Commercial Property newsbytes: June 2016

A selection of the latest commercial property news and developments.

  • Ties in pub leases have been controversial as a result of the growth of pub owning companies (‘Pubcos’), which can be both brewers and non-brewers. At the moment, over half of Britain’s pubs are subject to beer ’ties’. These are pubs owned by Pubcos, and let to tenants for a rent typically lower than the actual market rate, that are then subject to an additional ‘wet rent’ – an obligation to buy beer and other supplies from the Pubco that owns their establishment, usually at a much higher rate than on the open market.

    These have been around for so long because the pub tie has enabled individuals to run their own pub for a relatively small start-up cost – around £20,000 – whereas if the market rent was paid, the start-up cost would be more like £250,000.

    It has been argued that despite the benefits at the start, many Tenants are then worse off than their untied rivals. When a Market-Rent-Only (MRO) rule was put forward by MP’s, it was argued the average tied rent is now higher than the rent paid by non-tied tenants, meaning that tied tenants are ‘being overcharged twice’.

    The Government soon introduce a statutory ‘Pubs Code’ to govern the relationship between businesses that own 500 or more tied pubs and their tied tenants. There will also be an independent adjudicator to enforce this code.

    The Pubs Code is required as part of the Small Business, Enterprise and Employment Act 2015. The Act means that the code must include an MRO option entitling tied tenants to be:

    • offered (at certain trigger points) the opportunity to pay only a market rent for their pub
    • free-of-tie for all products and services other than insurance.

    These measures will be introduced through secondary legislation. Tenants will now need to decide whether to pay an open market rent and have the freedom to purchase drink and food from wherever they wish, or stay tied to their Pubco.

    The Act states that an MRO option should be offered in certain circumstances. If a tenant does not accept the MRO offer made by the pub-owning business, there will be an opportunity to get an independent assessment, paid for jointly by the 2 parties.

    The Code will provide a waiver of the MRO option in return for significant capital investment in a pub by a pub-owning business.

    Enterprise Inns have said that this ‘threatens to have serious unintended consequences for publicans and the industry at large’ and that a ‘market rent only’ option ‘would lead to widespread pub closures, significant job losses and reduced investment in the sector’.

    Similarly, Punch Taverns has stated that this will lead to the creation of an unworkable two tier economic market, and would be contrary to existing legal contracts and property rights.

    Tenants of pubs now have the option to become ‘tie-free’ and will be able to choose to have a more traditional landlord and tenant relationship. Tenants should undertake a full review of their rent and wet rent in order to establish whether the MRO should be undertaken. It is also worth noting that a lot of the services that would normally be provided by their landlords, such as gaming machines, would also then be lost if the MRO was selected.

    The MRO was due to come into force in May. However, it is now under further review and is due to be in force later in the summer of 2016.

  • “An Act to make provision about the Oil and Gas Authority and its functions; to make provision about fees in respect of activities relating to oil, gas, carbon dioxide and pipelines; to make provision about wind power; and for connected purposes”

    The Energy Bill received Royal Assent on 12 May 2016. It is designed to help drive forward the government’s energy goals and commitments — particularly with regard to the generation of the UK’s electricity, making future plans to move away from the use of coal and towards renewable energy, gas and nuclear energy.

    The main provisions of the Act are:

    • The establishment of the Oil and Gas Authority (OGA) as an independent regulator (taking the form of a government company) charged with the asset stewardship and regulation of domestic oil and gas recovery. The Secretary of State’s existing regulatory powers in respect of offshore oil and gas licensing will be transferred to the OGA, and the regulator has also been granted new powers including:
      1. access to external meetings
      2. data acquisition and retention
      3. dispute resolution

    The OGA will exercise certain licensing and regulatory functions in the Petroleum Act 1998, relating to the licensing of oil and gas exploration and production, which must be exercised in accordance with the Hydrocarbons Licensing Directive (94/22/EC) and the Offshore Safety Directive (2013/30/EU).

    The Principal Objective central to the Act is of maximising the economic recovery of UK petroleum. The OGA Corporate Plan 2016-2012 has a tripartite approach in seeking to achieve this Principal Objective. By regulating oil and gas; influencing industry culture and commercial behaviour; and promoting collaboration, the OGA aims to develop the industry. The main focus will be on revitalising exploration, driving development and infrastructure, and ensuring the right technology and conditions are in place.

    • Enabling more comprehensive charging of the offshore oil and gas industry in relation to environmental regulatory functions carried out by Department of Energy and Climate Change (DECC).
    • Removing the need for the Secretary of State’s consent for large onshore wind farms (over 50 Mega Watt) in England and Wales under the Electricity Act 1989.
    • Transferring the consenting of onshore wind farms into the planning regime in the Town and Country Planning Act 1990. This in effect will give local authorities the decision making powers in relation to all onshore wind projects.
    • Bringing forward the early closure of the Renewables Obligation subsidy scheme to new onshore wind developments in Great Britain. The Renewables Obligation is now closed to onshore wind and the relevant grace periods are in effect (with the deadline for a generator having secured its planning permission, grid connection and land rights remaining being 18 June 2016).

