The pub industry is constantly evolving but one thing that doesn’t seem to change is the reluctance of public house tenants to seek professional advice. With the Market Rent Only (MRO) option due to commence this year, which allows tenants to sever all product or service ties with the large pub-owning companies, pub tenants need take professional advice tofully understand the advantages and disadvantages of the opportunity.

Key things to consider include:

• What is the true market rent on a free of tie basis? Tenants should weigh this up against the market rent on a tied basis. They should also take into account the financial benefits of being able to purchase currently tied products free of tie.
• What is the value of their leasehold asset on the current tied arrangement versus the potential free of tie arrangement?
• How do the potential positive gains measure up against new issues or challenges which would arise as a result of the MRO option? These could include having to pay rent quarterly in advance, lodge a deposit with the landlord and also being subject to stamp duty on the new lease.

Seeking professional advice is often alien to many small businesses, including those in retail and pub tenants, who do not always see the immediate benefit. But there are many examples of tenants for whom a professional advisor has been able to secure a far better deal, either at rent review or lease renewal, than they have been able to themselves. A reduction of £3,000 per annum ends up as a £15,000 saving over a five-year review period, with the fee charged by the professional generally paling into insignificance when compared with savings made.

It's also surprising how few pub rent reviews have been referred to Pub Independent Rent Review Scheme. Available to pub company tenants since 2009, this service provides a low-cost resolution compared with the potential expense of referring the matter to arbitration.

The MRO legislation is certainly going to have a big impact on the industry and, whatever the opinions of individuals and interested groups, now is the time for the pub companies and tenants to make the best they can of the situation – and that means seeking professional consultation before making what is a very important decision.

Further information

Contact Savills Licensed Leisure team