Decision

Award Summary – June 2021 - 2

Published 3 September 2021

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.

Since this arbitration referral, the PCA has issued statutory advice on the time limit for referring a non-MRO dispute to the PCA for arbitration, which can be read here.

1. Summary of findings

• The tied pub tenant’s (TPT’s) referral was not time barred under s.49 of the Small Business, Enterprise and Employment Act 2015 (“the 2015 Act”) and the arbitrator was able to proceed with the referral and determine the claims put forward.

• The rent assessment proposal (RAP) put forward by the pub-owning business (POB) was valid despite two technical errors, and the POB was not directed to provide a new RAP to the TPT.

2. Factual background

The TPT, held a 15-year lease of the pub from the POB, subject to five-yearly rent reviews. The next rent review date was in March 2018.

The POB provided a RAP to the TPT in June 2017, and in November 2017 the parties signed a ‘rent review memorandum’. In February 2020, and after considering the Pubs Code and recent arbitration decisions published by the PCA, the TPT gave the POB 21 days’ notice of its intention to make a referral to the Pubs Code Adjudicator (PCA). The TPT believed that the RAP that had been provided in June 2017 was non-compliant with the Pubs Code due to it containing insufficient information regarding volumes, sediment and waste in beer products, leading to the prices used to calculate the rent in the RAP potentially being mispriced. The POB failed to send any response to the TPT’s notice, and the TPT then made an arbitration referral to the PCA in June 2020.

3. Preliminary issue

The POB’s response to the referral was to assert that the referral was out of time with reference to the timing provisions for making referrals in section 49 of the 2015 Act. The POB argued that by 2020 the TPT was out of time to bring the referral as s.49(4) of the 2015 Act provides that, “a dispute may not be referred after the expiry of the period of four months beginning with the first date on which the dispute could have been referred”, which in this case was 4 months after the service of the RAP in June 2017 or shortly thereafter.

By contrast, the TPT argued that the words ‘could have been referred’ (in s.49(4) of the 2015 Act) had to be read as relating to the date of the TPT’s knowledge that something was wrong and only then could the TPT give the required 21 days’ notice. The TPT also argued that the 4-month period under s.49(4) runs from the end of the 21-day period under s.49(2), as the end of the 21-day period is the earliest date when the dispute ‘could have been referred’, as it could not have been referred until notice had first been given. The arbitrator preferred the TPT’s argument and found that the referral had been brought in time.

4. The dispute

The essence of the TPT’s claim was that the RAP which the POB provided in July 2017 did not comply with paragraphs 5(a) to (c), 7, 8 and 9 of Schedule 2 to the Pubs Code, and/or that these non-compliances meant the POB had breached the principle of fair and lawful dealing under section 42(3)(a) of the 2015 Act. The TPT claimed the POB provided insufficient information regarding the volumes, sediment and waste used to support the calculations and figures in the RAP (such as line lengths, number of taps, premises configuration) and that it should have provided further information. The TPT referred to the 2019 Beer Waste and Duty Guidance (BWDG 2019), which was published after the RAP was served in 2017.

The POB argued that the RAP did comply with the Pubs Code and was valid, and that it had not breached the principle of fair and lawful dealing. The POB submitted that it had included the last three years of sales volumes in the RAP, with a split for cask ales and information on average levels of waste for cask products. The POB argued that, while best practice following the BWDG 2019 would now include separating out sediment waste and operational waste in rent assessment calculations to ensure more transparency, it had complied with all reasonable requirements at the time it sent the RAP. The POB also submitted that the TPT had provided no evidence that they had suffered any detriment from the RAP. It further argued that the arbitrator could not direct it to provide a new RAP as the parties had already completed the rent assessment procedure and therefore completed the rent review.

5. Decision

While the arbitrator identified a couple of minor defects in the RAP overall, they found the RAP was valid, and that the POB’s actions did not breach the principle of fair and lawful dealing.

The first minor defect which the arbitrator identified in the RAP was that, while the POB’s employee who had signed the RAP was a chartered surveyor, they had not clearly identified themselves on the RAP as being a member or fellow of Royal Institution of Chartered Surveyors (RICS). As such it was not clear that the RAP had been prepared in accordance with RICS guidance, which was a breach of regulation 20(3) of the Pubs Code. The second minor defect which the arbitrator identified was that the POB had breached paragraph 7 of Schedule 2 of the Pubs Code by failing to provide relevant and current data in the RAP, having conceded that it could have provided some additional information in the RAP to ensure maximum transparency.

Nevertheless, the arbitrator found that the POB prepared the RAP in a professional manner and with the intention of dealing with the TPT in a fair and lawful manner. The POB had brought the TPT’s attention to the sediment/wastage issue in the RAP in a way that was compliant with what was best practice in 2017 and did not knowingly conceal any information that might have had a material bearing on the TPT’s decision to agree the rent review memorandum with the POB in November 2017.

The arbitrator found that the 2 breaches of the Pubs Code identified above were not sufficiently serious to displace an overall finding that the POB acted in compliance with the principle of fair and lawful dealing. The arbitrator also did not accept that any minor or technical breach of regulation 20 would automatically invalidate the RAP, especially, where, as in this case, the TPT had failed to identify any adverse consequences of the breaches.

Accordingly, the arbitrator found for the POB, and declined to make a direction that the POB provide a new RAP to the TPT.