The Scottish Pubs Code Regulations 2024

PART 4 Market rent only leases

Characteristics of an MRO lease

14.—(1) An MRO lease is a lease, the terms of which—

(a) set the rent payable in respect of the tenant’s occupation of the pub at—

(i) an amount agreed between the landlord and the tenant in accordance with the procedure described in this Part, or

(ii) the market rent, in the event that no agreement is reached in accordance with that procedure,

(b) impose neither a product tie nor a service tie in relation to the pub,

(c) comply with any requirements set out in this code as to the terms that a lease must contain in order to be an MRO lease, and

(d) do not contain any unreasonable terms.

(2) An MRO lease modifies a tied-pub tenant’s existing lease only to the extent necessary for that lease to become an MRO lease, except where the tenant agrees to a more extensive modification of their existing lease or accepts an offer of a new lease.

(3) An MRO lease may, with the agreement of both the pub-owning business and tenant, be for a period longer than the remaining period of the existing lease.

(4) Any offer which includes one or more of the following terms is not an offer of an MRO lease—

(a) a break clause only exercisable by the pub-owning business, unless such a term is included in the existing lease,

(b) a lease period shorter than the remaining period of the existing lease,

(c) a stocking requirement other than as defined in regulation 2(1),

(d) a deposit requirement which increases the deposit disproportionately to any rent increase, except with the consent of the tied-pub tenant, or

(e) a personal guarantee requirement more onerous than in the existing lease, except with the consent of the tied-pub tenant.

Requirement to offer an MRO lease

15.—(1) A pub-owning business must offer their tied-pub tenant an MRO lease at the tenant’s request.

(2) But a pub-owning business need not offer an MRO lease where—

(a) the term of the tenant’s lease is one year or less,

(b) the term of the tenant’s lease is for a period longer than one year and less than one half of the term of the lease has passed at the date on which the tenant requests an MRO lease,

(c) the tenant has requested an MRO lease within the past two years,

(d) the tenant or the pub-owning business has served a notice to bring the lease to an end, or

(e) the investment exception applies.

(3) Paragraph (2)(a) does not apply where a pub has been occupied for a period of more than one year under successive leases of one year or less.

(4) If a pub-owning business relies upon an exemption under paragraph (2) to refuse an offer of an MRO lease, the pub-owning business must inform their tenant.

(5) The investment exception applies for 5 years from the date an investment agreement was agreed, where the pub-owning business is investing in capital improvement works to the pub which is equal to or higher than the greater of—

(a) £35,000, or

(b) 150% of the annual rent of the pub.

(6) The investment exception does not apply unless—

(a) the investment agreement has been entered into voluntarily by the tenant outside of any obligation arising under their lease,

(b) the tenant has, before entering into the investment agreement, been given the opportunity to obtain alternative estimates for the works, and

(c) the pub-owning business has, before entering into the investment agreement, informed their tenant in writing about how the investment agreement may affect the tenant’s right to an MRO lease.

(7) Paragraph 6(c) does not apply where the pub-owning business has entered into an investment agreement preceding the date these Regulations come into force.

(8) The investment exception ceases to apply where capital improvement works arranged under an investment agreement have, without reasonable excuse—

(a) not started within 12 months of the date agreed in the investment agreement, or

(b) stopped for 12 months or more.

(9) For the purposes of paragraph (8), “reasonable excuse” includes where the works do not start, or stop, due to circumstances beyond the control of the pub-owning business or the tenant.

(10) In this regulation—

“investment agreement” means a written agreement between the pub-owning business and their tenant for the pub-owning business to invest in capital improvement works to the pub,

“capital improvement works” does not include routine maintenance, works carried out under landlord repairing obligations, works carried out under dilapidations requirements, or works to make a pub safe and compliant with health and safety requirements before letting it to the tenant.

Process for offering an MRO lease

16.—(1) The tied-pub tenant may request an MRO lease from the pub-owning business in writing and the request must include—

(a) the tenant’s name, postal address, email address (if any) and telephone number, and

(b) the name of the tied pub in relation to which the request for an offer of an MRO lease is being made and its address.

