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Questions with Answers before you take a Tied Tenancy (Part 2)
1. What happens if I fail to pay the rent?
You are normally evicted at very short notice within the terms of the tenancy, you do not have the protection of Residential Property, even though you may be living on the premises. All rents are paid in advance, normally between one month to three months, usually by standing order or direct debit. The Family Brewers are in our experience more helpful in terms of Cash Flow problems, they are in business to sell their beers etc., any change of tenancy can affect the longer term business.
2. What happens if I fail to pay the Business Rates?
Then local Authority will take you to court eventually, if you do not have enough money to pay they will put the Bailiffs in, who will take goods to the value of the debt with costs. They normally remove part or most of the Fixtures and Fittings (F&F), this affects the Landlord because the property within the tenancy conditions has to have enough (F&F) to continue trading, you cannot sell or remove the bulk of the F&F, even though you paid for them depending on the tenancy wording.
3. Why do I need a Survey?
Everyone buying a commercial property, especially a lease, a tenancy should have a Schedule of Condition, to validate the state of condition PRIOR to the handover date. If there are outstanding wants of repair or decoration, then either the Landlord or the previous Lessee is responsible, if it is left until a later date, no action can be taken without documentary proof agreed with the Landlord or his Agent. A Pub Tenancy, the tenant is normally responsible for interior decoration only, but again check the wording of the Tenancy Agreement.
4. Why do I need dated photographic evidence of any survey faults?
This may not apply to a number of tenancies, it depends on the Tenancy Agreement.
Normally a surveyor will have dated and photographic evidence of any areas that are of concern, but you need copies agreed with the Landlord at that time. If you do not and the original surveyor is no longer available, you may have problems when the Landlord claims for maintenance or repairs at the end of the lease or assignment.
5. Why do I need approval to carry out improvements to the property?
You must have the Landlords written approval for all alterations or improvements, otherwise he can insist that it is all put back the way it was at the start of the tenancy. All improvements are normally down to the Brewer/Landlord, again depending on the Tenancy Agreement.
6. Can I sell or change the Fixtures and Fittings (F&F)?
If the property had no F&F whatsoever and you have brought them in, you can do what you like with the F&F. If the F&F are listed with the lease, as with a Pub Co Lease, you can sell or change them, because you have paid for them, but they must be replaced so that the business can continue trading. You need a legal explanation of what you can do without breaching the terms of the Lease. The Tenancy Agreement (TA) may have the same clauses as for a Pub Co lease, but you need to see the TA.
7. Why do I have to pay a deposit to the Landlord and how much?
Please click on the link for a general guide to commercial lease deposits LINK.
With a Tenancy, depending on the Brewer, some form of Security Deposit normally applies.
8. Do I have to use the Landlords Insurers?
The majority of Brewers pay the Insurance, they may not pay for Business Insurance and Public Liability, this needs checking
With Landlords owning a lot of properties they frequently have a clause in the lease saying that you have to use their insurers, in a number of cases, in stead of being cheaper it is more expensive than doing it yourself through an independent insurance company. If you do insure the property yourself the Landlord will insist on being notified on the policy, should you fail to pay the premium, they are normally given a short period to obtain cover.
9. Does the Landlord have right of entry to the premises at any time?
It depends on the terms of the TA, though a landlords inspection is normally notified in writing. This can happen at short notice if the Landlord has reason to believe that the property is being neglected or used for questionable activities.
10. Why do I have to have Brulines or similar as a monitoring system?
All Tied Pub owning Landlords are terrified of lessees Buying Out, because they know that products can be bought substantially cheaper, by dealing direct with other suppliers.
It depends on the Brewer and the whether monitoring is in the TA.
There are many articles on the inaccuracy of monitoring systems, which means that flushing gallons of water though the beer lines on cleaning, can cause questionable results.
11. How many qualifications do I need to take and which ones?
You only need the basic Licensing Exam to get a licence from the Local Authority, you need the EHO Food and Hygiene course, plus everyone involved in dispensing or preparing consumable products, always check with the EHO that your business will be in, their requirements can vary. If you are not sure where your business will be, your local EHO will give you guidance. In addition Cellar Management.
