

The arbitrator considered that nowhere in the Pubs Code did it use the multiple operators distinction that the POB advanced to determine whether a managers costs should be included. They were of the view that the Pubs Code does not provide clear directions to assist with this issue, using words such as “where relevant”, and saying that a manager’s salary should only be included where the TPT “is not the manager of the tied pub”.

The arbitrator was persuaded that this is a judgement as to how the reasonably efficient operator would run the business, and this judgement is best made by an experienced property valuer. They considered that the TPT would have the opportunity to challenge the valuation in the RAP and have the rent valued by such a person. It was held therefore that the POB was not in breach of the Pubs Code for omitting the cost of a manager’s salary from the RAP.

3.5 Issue 5 – Turnover Issue

The TPT claimed that the POB exaggerated the volume of draft products, having increased the amount from the existing volume target without justification.

The POB submitted that based on the actual turnover the Fair Maintainable Trade (“FMT”) had been 10% less than the last full year of normal trading. It also argued that in any event whether the POB’s estimate of the FMT is reasonable is a matter for the valuer to decide.

The arbitrator considered that a POB has the power to propose FMT estimates within the RAP, the TPT has the opportunity to challenge those estimates. and ultimately it will be a matter for an independent valuer to decide. Accordingly, the arbitrator held the POB did not breach the Pubs Code for assessing the FMT at the level it did.

3.6 Issue 6 – Dilapidations point

The TPT argued that a dilapidations survey prepared prior to the RAP was part of the RAP, and that that the matter of dilapidations was unclear, outstanding and disputed, and claimed the POB was in breach of the requirement to ensure that its Business Development Manager behaved consistently with the principles of fair and lawful dealing.

The arbitrator held that the dilapidations survey in question and the process of negotiating settlement of the dilapidations claim was separate to the RAP, and that the reference to dilapidations in the RAP related to the TPT’s right to request a dilapidations survey or schedule. The arbitrator also found there was no evidence that the POB had acted unfairly.