Requirement to offer market rent only lease
68.A market rent only (MRO) tenancy is one in which the tenant pays the market rent for the lease of the premises only (either as agreed between the parties, or, where there is no agreement, as determined by an independent rent assessor) and is freed from all product or service ties (i.e. the requirement to purchase products, such as alcohol, and/or services, other than insurance, from the pub-owning business). An MRO tenancy would therefore end the tied arrangement and MRO tenants would no longer be tied tenants. An MRO tenant would no longer be covered by the code or have recourse to the adjudicator (but see the commentary below on section 21).
69.Paragraph 5(1)(a) states that the Scottish Pubs Code must require pub-owning businesses to offer their tied tenants an MRO lease if requested to do so by the tenant. However, sub-paragraph (3)(b) allows the code to set out circumstances in which a pub-owning business need not offer to enter into an MRO lease with a tenant (and provides an example circumstance of where an agreement to invest in a tied pub has been entered into). Sub-paragraph(1)(b) provides that an MRO offer must be made by varying the terms of the existing tenancy agreement, rather than via a new lease, and should vary the terms only to the extent required to make the lease a MRO lease. However, sub-paragraph (3)(c) allows the code to set out circumstances in which pub-owning businesses could make an MRO offer by instead offering a new lease or by offering to modify the terms of an existing agreement in ways other than only those that are strictly required to make it a MRO lease.
70.Under sub-paragraph (1)(c) the code must require pub-owning businesses to make every effort to enter into an MRO agreement as soon as possible following a request from a tenant. As a result, the adjudicator will be able to investigate allegations that a pub-owning business has not been making a genuine attempt to conclude an MRO agreement and could impose a financial penalty if a pub-owning business was found not to have been complying with this requirement of the code.
71.Sub-paragraphs (2) to (4) define an MRO lease.
72.It should be noted that the scope of the availability and delivery of the MRO is one of the fundamental differences between the Act and the equivalent legislation in England and Wales under the 2015 Act. In England and Wales, the MRO is available to tenants only in certain specified circumstances and in line with various trigger points and is not required to be delivered by varying an existing lease.