2019_4_Summary of Pubs Code Arbitration Award_Non-MRO

1. Note on Rent Assessment Proposals

The PCA has explained what the Code requires in relation to a Rent Assessment Proposal as set out in the PCA factsheet on “What Tenants Need to Know About Rent Assessments and Rent Assessment Proposals”. In reading this case summary the following must be noted:

You can make a written request for a rent assessment in any of the following circumstances:

• in the last 5 years, no rent assessment has ended and no rent review has concluded:

• there has been a significant increase in the price at which a tied product or tied service is supplied to you

• you demonstrate that a trigger event has occurred, which will have a significant impact on trade. You must do this by sending the POB a written analysis of the level of trading which is forecast for 12 months or more from the date of the request

2. Summary of findings

The Claimant made a request for a rent assessment proposal under Regulation 19(2) Pubs Code etc. Regulations 2016 (“the Pubs Code”) by sending a letter of request to the Respondent on 17 December 2018 (“the Request”). The Request was not invalid just because there was no indication that it was from both the Claimant and the other joint tenant of the pub.

The Request was, however, invalid due to the primary reference to “contractual rent review” and lack of reference to the requirements set out in the Pubs Code for a rent assessment to take place.

There had also been a rent review concluded in the 5 years prior to the Request being served which also prevented the tied pub tenant (“TPT”) from requesting a rent assessment proposal (“RAP”) under Regulations 19(2) and 66(2)(b) of the Pubs Code.

3. Factual background

The Claimant is a TPT and the Respondent is a pub owning business (“POB”).

The dispute related to the Request from the TPT to the POB which stated that a “contractual rent review” was due, and then requested a “compliant rent assessment proposal”. The Respondent replied saying that the next rent review under the lease was not due until 2023 and therefore no rent review was due from the Respondent at the time of the Request.

The Claimant did not agree with the Respondent and referred the dispute to arbitration.

4. Matters for the arbitrator to determine

The arbitrator was asked to determine the following issues:

1. Whether the Respondent was correct in asserting that the Request was not a valid request for a RAP due to:
   a) There being no indication in the Request that it was both from the Claimant and the other joint tenant of the pub;
   b) The Request ambiguously referring to a contractual rent review rather than a statutory rent assessment.
2. Whether there had been a “rent review” concluded in the 5 years prior to the Request that would prevent the TPT from requesting a RAP under Regulations 19(2) and 66(2)(b) of the Pubs Code etc. Regulations 2016 (“the Pubs Code”).

5. The arbitrator’s findings

5.1 The validity of the Request due to it being in the name of the Claimant only

The Request was sent in the name of the Claimant only, whilst the lease named the Claimant as one of two joint tenants of the pub. The Respondent argued that in accordance with section 70(3) of the Small Business, Enterprise & Employment Act 2015 (“the 2015 Act”) the TPT was both (1) the Claimant and (2) the other joint tenant and that there was no indication that the other joint tenant had consented to the referral.

The Respondent also argued that under section 49(2) of the 2015 Act the TPT must give 21 days’ written notice before making any referral to the PCA for arbitration and it argued that the TPT (understood to be both the Claimant, and the other joint tenant) had not served the necessary notice for the purposes of this section.

In April 2019, a letter was submitted to the Claimant’s representative by the other joint tenant, stating that they had consented to the referral.

The arbitrator held that the referral to arbitration was made by the tenant to the lease of the subject property and whilst the full name of that tenant was not set out on several of the documents relating to the proceedings, it was clear that the Claimant was the TPT under the terms of the lease. The arbitrator therefore rejected the Respondent’s argument that the TPT did not serve the necessary notice due to the Request being in the sole name of one of the parties to the lease and not both.

The arbitrator also found that the other joint tenant had indicated their consent to the arbitration referral and that the notice under Section 49(2) of the 2015 Act was validly served.

5.2 The validity of the Request when referring to a “contractual rent review” rather than a “statutory rent review”

The Request served by the Claimant referred to a “contractual rent review” and requested a “compliant rent assessment proposal”. The Respondent replied to the Request referring to a deed of variation completed in 2016 which confirmed that the next rent review under the terms of the lease was not due until 2023.

The Claimant argued that the Request requested a RAP as the TPT had not had one in the previous 5 years. The Claimant referred to Regulation 19(2)(a) of the Pubs Code which says that a TPT may request a rent assessment if such an assessment has not ended within the period of 5 years ending with the date of the request.

