Leasing a Pub: Leasehold Pubs and Hotels

The Law of Property Act 1925 simplified the conveyancing process by creating two "estates" or interests in Land.The freehold estate or "fee simple absolute in possession" and the Leasehold estate, or "term of years certain".

Leasehold is therefore an estate in land which is held for a term certain, or on a periodic tenancy basis, for a length of time less than the landlord's interest.

A lease usually provides the tenant with exclusive possession of demised premises, for a definite period, in exchange for a payment in the form of rent or a premium.

Leasing a Pub: References

When a new tenant enters into a lease, the landlord will normally require the provision of satisfactory references as a condition of the lease being granted.

In these circumstances, the tenant is usually required to provide references from a bank, an accountant and two trade references, although this may vary depending on each individual case.

Pub Lease Sales and Pub Lease Assignment

An assignment of a lease takes place when the tenant (assignor) transfers/sells to another person (assignee) their entire interest in the property for the unexpired residue of the lease.Section 52 (1) of the Law of Property Act 1925 requires that for the legal estate to pass to the assignee, then the assignment must be by Deed.Under the doctrine of "privity of contract", the original tenant remains liable to perform all the covenants in a lease throughout the term. Thus, if the lease is assigned to a third party, in the event that the new tenant defaults, the original tenant remains liable for the covenants contained therein.

In some cases therefore, if an assignee is found to be in breach of contract, the landlord is able to look to the assignor to seek redress; even though the original tenant has no control over the subsequent occupiers business.The Landlord and Tenant (Covenants) Act 1995 sought to address this issue and relieve the original tenant from such liability upon assignment. Modern leases granted on or after 1st January 1996 usually incorporate this change in legislation.

Pub Lease Incentives

An incentive is a payment or concession that often arises when a lease is first granted or subsequently assigned during the course of its term.

A common example might be where a landlord pays a new tenant a sum of money to take on a new leasehold contract.

This sum may be in the form of a capital contribution towards the tenants initial fit out costs. Or it might be in the form of rent free period or stepped rent until the first rent review date.

Pub Leases: Length of Lease

A lease is a legally binding contract between a landlord and a tenant which sets out the basis on which the tenant is permitted to occupy a property.The length of the term will vary depending upon the particular requirements of the landlord and the tenant and will be influenced by business requirements, investment strategy and general matters such as economic conditions.

In broad terms, the landlord will often seek to create a lease of between 15-25 years, whereas the tenant is more likely to require a shorter term of 5-10 years, particularly in times of economic and political uncertainty.

The lease length may also be influenced by the incidence of break clauses and the prospect of a formal option that might exist to extend the lease upon expiry.

Large properties, or those involving the tenant in significant investment in fit out costs, might attract longer leases in order to allow sufficient time for the tenant to recoup the initial costs of taking on the property.

Pub Leases: Break Options

A 'break option', 'break clause' or 'option to determine' is a clause in a lease which gives either the landlord, tenant, or both, a right in specified circumstances to terminate the lease before it's contractual expiry date. The break option will usually define the length of notice to be given by either party in order to operate it and any other conditions.

A break clause may also be subject to contractual or statutory financial provisions that need to be complied with in order for it to be legally binding.

In addition, it can also be linked to a pub rent review date and its subsequent operation may make "time of the essence" for the purpose of invoking the rent review provisions within a lease.

Pub Leases: Ground Lease

This is usually a long lease, granted at a ground rent but subject to an initial premium payment. A ground lease can vary in length from 30 years up to 999 years.

The principle of a ground lease is that the rent paid relates to the value of the land only.

The terms of the tenant's lease usually provide an obligation to develop the land. The building is then owned by the tenant, usually free of any rent.

Ground Rent levels vary from a peppercorn, i.e. nil rent, to a percentage of the open market rack rental value of the building.

Pub Leases: Expiry and Renewals

The Landlord & Tenant Act 1954 limits the way in which a business tenancy may come to an end.

Thus a tenancy that falls within the provisions of the Act, will not come to an end unless it is terminated in accordance with the provisions set out in the Act.The statutory methods of terminating a lease are set out in Part II of the 1954 Act. Namely:-(i) by a Landlord's notice under Section 25(ii) by a tenant's request for a new tenancy under Section 26, or (iii) a tenant's notice to quit under Section 27.

The landlord and the tenant must comply with the provisions set out within these various notices, since failure to do so could result in the loss of the automatic right for a new tenancy.

There are also strict procedures to be followed during the interim period between the expiry and grant of a new lease, either by negotiation or through a court.

Pub Leases: Schedule of Dilapidations

This is a list of outstanding repair and maintenance items, that a landlord has assessed have accrued under the terms of a tenant's repair and maintenance obligations.It is often served by the landlord at the end of the lease in the form of a "Terminal" Schedule of Dilapidations.

The tenant is obliged to carry out the outstanding works listed in the schedule or pay damages which represent the cost to the landlord of doing the works.The items in a Schedule of Dilapidations are often the source of dispute between the landlord and the tenant and a court will ultimately decide upon the relevance or otherwise of the contents of the Schedule.

In certain situations the tenant is entitled to relief from the obligations set out in a "Terminal" Schedule of Dilapidations, as provided for by Section 18(1) of the Landlord and Tenant Act 1927.An "Interim" Schedule of Dilapidations can be served by a Landlord during the course of a tenancy, specifying outstanding works of disrepair that need to be attended to whilst the tenant is in occupation.

Relief from complying with the obligations of an "Interim" Schedule may also be available in accordance with the provisions of the Leasehold Property (Repairs) Act 1938.

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