PCA Advice Note: application of the Pubs Code (Fees, Costs and Financial Penalties) Regulations 2016 to disputes about Independent Assessor determinations
Published 8 April 2022
Applies to England and Wales
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1. Summary
The purpose of this statutory advice is to assist the industry by setting out the view of the Pubs Code Adjudicator (“PCA”) on the application of the Pubs Code (Fees, Costs and Financial Penalties) Regulations 2016 (“the Fees Regulations”) to arbitration disputes about the determination by an Independent Assessor (“IA”) of the “Market Rent” payable for a Market Rent Only (“MRO”) tenancy.
The PCA’s view is that a dispute about an IA determination is a “MRO dispute” for the purposes of the Fees Regulations. Therefore, the costs provisions relevant in respect of a “MRO dispute” will apply. This includes provisions relating to the cap on the amount that a tenant can be ordered to pay in costs. Tenants cannot be ordered to pay above a certain amount, except in specified circumstances.
2. Pubs Code Arbitration Costs: MRO disputes
In a Pubs Code arbitration, the decision on whether and how much to award in party costs is for the arbitrator, taking into account the circumstances of each case. This will usually be in line with the principle that the party who was unsuccessful in the arbitration pays at least some of the costs of the other party, unless there are circumstances where the arbitrator considers this is not appropriate. In a MRO dispute, regulation 3 of the Fees Regulations applies.
A ”MRO dispute” is defined in regulation 2 of the Fees Regulations as “a dispute relating to the offer of a market rent only option”. A “Market Rent Only option” is defined in s.43(2) of the Small Business, Enterprise and Employment Act 2015 (“SBEEA 2015”) as the option for the tied pub tenant (a) to occupy the tied pub under a tenancy which is MRO-compliant and (b) to pay in respect of that occupation, either a rent agreed between the parties or the market rent.
Where a MRO dispute is referred for arbitration, regulation 3 of the Fees Regulations limits the amount that a tenant may be required to pay as follows:
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the pub-owning business must pay the reasonable fees and expenses of the arbitrator for that arbitration, except where the arbitrator concludes that the arbitration referral made by the tenant was vexatious
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if a tenant is ordered to pay some of the arbitration costs incurred by the pub-owing business, the maximum amount the tenant may be ordered to pay is £2,000. This is unless the arbitrator considers that the tenant’s arbitration referral was vexatious or the tenant’s conduct in connection to the arbitration resulted in an unreasonable increase in arbitration costs.
The SBEEA 2015 (see s.51(6)) and the Fees Regulations (see regulation 4) make similar provision for costs in non-MRO statutory arbitration disputes.
3. Disputes about an Independent Assessor determination
The Pubs Code etc. Regulations 2016 (“Pubs Code”) provide that during a MRO procedure the tenant and pub-owning business may make a referral to an IA to determine the Market Rent (defined in s.43(10) of SBEEA 2015) payable for a MRO- compliant tenancy, where the rent has not been agreed. The Pubs Code allows either the tenant or pub-owning business to make a referral for arbitration in connection with an IA’s determination or the IA procedure, including where they claim that the rental figure determined by the IA is not the “Market Rent” or the IA has not had the required regard to the documents provided when making their determination.
The PCA considers that an arbitration dispute in respect of an IA’s determination of the Market Rent or the IA procedure is a “MRO dispute” under the Fees Regulations, and therefore the provisions in regulation 3 limiting costs payable by tenants will apply.
Important Note
The PCA’s view as set out in this advice note is not binding on an arbitrator appointed to determine a Pubs Code dispute nor on the Courts. Only the Courts of England and Wales have jurisdiction to reach a binding interpretation of the Pubs Code statutory framework. Nothing in this advice note should be relied upon as legal advice or is a substitute for a party (or prospective party) to an arbitration taking independent legal advice on their own individual circumstances.
This advice may be subject to review from time-to-time as appropriate.