The Brewer will normally put you through their own In House Training to ensure that you are fully aware of their requirements, operating systems and standards.
12. How long will these courses take and how much do they cost?
The cost of courses can vary from area to area. Brewers normally have on going training for Tenants until you become a Reasonably Efficient Operator. They may well move you from a training pub to a promotion pub if you do well. It depends on their corporate policy.
13. How much training will I get after I have taken on the lease?
It is essential to get additional in house training, the initial training does not make you a Reasonably Efficient Operator (REO), this only comes with experience and further training.
14. How much training do I need to become a Reasonably Efficient Operator (REO)?
As a rough Guide at least three years profitable trading with basic qualifications and additional training during at least the first eighteen months of the tenancy.
Landlords Supply Tie
15. What is the Supply Tie?
The supply Tie is everything declared in the TA, normally it is wet stock (Beer, Wine, Spirits, Soft Drinks etc.) The Brewer may tie you to other products that they supply.
16. How much credit do I get with the Supply Tie?
Normally fourteen days with a Tenancy, with a genuine Freehouse as much as one calendar month.
17. Do I get any discount?
Discount has for many years been minimal, the Brewers may give incentive discounts depending on how well you are doing.
18. Can I buy out in an emergency?
No, unless the BDM gives written permission, do not buy out under any circumstances. The Brewers will often suggest that you borrow stock from one of their other pubs in the locality and replace it when the Brewery is open, if they cannot supply.
19. What happens if I can’t pay my Supply Tie Account?
You normally go to Cash with Order, which ruins your cash flow, the next stop is a Rescue Package. If you can sell the Tenancy before you get that far. The Brewers generally have a more pragmatic attitude towards Cash Flow problems, it is not in their interests to have a pub without stock. Many Brewers have an emergency supply and delivery system.
20. What happens if I go on to a Rescue Package?
With Leases the Landlord may want you to sign over all your F&F, so you own only the contents of the domestic accommodation. They know without a substantial injection of money that you have little chance of financial survival. I did suggest to the MD of one Pub Co that they gave the lessees a months credit to get their cash flow back on track, the answer was an emphatic “No”, they know that they are very likely to get the keys back and whatever is left of the deposit will come to them. Assuming that they have a Rescue package it is worth understanding what this entails, some Brewers have adopted the Pub Co Lease Model others have a more practical approach as in QA 19.
Landlords Answer :-
Rent Reviews or Tenancy Renewals
21. Do I need professional Advice on a Rent Review or Tenancy Renewals?
You do, it can be a minefield, you also need to put money aside for a Rent Review. With the right person or company, it can be straight forward, but with someone that has limited knowledge of Tenancies it can be expensive. This also depends on the length of your Tenancy, which is normally short term, but you do need advice if the rent should be increased. The TA will give the terms of Rent Reviews or Tenancy Renewals.
Landlords Answer :-
22. The business is Tied, how much increase in the Tied business would you consider realistic?
As a guide any estimation over 5% in the first year is pure speculation. Surveyors and pub owning companies have for many used Comparables, based on vaguely similar pubs within a ten mile radius, as explained to me by the Chairman of one of the larger Commercial Agents, which I disagreed with and discussed with the RICS, the assumption being that business is infinite, which it is not.
Business is finite within an area, especially when you first take over, the business you are buying it’s existing business is it’s Market Share, any growth has to be taken from another business, who will fight to retain that business.
You may have a large employer set up a business close by, which is an additional boost, but it could take several years to increase your market share under normal circumstances.
Your business plan should be conservative any over estimation, could be regarded as Retailer Failure if you fail to make your projections.
Handing back a Tenancy
23. What happens if I hand the Tenancy back to the Landlord/Brewer?
They will in all probability give you a reduced value on your Fixtures and Fittings on the figure that you paid the Vendor or whatever you spent on replacements. They will normally charge you for all their legal costs and any other outstanding issues. Your deposit will in many cases vanish or be severely reduced, if the pub is immaculate in all respects. you may recover some of your deposit. You can of course sell your Tenancy through specialist Commercial Agents. If you are having problems, it is worth talking to the Brewer, they often have a list of potential Tenants.
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