Decision

Award Summary – August 2021 - 1

Published 18 November 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.

1. Summary of findings

In this award on a preliminary point of law, the arbitrator found that the only means to provide an MRO compliant tenancy in this case was a new tenancy agreement. They found that there was at present no applicable lease in the referral which could be varied and considered use of a deed of variation to vary a non-existent lease to be a legal impossibility.

2. Background

The pub-owning business (POB) served the tied pub tenant (TPT) with a notice under s.25 Landlord and Tenant Act 1954 seeking to end the existing business tenancy for the premises with a proposal for a new tenancy subject to a tie (the “Section 25 Notice”).

Shortly after receipt of the Section 25 Notice, the TPT sent a Market Rent Only (“MRO”) notice to the POB in accordance with Regulation 23 of The Pubs Code etc. Regulations 2016 (the “Pubs Code”). The TPT alleged that the proposed new tenancy provided by the POB in response to the MRO notice was non-compliant and sent a referral for arbitration to the Pubs Code Adjudicator (“PCA”).

The arbitrator considered that the method of delivering an MRO compliant lease should be determined as a preliminary issue. The POB had proposed that an MRO compliant lease should be achieved by way of the grant of a new tenancy in entirely new terms, while the TPT felt that this was unreasonable and that an MRO compliant lease could instead be achieved by way of a deed of variation of the existing lease, largely retaining the existing terms.

The parties had agreed to extend the deadline to apply to the court for a new lease to allow for further negotiations following the Section 25 Notice. The effect of this extension was that if the TPT did not issue a court claim for a renewed lease by the date to which the extension had been agreed, the existing lease would expire altogether.

3. Issues

The preliminary question that the arbitrator had to determine was whether the MRO option could be achieved via a deed of variation in circumstances where the lease term had ended and subject to a requirement to issue court proceedings, the lease would expire at the end of the agreed period of extension to apply to the court.

The TPT argued that the MRO option should be delivered by deed of variation and not be a new agreement. In support of this submission the TPT claimed that a deed of variation is the common mechanism for tie release and not being able to use this mechanism was unfair.

Following a Case Management Conference conducted by the arbitrator, both parties agreed that in these circumstances, a deed of variation would not operate in law as a variation, but instead as a surrender of the existing agreement and the grant of a new agreement.

4. Arbitrator’s findings

The arbitrator found that following the expiry of the term of the existing lease, the parties having not agreed terms for a new lease as part of the Section 25 Notice negotiations, and the uncertainty over what terms the County Court might grant a new lease on if and when the required proceedings were issued, there was at present no applicable lease in the referral which could be varied to sever the tie.

The arbitrator found that the use of a deed of variation to vary a non-existent lease was a legal impossibility, and that therefore the only means to provide an MRO compliant tenancy in this instance was by way of the grant of a new tenancy.