Knowing the score

Do you know the factors to be considered when selling a leasehold pub?

By Keith Miller

If you own a leasehold pub and are thinking of selling, here are some points which you may need to consider before getting too involved. Imagine you have an offer out of the blue from a nice chap called Nigel who drops into the pub one day. He says he is a retired accountant, that he and his wife have some money saved up and that they have always wanted to go into the licensed trade. Your pub is one which they have visited in the past and would dearly like to run one day.
You are beginning to think you have spent enough time working your fingers to the bone and the prospect of playing golf in the Algarve beckons. Nigel’s offer may seem enticing, but are you sure you ought to be passing your lease on to a person in his position?
You may not realise it but you will be giving the landlord a guarantee that Nigel will pay the rent and carry our all the tenant’s obligations for as long as he is the tenant, Nigel might be ready to buy you out now, but will he have the necessary qualities, to make a success of the business? If he doesn’t, in a few months’ time you may receive an unpleasant letter from the landlord’s solicitor asking you to pay up the quarters’ rent which Nigel has failed to pay.
While you are weighing up the financial standing of Nigel, your landlord will have his own agenda. In order to sell the lease, you need to get the landlord’s consent (licence to assign) and so you will have to write and ask for this. You will have to supply details of Nigel’s referees – his bank, a personal and professional reference – but do not expect them to be convincing. The personal reference may suggest he is a saint in a pin-stripe suit. His former firm will probably say how honest and hard-working he is, but they can only speak about his record as an accountant. While he may never have spent time behind bars, neither has he spent time behind a bar.
Many leases expect the assignee to attend an interview, where the landlord will assess his ability to run the business. Attendance at a one-day course will probably not be sufficient to impress them and, charming though he and his wife and golden retriever may be, Nigel has no track-record in the trade. If he is not strong enough financially, the landlord is probably entitled to demand that he should deposit the equivalent of three of six months rent or alternatively provide a bank guarantee. Either way, that should give you a cushion against being pursued by Nigel’s failures.
You will have to pay the landlord’s legal and other fees, whether or not the consent is given, so you should not waste time on an application that stands no chance of success.
Something else to be aware of is that if your lease may give the landlord a right of first refusal. An “offer back clause” may say that, if you intend to sell the premises, you must first give notice to your landlord saying what the sale price is and giving him the right to take the premises back on similar terms. The notice period may be as long as 28 days, so if you had been hoping for a quick sale, think again. Having said that, a purchase by the landlord should be a relatively simple affair and will relieve you of future liabilities.
What can you do to escape a buyer’s failures? You may be lucky. Either your lease might not make you responsible for your buyer, or you might persuade your landlord to release you from future liabilities – but both are unlikely. Your best protection is to find a responsible tenant through proper marketing. Then your dream of Vale do Lobo may really come true.

Reprinted with kind permission from The Publican no 950 May 9th, 2005
http://www.thepublican.com/yourbusiness/legal