Stonegate offers to change non-compliant rent review terms in MRO agreements
Around 70 Market Rent Only (MRO) lessees have received an offer from Stonegate to remove the upward only open market rent review from their agreement when combined with a Retail Price Index (RPI) linked rent review.
Stonegate has written to its lessees on those agreements to confirm it will not be enforcing the upwards only open market rent review and offering to remove it from their agreement. It has also offered a financial contribution towards legal costs for any who take up the offer.
The Pubs Code Adjudicator (PCA) said the company had confirmed that no upwards only open market rent reviews had yet taken place where agreements also had annual RPI increase terms.
Stonegate has been the first pub company to acknowledge to the PCA that there was previous non-compliance that was still affecting existing MRO tenants and lessees.
The Pubs Code prevents pub companies from offering tied lessees MRO terms that are not common in free of tie agreements. The terms must also be reasonable.
In response to PCA correspondence, Stonegate acknowledged that it was not, and never has been, common to find these two rent review terms together in the same free of tie lease. Ei Group (before its acquisition by Stonegate) stopped offering MRO agreements with these terms in combination in 2019 because of evidence obtained in an arbitration. But since the first MRO agreements were completed in 2017, several of them across different pub companies have entered the market containing both types of rent review.
The PCA said that Stonegate's action "provides certainty to MRO lessees with RPI rent review terms and welcomes the steps it is taking to put this right". Stonegate is to inform the PCA when the intended actions are complete.
It follows PCA correspondence to pub companies last year about the use of rent reviews linked to the RPI in their MRO agreements, including where combined with other rent review terms. The PCA wished to understand the extent to which such terms had been in use, particularly following the sharp rise in interest rates and inflation. The PCA said it was concerned to ensure that only common terms in free of tie agreements were included in those agreements and that it had made clear to regulated pub companies that they should not rely on terms which they know or ought to know were non-compliant as evidence of terms common in the free of tie market.
Where required in a free of tie lease, an upwards only open market rent review will typically take place every five years, or an RPI rent review will typically increase the rent annually.
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