The Claimant argued that the POB was effectively claiming that the deed of variation was completed in exchange for the benefit of having “works” carried out which, according to the TPT, comprised a new/replacement central heating boiler. The Claimant referred to Regulation 19(4)(a-d) of the Pubs Code which lists what is not a rent review required under the terms of a tenancy and that includes any change in rent in connection with a corresponding benefit (such as the provision of a new/replacement central heating boiler in this case).

The Claimant also argued that for any RAP to be valid, it must provide the information set out in Schedule 2 to the Pubs Code and that no such information was supplied to the TPT and therefore it was clear that no lawful RAP was supplied by the POB in 2016 and that the changes to the rent at that time were not made in accordance with Part 4 of the Pubs Code, which meant that those changes could not be a rent assessment and that therefore the TPT was entitled to request a rent assessment.

The Claimant also referred to Regulation 66(2)(a-b) of the Pubs Code which provides that a TPT may request, on or before the 5-year anniversary date, a rent assessment if and only if no rent assessment has been concluded before the date of the request and no rent review has been concluded within the period of 5 years ending with the date of the request.

The Claimant therefore requested the PCA to direct the POB to provide a fully compliant RAP.

The POB argued that the Request provided by the Claimant was not valid because it referred to a “contractual rent review” understood to be a rent review under the lease which had been completed. The Request made no reference to Regulations 19(2) or 66 of the Pubs Code and that therefore the Respondent understood that the Request related to the contractual rent review and the subsequent email from the Claimant did not clarify the purported request.

The Respondent also argued that the principles in relation to errors in notices were laid down in the case of Mannai Investment Co Limited v Eagle Star Life Assurance Co Limited (1997) AC 749 and the question to consider was how a reasonable recipient of the Request would have understood it. The arbitrator considered that the Request appeared to confuse two issues in that it referred to a “contractual rent review” which must be a rent review contained in the lease between the two parties and also to a “compliant” RAP which related to statutory rent assessments under the Pubs Code. The arbitrator expressed their view that undertaking of a contractual rent review under the terms of a lease would not require a RAP under the terms of the 2016 Code.

The arbitrator stated that following the deed of variation in 2016, there was no contractual rent review due in 2018 so if the Request was referring to a “contractual rent review” it may have been that the Claimant had forgotten about the deed of variation and assumed that rent review was due in 2018.

The Respondent’s reply was therefore proper in that it reminded the Claimant that no such review was due under the lease.

In relation to the Claimant’s assertion that they were requesting a rent assessment in accordance with Regulation 19 of the Pubs Code, the arbitrator understood that for a TPT to request a rent assessment under Regulation 19 of the Pubs Code, it must be able to show either a significant increase in the price at which a product or service is supplied to the TPT or that the relevant trigger event has occurred by means of an analysis of the level of trading that is forecast in the next 12 months (Regulation 19(2)(b-c)) and no such information was provided in the Request, nor any reasons given for requesting the rent assessment.

The Claimant could have responded to the POB’s reply, stating that it had misunderstood the Request and that it was to be considered as a rent assessment request under the terms of the Pubs Code, not as a request for a contractual rent review, but the Claimant did not do so, even though it considered that the POB was acting unlawfully. As such, the arbitrator did not direct the POB to supply a compliant RAP at this stage, as he felt that a valid request would first need to be made by the TPT.

5.3 Whether there had been a rent review in the five years prior to 17 December 2018 (the date of the Request)

The Respondent argued that the setting of the rent of the subject premises under the lease renewal process that had taken place constituted a rent review for the purposes of Regulation 66(2) of the Pubs Code. In accordance with section 34(1) of the Landlord and Tenant Act 1954 (“the 1954 Act”), the rent at renewal is determined by the court or by agreement. The Respondent argued that the review of rent under the 1954 Act is a statutory rent review and that Regulation 66(2)(b) of the 2016 Code does not limit “rent review” to rent reviews that are “required under the terms of a tenancy”. The Respondent asserted that the rent review concluded under Regulation 66(8)(a) of the Pubs Code was the date of the execution of the lease renewal in 2014 and that this date was less than five years before the date of the Request.

The arbitrator concluded that there was no clear guidance in the Pubs Code as to whether there was any difference between a rent which is set as a result of a lease renewal or as a result of a rent review under the terms of an existing lease. As such, the two events could not necessarily be differentiated when considering the 5 year “lock out” period for making rent assessment requests.

The arbitrator found that the revised rent sent at renewal and concluded in 2014 was a rent review for the purposes of the Pubs Code, which prevented the TPT from requesting a RAP under Regulations 19(2) and 66(2)(b) of the Pubs Code as at the date of the Request in December 2018.