Another Reason to avoid taking a Pub Co Tied Lease.
The major Pub Co’s have taken a good working system of a Tied Tenancy, that had worked for years, was user friendly and changed it for a Commercial Tied Lease.
We’re not saying don’t take a Pub Co Tied Lease, just avoid it for the foreseeable future, until peace and harmony exists and the New Legislation is complied with.
For anyone that has not had a Commercial Lease, there are a number of issues that do not make a Commercial Lease compatible with a Supply Tie in it’s present form.
Hence the New Legislation, the major Pub Co’s are trying to legally stall certain aspects of this legislation, which until this is resolved, which could take months or years, with an unknown result.
Under normal circumstances, if you take a commercial lease, it is in the main a vacant property.
Any fixtures and fittings are either removed or sold to the incoming lessee at an agreed figure, they are the lessees to do whatever they want, they can be sold, replaced, changed or whatever, they do not belong to the Landlord.
Likewise any fixed installations installed by the lessee, like wiring, shelves etc., should be removed at the end of the lease and all holes, marks etc. made good, unless the landlord agrees to let them remain, there is normally a clause in the lease to this effect.
The difference between a Commercial Lease and a Pub Co Tied Commercial Lease, is a nasty clause in most if not all Tied Leases, the Fixtures and Fittings (F&F), cannot be removed, they can be replaced, upgraded, whatever, they cannot be removed without replacing them.
You have paid for them, but they are not yours, they have to remain with the pub and technically belong to the landlord, this is to ensure, that in the event of the lessee going bust or whatever, the Pub Co have enough (F&F) to take the pub back and sell another lease, or the existing lease on to another would be lessee.
A colleague of mine spent just under a £100K on redoing his kitchen, equipping the bars, replacing furniture etc., to make the place work better and looked immaculate, with all new F&F.
He struggled and fell out with the Pub Co, which is not hard, he put the lease up for sale, assuming that he would recoup his expenditure, the valuer came in and assessed the F&F at less than he had paid initially.
He was furious, called me and said he was going to strip the place, I pointed out that the lease had a non removal clause, in addition second hand or used equipment etc. has no value, if you are trying to sell it, it also, in his case, had a years steady use.
I suggested that the only way of saving some of his vast expense, was to replace as much of the F&F that was profitable.
He then discovered that, buying replacement F&F cost nearly half of what he had spent, he was caught between a Rock and a Hard Place.
With a Tied Lease you can be caught, if the non removal clause applies, you pay for the F&F and it technically is owned by you, but you cannot remove it.
The legal aspects of a Tied Lease are not user friendly, if you realise that your business is not what you thought it was going to be, in terms of real net profitability, so you decide to get out, you had previously thought the F&F would make a small bonus, your deposit being returned would help.
Sadly, the next thing to hit you, are dilapidations, if you had a survey done and the surveyor is still around to act for you, you might ease your way out with just a major paint job and a bill from the surveyor.
If you didn’t have a survey, you walk into a minefield, the landlord could or will stick you with a monstrous bill and you have no leg to stand on.
The next thing to hit you is the Authorised Guarantee Agreement (AGA), a standard clause in all commercial leases, this makes you responsible to the Landlord, for whoever you assign the lease to for the duration of the lease or their time until they assign the lease.
On a normal commercial lease, it covers dilapidations and lost rent and a few other specific aspects of the lease, but with a Tied Lease it would appear to cover all debts to the landlord in terms of all aspects of the Supply Tie and any other issue that they can legally claim.
You can buy yourself out of the AGA, but the price varies and is not cheap, logically being able to buy out of the AGA would infer that it is an immediate cash cow and not long term protection for the Landlord, in our opinion it should only be valid for six months.
If a lessee is struggling and the Pub Co’s know very quickly, with the AGA they know that a second party is legally bound to pick up the tab, if it was only six months the Pub Co’s would not be so quick in letting people fail, they would do more to help the lessees, without throwing a load more money at a struggling business, your days can be numbered.
Your solicitor should warn you of these responsibilities and they can vary from lease to lease, most solicitors that I have met, say it is a normal commercial lease, it is not and assume that the would be lessee has read the small print in a standard commercial lease.
A Tied Commercial Lease is normally tailored to suit the interests of the landlord, in the early days of a Tied Lease a few Pub Co’s were left with all the F&F removed, this was quickly stopped and the leases changed.
Why do you think there were so many Government Investigations (BISC’s) into complaints about Pub Co’s and the Government bringing in the new Legislation, which the Pub Co’s are trying to get round legally, which could take years.
If this makes you think, think a bit harder, then find a Tied Tenancy with a decent Family Brewer, even then check the small print.
Always remember buying a pub is like marriage, “Marry in haste and repent at Leisure”.
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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.
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