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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> EI Group Plc v Clarke & Anor (Rev 1) [2020] EWHC 1858 (Ch) (18 June 2020) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2020/1858.html Cite as: [2020] EWHC 1858 (Ch) |
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BUSINESS AND PROPERTY COURTS
PROPERTY TRUSTS AND PROBATE LIST (Ch.D)
Fetter Lane London, EC4A 1NL |
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B e f o r e :
____________________
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Claimant/applicant |
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- and – |
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(1) JOHN ![]() (2) ![]() |
Defendant/respondents |
____________________
Duncan Macpherson (instructed by Gregg Latchams) for the Defendants/Respondents.
Hearing date: 17 June 2020
____________________
VERSION
OF JUDGMENT
Crown Copyright ©
Mr Justice Miles:
"(4) A tenancy or licence is MRO-compliant if—
(a) taken together with any other contractual agreement entered into by the tied pub tenant with the pub-owning business in connection with the tenancy or licence it—
(i) contains such terms and conditions as may be required byvirtue
of subsection (5)(a),
(ii) does not contain any product or service tie other than one in respect of insurance in connection with the tied pub, and
(iii) does not contain any unreasonable terms or conditions, and
(b) it is not a tenancy at will.
(5) The Pubs Code may specify descriptions of terms and conditions—
(a) which are required to be contained in a tenancy or licence for it to be MRO-compliant;
(b) which are to be regarded as reasonable or unreasonable for the purposes of subsection (4)."
(a) Where the TPT serves the appropriate notice, reg. 29 requires the POB on receipt of a valid
MRO notice to send the tenant a "full response" including a proposed tenancy which is MRO compliant.
(b) Reg. 31 provides that the terms of a proposed tenancy should be regarded as unreasonable including (under sub-paragraph (2)(c)) where they "are terms which are not common terms in agreements between landlords and pub tenants who are not subject to product or service ties".
(c) Reg. 58 sets out rules for the arbitration of disputes over the terms of any proposed MRO-compliant lease provided by the landlord. The regulations allow the Adjudicator to appoint an appropriate person as arbitrator.
"a) Does a compliant MRO proposal have to be offered in the form of a new lease, a deed ofvariation
("DOV"), or is
either
![]()
vehicle
permissible in law?
Either
is permissible.
b) Ifeither
form is acceptable, in law what considerations apply to the choice of
vehicle?
It must be reasonable.
c) Do the terms of any FOT [sc. free of tie] tenancy offered have to be the same or substantially the same as the terms of the existing lease, subject only to suchvariations
as are necessary to render the tenancy MRO compliant?
No.
d) Is it permissible (or required) to offer wholly new terms, subject only to the requirements of section 43 of the Act?
It may be permissible but only if reasonable. It is not required.
e) Can a term be unreasonable for the purpose of section 43(4)(a)(iii) of the Act if it is not deemed unreasonable byvirtue
of regulation 31 of the Code?
Yes.
f) How is the test of reasonableness in section 43(4)(a)(iii) to be interpreted?
In accordance with the core Code principles and as set out below.
The remaining issues will be the subject of a further award if the referral is not settled by agreement between the parties."
"[73] The Claimants' position is that the starting point for the MRO lease is the existing lease terms. However, there is no support in the legislation for this assertion. A tenancy which contains product or service ties and an MRO tenancy are treated as different creatures by the Act and the Code. The definition of an MRO-compliant tenancy (in section 43(4) and (5)) makes no reference to the terms of the existing tied tenancy.
[74] By comparison, when renewing a tenancy under section 32 to 35 of the 1954 [Landlord and Tenant] Act (arguably the closest example on the statute books of a statutory jurisdiction to determine the terms of the commercial tenancy) "reasonable" terms [are determined] by reference to the existing lease as a starting point. It is for the party seeking a departure from those terms to justify why it is fair and reasonable, having regard to the purpose of the Act. The legislature would have been aware of the criteria used in the 1954 Act when enacting Part 4 of the Act and the Code and I consider it is significant that it in doing so it did not choose to take the same path.
[75] Moreover, there are instances in the Code where reference is made back to the tied tenancy, e.g. in relation to provisions for security of tenure (regulation 31(3)(b)) and the duration of the new term (regulation 30(2)). The absence of any reference to the terms of the tied tenancy in both section 43(4) and (5) is significant.
[76] I therefore make it clear to the Claimants: the existing lease is not the necessary starting point in this statutory procedure. A DOV is not the default option. The tie and tie free lease are fundamentally different relationships. That does not mean however that it will always be reasonable to change terms in the existing lease which are also common in FOT leases.
