In order to run a pub you will no doubt enter into an agreement with the brewery or pub owner. This agreement is called a lease or tenancy, if its the first time you’ve ever seen one how will you know if it will help or hinder your intended success.
Tenancies and Leases are commercial arrangements whereby a Pub Business, including the building and curtilage, is let to a party, whether it be an individual, partnership or limited company. The terms of the letting are incorporated into an agreement, which includes details of trading arrangements, property repair responsibilities and other legal requirements for both parties.
There are a number of important things to be aware of:
- MRO legislation may apply to your agreement - see here for more details
- Do not move in or spend any money on the pub until you have had sight of the lease and finalised it;
- Ensure you consult with a solicitor and get them to review the terms of the lease;
- Do not assume the lease in front of you is totally non negotiable;
In some cases tenants excited by the prospect of opening up quickly can get tempted into moving into premises without an agreement being signed they will often spend money on renovations after being told that ‘the legal bits can be sorted out at a later date’. This then comes back to haunt tenants, as, when they actually see the lease, it is more onerous than indicated to them previously. This often means they are substantially out of pocket, either in the short term, longer term or both, often meaning the business is unprofitable and unsustainable going forward. A little bit of restraint at this stage is vitally important if you are to avoid any misunderstanding leading to financial loss.
Prospective publicans are often told ‘its just the standard legal stuff’ this is not true - no lease is standard and if terms can be negotiated they need to be done at the beginning.
It is also important to complete proper due diligence which includes gaining sight of previous years’ financial accounts (if you are taking an assignment of a lease, for example). The pub company may also want an upfront goodwill premium for handing over a “successful business” and its important that you validate whether the price is justified through a professional valuer. There is often a requirement to also pay for the pub company’s administrative and legal costs as well as essential training provided by the pub company that you will be required to take. These are all extra costs which may deplete prospective tenants’ savings before they have even opened the doors to the public. Please read the service page on Risk, Reward & Considerations.
It is vital to also set aside legal costs in your budget. Many tenants do not factor these costs in, which are, arguably, just as important, if not more so, that the renovation costs. Good legal advice can provide substantial savings in the long run and can ensure that the interests of both parties are protected and not weighed heavily in favour of the pub companies.
About The Author:
Alexander Bak is a specialists in the licensing sector and has significant experience in reviewing and negotiating pub leases and works alongside the Pub Advisory Service. He offers a fixed fee for the first meeting or telephone conference, which includes reviewing the lease or evaluating the legal issue. He can be contacted via the form below.
Pubs Advisory Service Ltd.PO BOX 237
Tel: 0203 651 3351