Taking a Pub Lease with clauses that can only end in Tears, (Barrel Dregs 278)
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Barrel-Dregs has been run for many years, we change all the identifiable details, but give you an insight as to many of the sharp or bad practices by a number of companies, in most cases they are just legal but morally unacceptable.
We have a number of Pub owning companies that we will not recommend, their actions have featured in Barrel-Dregs too many times, we did hope that by highlighting their antics they might change, but in Barrel-Dregs terms “Leopards do not change their spots, they cover them with more Mud.”
Pot Boy was chatting to his mate in his local, which is nice little local Brewers Tenancy, good beer and no hassle.
The pub up the road had changed hands just over a month ago, being a Pub Co Lease it had been a nightmare, nice guy had the lease and no real match for the Pub Co’s wily tricks.
The incumbent had been in bending my mates ear over a pint of genuine local real ale, the whole village knew he had been trying to sell the lease, very unsuccessfully, finally in desperation he had approached the Pub Co to take the lease back.
He had mistakenly believed that selling a lease was a straightforward transaction between a buyer and seller, not on your sweet life.
He scanned the Internet for information at the first hurdle, absolutely, the next best thing to nothing, a number of comments, read and fully understand your lease.
He like too many lessees had relied on his solicitors words of wisdom, sadly his eagerness to buy a pub blocked out the solicitors words of wisdom and advice, and now he had hit the wall.
The first thing that hit him was the Guarantee Agreement, what was he guaranteeing?
A quick check told him, that he was responsible for whoever took over his lease for the whole of the time that they were there for the remainder of the lease.
If the assignee went bust or had a shortfall, he would be responsible for all his Pub Co debts for openers.
What about his deposit? That should take care of any of his tied purchase owings, well it might do, chuck in unpaid rent, if the new guy does a runner then the Pub Co dirty tricks brigade step in, these guys are experts, all perfectly legal, but morally unacceptable, they step in anyway, the BDM is a waste of space.
Nearly forgot, the premises have to be left with enough equipment to trade, what happens if he’s flogged all the Fixture & Fittings before he vanished, another £30K goes on the bill.
Then we get to dilapidations, did the departing incumbent have a survey, well it all looked immaculate with new paint when he took it over, the BDM a really nice guy, said he didn’t need a survey the Pub Co do it at every change, well it really looked fantastic, it saved him a load of dosh.
The BDM moved to another company a few months later and no record of any survey.
The incumbent is well up S… Creek with no paddle.
A friendly surveyor customer points out that a large amount of the dilapidations are historic, now that the shiny white paint has lost its lustre, but he’ll still be faced with a battle, the Pub Co dirty tricks crew will have another field day, no original survey he’s just lost another paddle.
The saga rolls on, what are the options, he could take a chance and buy himself out of the Guarantee Agreement, the Pub Co’s have this well taped, usually starts at around £7K plus, the deposit is vanishing like dew on the grass, when the sun comes out.
The figure for the F & F was £25K, it should be nearer £45K, no chance, a thumb in the air valuation by a local valuer, could cost as much as £1.5K for a proper job, but it will still come out at £25K, these guys know that this is the second hand value of used pub F & F, on a bad day it could be £10K.
The bull from the commercial agents of thousand of buyers clutching wads of money in their hot little hands, is sheer fantasy, most need fantastic figures and are only buying leases because they can’t afford freeholds, in addition Banks have gone right off providing money for pubs, they only want safe bets with loads of assets, not leases with clauses that only go one way.
My mates ex licensee after a number of pints, finally said after he realised that by assigning the lease may or could cost him a fortune through no fault of his own, with no control whatsoever on the situation or he succumbed to the blood rate of getting out of the Guarantee Agreement, leaving him with a substantially reduced return on a numer of years swetted blood, he would go cap in hand to the Pub Co.
His first point of contact was the numpty BDM, a serious waste of space, hotly pursued by his area manager.
Who came in all smiles, poofy after shave and clammy handshakes, “Delighted to take the lease back, rather than grant a new lease, no problem, I,ll get all the details to you”.
The BDM duly appeared with some details on the back of a fag packet.
Their Valuer will asess the F & F, if you accept his figure, you’ll have to pay half his costs anyway and save instructing your own valuer, which could cost you £1.5K.
He already knew the rough figure was £25K, yet the new equipment, furniture, soft furnishings was actually worth £45K at the very least, what to do.
A word with another chastened ex Pub Co lessee, you’re screwed which ever option you take, if you assign the lease, you have to have good figures, good F & F and a workable rent. You might get £10K more, but you have the Guarantee Agreement to live with for the rest of the lease or the time that your assignee has the lease.
Or you take the Pub Co offer and get screwed now rather than later.
He had thought about renewing the fifteen year lease, no chance with the Market Rent Option MRO, every Pub Co were sitting on their hands, with every excuse under the sun, you can’t sell a lease that has expired without a new one.
You may be able to legally, but if the big Corporate lawyer is playing hard ball, you are going nowhere and your buyer is gone.
The deal from the Pub Co, take it or leave, don’t forget the dilapidations, they have no record of any agreed survey and the BDM is no longer with them, open season on dilaps, think of a number and double it.
A quick word in his ear from my mate, to contact all the lessees who took pubs at around the same time as him, in the departed BDM’s patch, all those that didn’t have a survey were all told the same tale, the Pub Co did a survey at every change.
The dilapidations dropped to some routine maintenance and a paint job, a salutary lesson for all, they’re not always that lucky.
It doesn’t end there, the £25K F & F valuation was knocked down by £2K, a letter saying that payment would be in 28 days and he had to deregister from VAT, before they would pay, needless to say VAT people don’t act that quickly and he’s still waiting for his money.
This dodge, the 28 days and VAT deregistration keeps millions in the Pub Co’s bank account.
Sadly you need a solicitor to ensure you get paid when you vacate.
To add insult to injury the new lessee had signed a lease at a slightly lower rent and paid up to £60K for the privilege, he had also paid up front.
“The above is regrettably a true story but for reasons of confidentiality, and to avoid reprisals, no names of any of the participants have been revealed and the timeline has been adjusted slightly. This was also not a one off incident. To a greater or lesser degree, these self same events are being replicated on a daily basis nationwide.”
Please Note, we are not trying to discourage buying and selling of leases, we just want to discourage the legal Rip-Offs that go on, we firmly believe that those taking up a fair Market Rent Option, as it stands at present, could have leases worth serious money, though a number of Pub Co’s will fight tooth and nail to stop this improvement.
The knowledgeable people in the industry, feel that it is a step in the right direction to unify the industry.
We have produced a Check List for assigning a lease or handing back a lease, to make people streetwise and hopefully avoid the last minute expensive, exploitive pitfalls, which put decent people into the hands of the Landlords and their Lawyers.
The views expressed are not necessarily the editors and www.buyingapub.com accepts no responsibility for them, we do try to avoid offensive or litigious statements being made. They are written by concerned professionals in the industry who feel that these issues should be raised to ensure that all licensees are made fully aware of many hidden pitfalls.