The Market Rent Only (MRO) option for pub tenants around the country was due to come into force on 26 May 2016, although the Government still has still not confirmed a date for when it will be implemented.

Simply put, the MRO option means that tenants of large pub companies can opt to change to a free-of-tie lease and removes the obligation for all the products sold on site to be bought directly from the landlord pub company or their agreed supplier.

Drawing on 30 years’ experience specialising in the licensed property market, I believe that pub tenants will fall in to three different categories when approaching the free-of-tie option.

Firstly, there will be tenants who will believe that forcing the pub company to offer them a free-of-tie lease will be ‘getting one up on the landlord’. I would warn them against this approach as they could actually end up paying more in rent than they should, simply because they are so determined to do anything they can to disrupt the landlord’s business. It is important to consider the support that is gained from the pub company and look to take professional advice before going down this route.

In the second category are the multiple operators who, because of their buying power and experience of operating good businesses, will see the financial advantages of going free-of-tie and may make the move. However, while the hard benefits to the bottom line can be quantified, what of their future growth? Those companies have often been successful by working within the tied market. If I were a pub company operations director, I would not be too keen to offer further opportunities to operators who have instigated a change of terms under the MRO provisions. 

Finally, there are tenants who simply want to get on with life and run their own business to give them and their families the lifestyle that they want. The tied system gives them support, particularly in the early days of running the business and, while I have never known a tenant who thinks that they are paying too little rent or not paying enough for their beer, overall they are relatively happy with their lot. What the MRO provisions will do is give these tenants a better negotiating position as generally the pub company would lose more than they would gain.

Reflecting on this, I would be surprised if more than 5-10 per cent of tenants opt for a free-of-tie lease. For all pub tenants who are thinking about the MRO option I would strongly suggest getting professional advice first. 

Further information

Contact Savills Licensed Leisure team