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.
The PCA has published a factsheet for tied pub tenants who are considering whether a trigger event has occurred as a route to requesting a Rent Assessment or Market Rent Only option. This summary should be read in conjunction with the “What Tied Pub Tenants Need to Know about Trigger Events” factsheet here.
1. Summary of Findings
The arbitrator held that a ‘Trigger Event’ as defined by the Small Business, Enterprise and Employment Act 2015 (the “2015 Act”) and the Pubs Code etc. Regulations 2016 (“Pubs Code”) had occurred. Consequently, the pub owning business (“POB”) was ordered to provide a Market Rent Only (“MRO”) option to the tied pub tenant (“TPT”).
2. Background
The TPT is the tenant of a public house (the “Pub”), and the POB is the landlord of the Pub.
The TPT made the referral alleging that the opening of a new pub (the “Competing Premises”), which was within a 5-mile radius of the Pub constituted a trigger event under the Pubs Code (“the Event”). The Competing Premises offered a very significant food operation in direct competition with the TPT’s Pub in the local market and resulted in reduced trade for the TPT’s Pub
3. Findings
If a Trigger Event takes place this gives the TPT the right to ask the POB to provide a MRO option for their pub. The criteria for whether a Trigger Event has taken place is in Section 43(9)(a) – (d) of the 2015 Act and Regulation 7 of the Pubs Code.
The TPT claimed that the opening of the Competing Premises had been a Trigger Event and therefore they should be permitted to request a MRO option. The arbitrator considered the criteria to decide whether a Trigger Event had occurred in this case, making a determination on the issues set out below.
3.1 Was the Event beyond the TPTs control?
Both parties agreed that the Event was beyond the control of the TPT.
3.2 Was the Event not reasonably foreseeable?
The arbitrator considered that in order for the Event to be a Trigger Event, it would need to be foreseeable from the date the tenancy was granted to the TPT. The arbitrator held that the Event was not reasonably foreseeable.
The arbitrator agreed with the POB that that changes in competition and local competitive factors happen regularly, and that a reasonably efficient operator should consider that there will be changes over time that affect any “day one” business plan. However, they found the opening of the Competing Premises to be very significant and considered that in general terms a change of such magnitude in this context might well be regarded as not reasonably foreseeable,
The TPT was an established operator and prepared a business plan prior to taking on the Pub. However, the POB did not challenge the assumptions of the TPT in the business plan. A planning statement available in the public domain at the time that the business plan was prepared, confirms that the Competing Premises would have a substantial carvery offering. However, the Arbitrator found that neither party was aware of this information.
The arbitrator considered on the facts of this case that the opening of a business of the magnitude of the Competing Premises was not reasonably foreseeable.
3.3 Has the Event had a significant impact on the level of trade that could reasonably be achieved at the Pub and in addition had the effect of decreasing forecasted trade for each month for a continuous period of 12 months?
In considering the evidence, the arbitrator held that the Event had decreased trade and had a significant impact on the level of trade that could be expected at the Pub.
The arbitrator considered that to establish a Trigger Event, the TPT would need to demonstrate that each month in the 12 month forecast should show a decrease when compared to the corresponding figure for that month that would have been expected but for a Trigger Event (as opposed to having to show a decrease month on month for the 12 month period).
The relevant analysis provided by the TPT was held to demonstrate a decrease in trade. In considering the analysis the arbitrator held that it showed of an increased loss and reduction in revenue that was a significant impact for this Pub based on the evidence before them. The arbitrator noted that the opening of the Competing Premises could not be shown to have had a benefit to the Pub to mitigate its impact on trade.
3.4 What were the causes of the Event, and could they have been prevented or mitigated against?
Neither party sought to argue that the Event could have been ‘prevented’ and the arbitrator made a finding that the causes of the Event could not have been prevented.
The arbitrator was not persuaded that the Event could reasonably have been substantially mitigated by the TPT. In response to the relevant analysis prepared by the TPT, the POB had sought to argue that the TPT had failed to take appropriate steps to mitigate any anticipated downturn in trade. However, the TPT argued that any mitigation such as changing the food offering, would have had little effect in the 56 day period which they had to submit the relevant analysis, and that in any event the magnitude of the Event on the Pub’s trade would have rendered any such attempts at mitigation fruitless.
3.5 Has the Event affected only the TPT’s Pub? If not, has it affected all pubs in England or Wales?
In order to be a Trigger Event, the Event must either affect only the TPT’s Pub, or affect other pubs in the local area but be unlikely to affect all pubs in England and Wales.
The arbitrator agreed with both the TPT and the POB that the Pub was not the only pub affected by the opening of the Competing Premises
Having held that the Event had affected other pubs in the local area in addition to the Pub, the arbitrator found that it was unlikely to affect all pubs in England or Wales.
3.6 Is the Event either related to a change in the tie imposed by the POB on the TPT, or does it have an effect which directly relates to changes in the local area?
Where the Event affects other pubs in the local area, in order to be a Trigger Event, it must directly relate to a change in the tie that the POB has imposed or have an effect which is directly related to local area changes. Regulation 7(5)(b) of the Pubs Code states “the trigger event must have an effect directly related to changes in the local area such as changes to local infrastructure, local employment, the local economy, or the local environment”. The arbitrator agreed with the TPT’s interpretation that the four situations set out under the Pubs Code are not exclusive conditions, merely just examples and that “changes to the local area” are not limited to the four specific changes listed.
The Competing Premises was opened as part of a large development close to the tied pub. The arbitrator considered the TPT had shown that the development, of which the Competing Premises was a part, constituted a change to the local area of the type encompassed by Regulation 7(5)(b) of the Pubs Code.
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