Decision

Award Summary – November 2021 - 1

Published 10 February 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.

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 Arbitrator held that a renewal lease agreed between the Tied Pub Tenant (“TPT”) and Pub-Owning Business (“POB”) at the conclusion of a statutory process under the Landlord and Tenant Act 1954 (the “1954 Act”) had concluded a rent review and therefore the POB had not been required to provide a rent assessment proposal (“RAP”) when requested by the TPT. The arbitrator also held that the TPT was not entitled to bring other complaints that the POB had allegedly failed to provide information when renewing the lease as these claims were out of time.

2. Background

The TPT was a longstanding tenant of a public house owned by the POB. Following the end of the existing lease term and an end of term rent review, in 2017 the parties agreed and executed a new lease renewing the tenancy.

In 2021 the TPT sent an email to the POB. This email contained a request that the POB provide the TPT with a RAP under regulation 19(2)(a) of the Pubs Code, as the TPT contended that there had not been a rent assessment for 5 years. The TPT’s email also contained allegations about a breach of the requirement of fair and lawful dealing under regulation 41(1)(c) of the Pubs Code connected to allegations that the POB had failed to properly notify the TPT of, or apply, the effects of sediment and wastage to offers or plans. The email stated that it was the TPT’s 21-day notice to the POB before making a referral to the PCA.

The POB’s Code Compliance Officer (“CCO”) responded to the email rejecting the request for a RAP (the CCOs “first response”) on the basis that there had been a lease renewal in 2017, less than 5 years previously, and stating that if the TPT did not agree with the reason for rejection, they should provide a further 21-day notice of their intention to refer a dispute to the PCA arbitration. Shortly afterwards in a second letter (the CCOs “second response”), the CCO rejected the alleged breaches of the Pubs Code in relation to “fair trading” concluding that the POB had done enough in relation to the provision of evidence relating to wastage and sediment.

The TPT then made a referral to the PCA for arbitration.

3. Relevant Legislation and Rules

The Pubs Code provides that under regulation 19(2)(a) a POB must conduct a rent assessment if so requested by the TPT so long as a rent assessment has not ended in the five years before the request.

Regulation 41(1)(c) of the Pubs Code requires the POB to ensure their Business Development Managers (“BDMs”) deal with TPTs in a manner that is consistent with the principle of fair and lawful dealing.

Regulation 42 of the Pubs Code provides that a POB must appoint a suitably qualified employee to be the CCO whose “role is to verify the POB’s compliance with these regulations”. The POB must ensure the CCO is “reasonably available to TPTs”, is “independent of, and not managed by, the BDMs”, and “is entitled to discuss with the TPTs the reasons for any decisions made by the POB under these Regulations”.

Regulation 66 provides that a TPT may request, on or before the five-year anniversary of the Pubs Code coming into force, a rent assessment under regulation 19(2)(a) if no rent assessment has been concluded before the date of the request; and no rent review has been concluded within the period of five years ending with the date of the request.

Section 49 of the Small Business, Enterprise, and Employment Act 2015 (the “2015 Act”) provides that a TPT can only refer a dispute to the PCA for arbitration after the expiry of the period of 21 days beginning with the date on which the TPT notifies the POB of the alleged non-compliance. Section 49(4) also prohibits disputes being referred to arbitration more than 4 months after the date the dispute could have been referred.

4. Arbitrator’s Findings

4.1 CCO Claim

The TPT claimed that the content of the responses sent by the POB’s CCO to the TPT in 2021 were themselves a breach of the principle of fair and lawful dealing. In response, the POB sought to argue that the conduct of a CCO cannot be the subject of an arbitration.

The arbitrator noted that regulation 42 of the Pubs Code (which governs the POB’s duties in respect of CCOs) is specified in regulation 44 as being not arbitrable and considered that the actions of a CCO carrying out their functions are not arbitrable.

The Arbitrator considered that the content of the second response was within the scope of the functions of a CCO and so could not be arbitrated. However the first response did not fall within the scope of the CCO function, and as such, the first response could be the subject of arbitration.

The arbitrator held that the first response had been absolutely clear and unambiguous, and that there was no evidence that the TPT had been misled by it, and that therefore there had been no unfair dealing.

4.2 Allegations of misleading/incomplete information

The TPT argued that in 2017 the POB had misled them by not providing information about wastage and sediment and also about whether the renewal lease was a “new agreement”. The POB sought to argue that as the alleged breaches occurred in 2017 and the notice of dispute was not sent until January 2021 that the referral was out of time, as the case should have been referred within the four months beginning with the first date on which the dispute could have been referred (Section 49(4) of the 2015 Act).

The Arbitrator considered that in this case there was no reason to depart from the PCA’s advice which confirmed that the four-month time period will, “usually arise at the time that the alleged breach of the Pubs Code occurred”.

The Arbitrator held that the TPT’s claims were out of time.

In addition to finding that both issues were out of time to be referred for arbitration, the arbitrator also considered that the POB had provided clear information on the renewal lease together with all information that the Pubs Code required the POB to send to the TPT at the time, and that therefore the POB had not misled the TPT in any event.

4.3 Was the POB right to say that the signing of the renewal lease in 2017 prevented a request for a RAP in 2021 under regulation 19(2)(a) due to it being less than five years ago?

The POB argued that the right to request a RAP in regulation 19(2)(a) is not available in the first five years of the tenancy and did not permit the TPT to reopen the terms of their negotiated agreement.

The arbitrator accepted the POB’s interpretation of regulation 19(2)(a) that as the parties executed the renewal lease in 2017, it therefore prevented a request for a RAP under regulation 19(2)(a) being brought by the TPT in 2021 as this was less than five years after the grant of the renewal lease.

4.4 Was the POB right to say that the signing of the renewal lease in 2017 prevented a request for a RAP under regulation 19(2) due to it being a concluded rent review?

A TPT can only request a RAP before the 5-year anniversary of the Pubs Code coming into force if no rent review has concluded in the 5 years ending on the date of the request (see regulation 66(2)(b)). The POB argued that the request for a RAP was rejected because the agreement to a new rent in the renewal lease had been a form of rent review. It submitted that there was no substantive difference between the reviewing of the rent on a 1954 Act renewal and a mid-term review.

The TPT argued that it was, “absurd to suggest that a POB could create something that breaches the law just before the deadline and hold a TPT who signed it after the deadline and ensure they are denied any opportunity for redress”.

The arbitrator considered that the POB’s interpretation was correct and held that agreeing the renewal lease had concluded a rent review for the purpose of regulation 66 and therefore prevented a request for a RAP by the TPT in 2021 as this was within 5 years.

4.5 Was the rent setting for the 2017 agreement in return for relaxation of the tie, so as not to be a rent review?

The TPT argued that the rent had only been increased to release all cask products from 2017 onwards. The POB submitted that the renewal lease had been the conclusion of the statutory process under the 1954 Act.

The arbitrator held that the renewal lease rent had been agreed for a number of reasons including, but not exclusively, the “relaxation of the tie”, but that critically the renewal of the lease was a statutory process under the 1954 Act and had concluded a rent review.