[77] Furthermore, in myview
that does not mean that the existing lease terms and conditions cannot be relevant to the question of whether the new terms and conditions are MRO-compliant. In order not to be unreasonable, the landlord in offering terms of the MRO option may need to have regard to the existing contractual relationship between the parties. The existing lease terms will be in the mind of the TPT, who is entering into negotiations for a new lease. The landlord will have their own commercial considerations in mind. From their respective positions, parties motivated to reach an agreement rather than a stalemate will negotiate from these starting positions to one that is acceptable for both. Therefore, both will have to take into account the position of the other if they intend to reach a deal. This is what a landlord would do if it wanted to tempt a preferred tenant into a new contractual relationship. That is the position in which the TPT tenant should be in the MRO procedure.
[78] There may be other reasons why the existing terms are relevant, but I cannot set out an exhaustive list. For example, where a landlord offered (perhaps fairly recently)very
favourable deposit terms on the tied lease, which suggests the tenant was
viewed
as a preferred operator, and there has been no relevant change of circumstance, if the POB will not offer favourable deposit terms now that may be an indicator that the POB is seeking to raise unmanageable entry costs and is not acting fairly, and that the terms of not therefore reasonable. The particular terms (e.g. a keep open clause) may have had an effect on trade and goodwill to date, such that it would be unreasonable to change them. There may be an occupation clause pursuant to which wider family members reside in the pub, and it may be unreasonable to restrict that. Each case must be looked at on its merits, but to suggest existing lease terms are always irrelevant is untenable in my
view."
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1. Whether the [claimant had] provided an MRO compliant tenancy as part of the "full" response?
2. Whether it is reasonable for the MRO tenancy to be in the form of a new lease?
3. If the answer to 2 is "no", what form of DOV is reasonable:-
a. DOV by reference (ie replacing the terms of the lease other than term, parties, and demise with the FOT terms in a schedule), or
b. Line by line DOV (ie changing particular parts of the existing lease).
4. Are the following terms deemed to be unreasonable under Regulation 31(2)(c) of the Code because they are not common in agreements between landlords and pub tenants who are not subject to product or service ties and/or because they are not in the existing lease and/or because they remain to be negotiated and alongside the MOR process as with the amount of "the Rent":- [certain specific terms were then identified, which are addressed below].
5. Are the terms in paragraph 2 above collectively uncommon?
6. If it is accepted the same are properly pleaded, are the terms in paragraph 2 above reasonable for the purposes of section 43(4)(a)(iii)?
7. What costs order should be made?
(a) Issue 1: The claimant had not provided an MRO-compliant tenancy because, as found elsewhere in the award, some of the terms in the draft were unreasonable or uncommon.
(b) Issue 2: The process for providing an MRO-compliant tenancy would most fairly and appropriately be achieved by the provision of a draft deed of variation
("DOV") rather than a new lease ("NL");
(c) Issue 3: This should be done by what the parties called the line by line DOV;
(d) Issue 4: Some of the contentious terms were reasonable while others were unreasonable.
(e) Issues 5 and 6: The decision on these issues followed from the earlier decisions.
(f) Issue 7: The question of costs would be adjourned pending the current appeal process.
(g) Issue 8: The position of the claimant about the timing of payments was correct and payments should be quarterly.
"whether the Arbitrator erred in law in holding that the principle in s.42(3)(b) of [the 2015 Act] "that tied pub tenants should not be worse off than they would be if they were not subject to any product or service tie" requires that a proposed market rent only tenancy must be drafted to ensure that the tenant is no worse off under the MRO tenancy than they were under their existing tied tenancy."
"(3) Leave to appeal shall be given only if the court is satisfied—
(a) that the determination of the question will substantially affect the rights of one or more of the parties,
(b) that the question is one which the tribunal was asked to determine,
(c) that, on the basis of the findings of fact in the award—
(i) The decision of the tribunal on the question is obviously wrong, or
(ii) The question is one of general public importance and the decision of the tribunal is at least open to serious doubt, and
(d) that, despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all the circumstances for the court to determine the question."
"Fourthly, when a tribunal has reached a conclusion of mixed fact and law, the court cannot interfere with that conclusion just because it would not have reached the same conclusion itself. It can interfere only when convinced that no reasonable person, applying the correct legal test, could have reached the conclusion which the tribunal did: or, to put it another way, it has to be shown that the tribunal's conclusion was necessarily inconsistent with the application of the right test: The "Sylvia" [2010] 2 Lloyd's Rep 81 at [54]-[55]. The same extremely circumscribed power of intervention applies when it is complained that a tribunal has incorrectly applied the law to the facts. It is only if the correct application of the law leads inevitably to one answer, and the tribunal has given another, that the court can interfere. Once a court has concluded that a tribunal which correctly understood the law could have arrived at the same answer as the one reached by the arbitrator, the fact that the individual judge himself would have come to a different conclusion is no ground for disturbing the Award: The Chrysalis [1983] 1 Lloyd's Rep 503 at 507."
"My interpretation and application of Ms Dickie's explanation of the law, with which I agree, does not make the existing lease the starting point but any change to any lease term will be the benchmark to establish if the new term or condition is reasonable, common or leaves the tenant in a worse position. The difference is a subtle one but an important one."