Decision

Ei Group – Award Summary – February 2022 – 1

Published 3 May 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.

1. Summary of Findings

The Arbitrator held that the tied pub tenant (“TPT”) was not entitled to request a Rent Assessment Proposal (“RAP”) from the pub-owning business (“POB”) in circumstances where the parties had completed a Deed of Variation to the existing lease (“the Existing Lease”) some three years previously.

The Arbitrator held both that the completion of the Deed of Variation some three years’ previously was a deemed surrender and re-grant of the Existing Lease and therefore the creation of a new agreement, and also marked the conclusion of a previous rent assessment process. Accordingly, the POB had been entitled to reject the recent RAP request from the TPT. Further, and as a result of these findings, the Arbitrator held that the TPT was not entitled to request a further RAP from the pub owning business (“POB”) until the fifth anniversary of the completion of the Deed of Variation.

2. Issues

There were two main issues that needed to be addressed in the arbitration:

(1) Whether the granting of a Deed of Variation extending the term of the Existing Lease prevented the TPT from requesting a RAP under the Pubs Code etc. Regulations 2016 (“the Pubs Code”); and

(2) Whether a previous rent assessment process which had commenced prior to the Deed of Variation being completed had been properly concluded by the completion of the Deed of Variation.

3. Relevant Legislation

Regulation 19(1) of the Pubs Code provides that a POB must:

• Conduct a rent assessment in connection with any rent review that is prescribed in a tenancy agreement; and
• Conduct a rent assessment when one is validly requested by a TPT.

A TPT may request a RAP in the following circumstances under regulation 19(2) of the Pubs Code:

• Where an assessment has not ended within the period of five years ending with the date of the request; or

• There is a significant price increase relating to a product or service supplied to the TPT; or

• The TPT shows a trigger event has materialised which is forecast for a period of more than 12 months inclusive.

Regulation 19(4) of the Pubs Code also outlines forms of assessments which are not considered rent reviews for the purpose of regulation 19(1)(a) of the Pubs Code. These include:

• An annual or periodic indexation of rent;

• Changes to rent in connection with receiving corresponding benefits from the POB;

• Changes to rent in connection with TPTs being released from their obligations relating to a product or service; or

• Any discussions relating to changes in rent that are carried out within a review of the business under the terms of the tenancy or licence.

4. Arbitrator’s findings

(1) Deed of Variation Issue:

The Arbitrator found that the Deed of Variation granted three years previously was a surrender and re-grant of the Existing Lease, and that therefore the current tenancy was less than five years old. The TPT was therefore not entitled to request a RAP under Regulation 19(2)(a) of the Pubs Code as an assessment of rent had already concluded within the previous five years. The Arbitrator referred to the case of Friends Provident Life Office v British Railways Board [1996] in support of the proposition that a deed of variation which extends the remaining term of a lease is deemed to be a surrender and re-grant of the existing lease.

(2) Previous RAP Issue

The Arbitrator also found that a the RAP served on the TPT by the POB previously under Regulation 19(1)(a) of the Pubs Code had been concluded when the Deed of Variation had then been completed. Therefore, the Arbitrator further held that the TPT was consequently prevented from requesting a further RAP under Regulation 19(2)(a) until the fifth anniversary of the completion of the Deed of Variation.

In reaching this decision the Arbitrator also considered whether the extent of the terms of the Existing Lease varied by the Deed of Variation meant that the Deed of Variation fell within any of the exceptions under Regulation 19(4) of the Pubs Code. The TPT had argued that, under Regulation 19(4)(b), the terms of the Deed of Variation only constituted a “change in rent in connection with the receipt of a corresponding benefit from the POB”. However, the Arbitrator held that the TPT had not demonstrated what had constituted the “corresponding benefit”, and was therefore “not persuaded”, on the facts of this case that the execution of the Deed of Variation fell within the list at Regulation 19(4).

5. Costs

A Pubs Code Arbitrator can award that one party pays the costs of another party. The Arbitrator considered that in exercising this power, they should adopt the principle that costs follow the event and the unsuccessful party pays the costs of the successful party unless there are circumstances where the arbitrator considers this is not appropriate.

The referral was a dispute referred under s.48 of the Small Business, Enterprise and Employment Act 2015 (“the 2015 Act”) and is governed by Regulation 4 of the Pub’s Code (Fees, Costs and Financial Penalties) Regulations 2016 which provides that an Arbitrator may order the TPT to pay the POB’s costs in the arbitration to a maximum of £2000. However, the Arbitrator may order payment of a higher amount of costs, if he/she considers the TPT’s referral was vexatious or the TPT’s conduct in connection with the arbitration has resulted in an unreasonable increase in the costs of the arbitration.

Section 51(6) of the 2015 Act provides that the POB must pay the reasonable fees and expenses of an Arbitrator except where the arbitration follows a referral by the tenant under s.48 and the arbitrator concludes that the referral was vexatious.

The POB in this case argued that the TPT’s referral had been vexatious, relying on a definition of vexatiousness considered in the unreported judgement in Attorney General v Barker (2001) that “whatever the intention of the proceeding may be, its effect is to subject the defendant to inconvenience, harassment and expense out of all proportion to any gain likely to accrue to the claimant; and that it involves an abuse of the process of the court, meaning that the use of the court process for a purpose or in a way which is significantly different from the ordinary and proper use of the court process.”

The POB argued that the TPT’s representative must have been aware that the Arbitrator was highly likely to reach the conclusion that they did and that the referral had little basis in law. The POB submitted that the arbitration had involved issues which had been arbitrated in previous cases and the TPT’s representative would be aware of this. It argued that the referral had subjected the POB to inconvenience and costs out of proportion to any likely benefit and it is an abuse of process of the arbitration referral system if TPTs are allowed to bring speculative referrals which they must be aware have little prospect of success.

The TPT argued that the referral was reasonable and not vexatious. They submitted that the intention of Parliament was to provide tenants with a low-cost method of dispute resolution free from the fear of a potentially ruinous adverse costs order if a claim is unsuccessful. The risk of such an order would frighten tenants away from using PCA arbitration and defeat the overriding objective of the legislation, to “level the playing field”.

The Arbitrator held that the referral had not been vexatious as although they considered that the TPT’s referral had little or no prospect of success, the POB was not subjected to inconvenience, harassment and expense out of all proportion to any gain likely to accrue to the TPT nor on balance was the referral an abuse of the arbitral process. The POB was therefore ordered to pay the reasonable fees and expenses of the Arbitrator.

The Arbitrator considered that the TPT had not established circumstances that would justify a departure from the general principle that costs follow the event and, taking into account the continuing financial impact of the COVID-19 pandemic, ordered that the TPT should pay a proportion of the costs claimed by the POB.