    An analysis by Bloomberg New Energy Finance shows that the overall cost of onshore wind is continuing to fall, with new onshore wind cheaper than new gas (even at a time of low gas prices). By decentralising decision making powers and establishing an independent regulator (amongst other provisions), the Secretary of State for Energy and Climate Change, Amber Rudd, has said that the Energy Act is a vital part of the plan to ensure families and businesses have access to secure, affordable and clean energy supplies while keeping bills down.

  • Wales is increasingly become a global leader in how it is tackling key environmental issues. 2016 has seen a number of pieces of legislation being passed by the Welsh Government in a bid to make a change in how we deal with the environment in the future – the two key pieces of legislation being The Environment Wales Act and the Planning (Wales) Act.

    The Environment (Wales) Act

    The Environment (Wales) Act 2016 received Royal Assent on 21 March 2016. The Act is a part of the significant overhaul of environmental legislation being brought in by the Welsh Government and reflects the widening impact of devolution in the areas of environment, energy and planning in Wales.

    The Environment Wales Act was essentially put in place to plan and manage Wales’ natural resources in a more proactive and sustainable way, it helps to promote sustainable management of natural resources by:

    • tackling the environmental challenges faced
    • establishing statutory emission reduction targets
    • establishing carbon budgeting to support delivery
    • addressing issues in the carrier bag charge
    • improving waste management processes
    • clarifying law for environmental regulatory regimes.

    The Act focuses on managing natural resources in Wales and places importance on the relationship with Natural Resources Wales. Under the Act, Natural Resources Wales now has a new statutory purpose related to the principles of sustainable management of natural resources, and new powers on land management agreements and experimental schemes. The Act also gives new duties to public authorities to maintain and enhance biodiversity.

    The Act also brings in force a new framework on climate change and greenhouse gas reduction, together with new rules on waste recycling, and some changes to the implementation of the carrier bag charge, including the use of civil sanctions.  It has also committed Wales to reduce its greenhouse gas emissions by “at least” 80% by 2050 from a 1990 baseline, while giving it more powers to manage its own ecosystem.

    The Act will mean significant economic, social and environmental benefits for Wales by putting Wales at the forefront of tackling key environmental issues.

    Planning (Wales) Act

    The Planning (Wales) Act received Royal assent on 6 July 2015. This is another piece of legislation which sets to make a large impact in planning in Wales. We have reviewed the Act in full here.

    The both Acts help to provide support to help secure Wales’ long-term well-being, so that both the current and future generations benefit from a more prosperous economy, a healthy environment and vibrant communities.

    Join us on the 30 June 2016 for our ‘Doing Business in Wales: The Changing Landscape’ conference at the Wales Millennium Centre, where we will be discussing the Environmental Wales Act and the Planning (Wales) Act in full.

  • A recent case has stressed the importance of all parties to a lease informing the other party if their address changes – failure to do so could result in a party not receiving a validly served notice.

    In the case of Levett-Dunn v NHS Property Services Limited [2016] EWHC 943 (Ch) it was held that a break notice which had been served on the Landlord at the address provided in the lease was validly served – despite the fact that the Landlord was no longer connected to the address.

    In this case, the Tenant served a break notice on the Landlord by recorded delivery to the Landlord’s address as stated in the lease. However, the Landlord had moved and so was no longer connected with the address given in the lease. The Landlord argued that the break notice was not validly served as the address was no longer correct, nor was it the “place of abode or business”.

    The Landlord disputed the validity of the notice on the basis that one of the four Landlords served with the notice (and the only one who remained at the address in question) had transferred his interest to the other three Landlords and so was no longer a Landlord himself.

    The Tenant had not been informed of this and so sought to rely on section 23 (2) of the Landlord and Tenant Act 1927, which states that service on a former landlord is good service unless the tenant has been informed of the change.

    The court held that the notice was properly served when delivered to the address stated in the lease. Under section 196 of the Law of Property Act, notices are validly served if they are left at the “last known place of abode or business”.

    The court agreed with the Tenant that it was reasonable for the Tenant to use the address in the lease as the “last known place of abode or business.” It was the Landlord’s duty to inform the Tenant of a change of address and they failed to do so. It was not for the Tenant to check whether the address was still correct.

    However, they rejected the Tenant’s assertion that section 23 (2) of the LTA 1927 is of general application, it only applies to notices served under that Act.

    In light of this case, we would advise landlords and tenants to review their contact details in leases to ensure that they remain up to date.

    It would also be beneficial for tenants to request a clause in their lease stating that service on a former landlord is good service unless the tenant has been informed of the change.

    The outcome of the case gives tenant’s greater security when serving break notices. It is still, however, imperative that tenants carefully check the break clause in their lease prior to attempting to end the lease.