(2) The pub-owning business must make the tenant an offer of an MRO lease—

(a) in writing as soon as possible and in any event within a period of 4 weeks beginning with the day on which the tenant’s request was received by the pub-owning business,

(b) which complies with the requirements set out in paragraph (3).

(3) The conditions referred to in paragraph (2) are that the offer of an MRO lease must—

(a) include a draft deed of variation, or a draft lease where the tenant consents to a new lease being offered,

(b) provide for a new rent.

(4) When making an offer of an MRO lease, a pub-owning business must—

(a) provide information about any assumptions, disregards, information or sources of information used to calculate the proposed rent, and

(b) advise tenants to take independent advice on the terms of the MRO lease.

(5) Following the offer of an MRO lease there is to be a negotiation period during which the pub-owning business and the tenant are to use their best endeavours to agree terms and enter into an MRO lease as soon as possible.

(6) The negotiation period is to last no longer than a period of 8 weeks beginning with the day on which the offer of an MRO lease is received by the tenant.

(7) The negotiation period may be extended by up to 4 weeks by agreement between the pub-owning business and the tenant.

(8) The pub-owning business and the tenant are to meet their own legal costs in connection with entering into an MRO lease.

Assessing the market rent of an MRO lease

17.—(1) If at the end of the negotiation period the pub-owning business and the tied-pub tenant have not reached agreement on the rent to be paid under the MRO lease, a rent assessor is to be appointed to determine the market rent which will apply to the MRO lease.

(2) The rent assessor is to be appointed by the pub-owning business with the consent of the tied-pub tenant within a period of 3 weeks beginning on the day after the negotiation period ends.

(3) In the event of a failure to agree an appointment under paragraph (2), the failure must be referred to the adjudicator within a period of 2 weeks beginning with the date on which the 3 week period referred to in paragraph (2) ends.

(4) A referral to the adjudicator under paragraph (3) can be made by either the pub-owning business or the tied-pub tenant.

(5) The adjudicator is to appoint a rent assessor within a period of 3 weeks beginning with the day on which the adjudicator is notified of that failure by either the pub-owning business or the tied-pub tenant.

(6) In the event that the adjudicator is not notified of a failure to agree a joint appointment as referred to in paragraph (3) by either the pub-owning business or the tied-pub tenant the MRO process comes to an end.

(7) The rent assessor’s terms of appointment must require the rent assessor to determine the market rent for the MRO lease and notify the pub-owning business and tied-pub tenant of that determination, within a period of 4 weeks beginning with the date of the rent assessor’s appointment.

(8) The pub-owning business must make the tied-pub tenant an offer in writing of an MRO lease within a period of 4 weeks beginning on the day on which the rent assessor notifies the parties in writing of the market rent under paragraph (7).

(9) In accordance with paragraph (8), the pub-owning business must specify that the rent payable is the market rent determined by the rent assessor payable from the date on which the tenant requested an MRO lease under regulation 16(1).

(10) If the offer of an MRO lease has not been accepted by the tied-pub tenant within 2 weeks beginning with the day the tenant received the market rent determination the rent assessment period comes to an end.

(11) The rent assessor’s fees are to be split equally between the pub-owning business and the tied-pub tenant.

(12) The rent assessor must be a member or fellow of the Royal Institution of Chartered Surveyors(1).

(13) The adjudicator may set additional criteria that a person must meet in order to be appointed as a rent assessor.

Referring a failure to agree an MRO lease to the adjudicator

18.  If at the end of the negotiation period and any rent assessment period the pub-owning business and the tied-pub tenant have not agreed the terms of the MRO lease, this failure to agree may be referred to the adjudicator as a dispute under regulation 4.

Right to end an MRO process

19.  A tied-pub tenant may end the MRO process, as referred to in regulations 16 and 17, at any time by writing to the pub-owning business confirming that—

(a) they no longer wish to continue the MRO process, or

(b) they agree to a separate lease agreement or lease arrangement with the pub-owning business.

(1)

Commonly referred to as the RICS, a UK-based professional body for surveyors founded on 15 June 1868 and incorporated by Royal Charter on 26 August 1881.