Morgan & Clarke Newsletter

By | May 17, 2020

Deed of Variation – PCA Say Case By Case, We Say NO!

A Deed of Variation (DOV) as the mode of delivery for MRO (Market Rent Only) in our view should be automatic. We have said this right from the very start way back in July 2016 and stand by what we say. Understandable that the Pub Cos should do everything in their power to resist this simple and cheap method of achieving MRO. The last thing they ever wanted was to make going free of tie that easy. Their insistence was always that their “interpretation” of the legislation could only be a new lease “for a period equal to that remaining on the current tied lease”. More often than not only five years even if you were sitting on the end of a twenty-year lease. You could apply to the Court for a longer-term when the five years expired, which may or may not be opposed, but why grind through the process with yet more cost. The purpose was to make life difficult and it did just that.

Our experience of the wider market takes in private landlords who purchased Pubco leases that had a sitting tied tenant. They seemed to be generally from Punch who often sold the freehold over the head of the tenant without even giving them the chance to buy. Delightful! The tenant was offered free of tie from his new private landlord by the simple process of a two-paragraph letter which contained… “you are hereby released from all supply tie obligations contained within your lease”… and Hey Presto, you were. Very much legally binding because as often as not that was then quickly followed up with a rent demand for an increased rent for being free of tie.

In case after case we continued to press for the DOV option. We were sometimes accused as being “excitable campaigners”. The Pubs Code Adjudicator (PCA) constantly said that the new lease route, although not set in tablets of stone, remained valid but that the lease terms offered were often “unreasonable” and required that the lease, not a DOV, should be modified to remove those unreasonable terms. Then the worm turned and in a few cases there was the PCA requirement for a DOV. A sprinkling of those cases has without fanfare been published by the PCA, some running to over forty pages and some much less. One such case being Food Drink Rooms Limited (Tied Tenant) – and – EI Group Plc & Unique Pub Properties Limited. This was published on 28th August 2019.

Reference ARB/10045/FOODDRINKROOMS from an arbitration award which was dated 11th April 2019.

The judgement confirmed…“The revised response is to be in the form of a Deed of Variation of the existing lease on MRO compliant terms to be determined by the arbitrator”. A DOV ensures that there are no material changes to the lease terms you currently enjoy which are not linked to the supply tie. There is then no need to have a new lease with a raft of new terms and conditions that were never in your current lease. So what is the problem?

The Pubcos and Brewers are in the main still issuing a new lease in response to an MRO application. Many tenants are told that  “this is the best you will get” and do not know about the DOV option. Chris Wright has lobbied the PCA to be uniform in the question of DOV availability. Their response was that everything must be looked at on a “case by case” basis. If you don’t realise a DOV can be made available, you won’t push for it will you? The Pubcos and Brewers are still under no obligation to make available a DOV, which is cheap, efficient and easy to achieve, as the ‘go-to’ solution for MRO. That is the problem.

The precedent has been well and truly set for the means of delivery of MRO to be by a DOV. We stand by that opportunity and always have done so

To Trade or Not To Trade (COVID-19)

The latest expectation is that there will be limited opening of pubs on or about 1st July. We have been talking to many clients about the reality of making even a small profit if they choose to open at the first opportunity. The concerns are real and wide-ranging. Currently, you get rates relief if the Rateable Value is no more than £51,000 on the basis that the pub is closed for business. Staff can be furloughed if they are not working. Grants for closed pubs are available. But what if you do “open for business” and can only use say the beer garden and part only of the bar space due to social distancing? If there is no outside trade area then the decision is even more difficult.
For sure you will have to order in fresh stock for the reopening well in advance of the date. But how much and how perishable? Will there be a swift take up (we hope) or are you looking at say only 50% of previous trade. If that is the case and you have had to run say 70% of staff levels our clients tell us that there is little if any chance of making any profit. Keeping closed indefinitely will not generate any profit. The recent consensus of client opinion is to be very cautious to rush into reopening until you know you can make some sort of profit if all facing the lifebelt financial support dwindling away.
The other side of the coin is to wait and see how the pandemic shapes up and plan to reopen much later. The Chancellors furlough extension scheme is a helpful move but may diminish in later months. It is a terrible dilemma compounded by Pub Co rents being only deferred not cancelled, excepting Admiral of course. Delaying opening to say this autumn has the spectre of three quarters rent to be paid off the back of what? Not very much at all. We do so hope that the Pubcos see sense and cancel rents but that lifeline for survival cannot be guaranteed. We like to be able to offer solutions but with this one our Clients are genuinely pessimistic. This bodes badly for the industry unless common sense and compassion prevails. To summarise, the majority of the clients researched reveals a  very cautious attitude indeed about rushing into reopening, unless, and it is a massive ask, they can see some sort of sustainable profitability returning. Quite a gamble.
Ordering & Takeaways (COVID-19)
Looks like we are all in for a long haul to get through the COVID-19 crisis. To get the maximum return from offering a good and balanced takeaway service there have been some interesting client experiences that we thought to pass along. Not a ‘one size fits all’ and probably you have covered all of the bases but nevertheless…. The website menu should have a collect time slot of say ten minutes to be nominated by the customer. The kitchen then has the opportunity to stagger service and content.There should be a specified collect point either inside the pub or at a convenient spot outside. Surprising the number of customers in the ‘vulnerable’ category are still very apprehensive of entering a bar in what is a public enclosed space.If an external collection, then instructions to be given either to ring the doorbell or tap on the window for ease of collection.Draft beer should be in their own containers which ideally should be either clear glass or plastic. Technically for an ‘off sale’, which this is, the container should be of a measurable quantity preferably in pints rather than litres. A used (and clean!) two-pint plastic milk container is ideal.Staff should be seen to wear face masks and if possible wear protective gloves more than anything to give full reassurance of COVID awareness to your customer.No walk-in and order, everything must be pre-ordered.   We are sure you will have many brilliant ideas as to capitalise on your food offering in takeaway form. We hope our few thoughts might be of interest being put in place by other clients through trial and error and with great success.  If you have any further tips or suggestions feel free to reply to this email and let us know, we can add them to our website blog which is continually updated.
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