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Should I Stay Or Should I Go? – Lease Renewals in the Licensed Sector

David Rastrick / 13 Apr, 19

If, like many other licensees, you lease your premises, you will no doubt have experienced the stresses and strains of a rent review or the lease renewal process, and if you haven’t, then you probably will soon!

A business lease can be a complicated document and if you take nothing else away from this article, always remember the value of timely advice, both from your solicitor and your surveyor, as both these professionals could have a vital role to play in any negotiations you undertake.

The processes around lease renewals are heavily regulated and there can be some very hard and fast deadlines, which, if you miss them, can have devastating consequences for your business. So, it is vital that you act proactively and take the front foot or if your landlord acts first, you respond in a timely manner.

For lease renewals, you need to start thinking about the process no less than 18 months before your lease is due to end. The first thing you need to do is decide whether or not you want to stay in the premises, as that decision will determine some of the actions you may need to take further down the line.

Assuming you do want to stay, the next question is, whether your lease offers the protection of the Landlord and Tenant Act 1954 (LTA54)? Your solicitor will be able to tell you this. If it doesn’t, then you need to engage your surveyor and start forming a negotiation strategy early, as if you cannot reach agreement with your landlord by the lease end, you will have no legal right to remain in occupation.

If it is a LTA54 protected lease, then you have a little more time, but you still need to formulate your plan with both your solicitor and surveyor, as they will be able to advise on the terms you should be offering your landlord for the new lease. Rent, repairing obligations, alienation and user clauses all have a key part to play in this.

Assuming that your landlord does not oppose your application for a new lease, then you should have plenty of time to negotiate and agree the terms of the lease. I If you cannot reach agreement there is always the opportunity to apply to court to have the terms determined, this is the last resort however. If though, your landlord seeks to oppose the renewal under one of the 7 grounds offered under s30 of LTA54, then it is likely, if you want to stay, that an application to court may be your only option.

For licensed premises, there is however a further complication. If you occupy a pub on a ‘tied’ tenancy, you may also wish to think about whether you want to remain on this basis and get the benefit of a lower rent, at the expense of higher beer prices or, under the provisions of the Pubs Code 2016, apply for a Market Rent Option (MRO) lease. Again, this process is tightly controlled, with a number of strict deadlines that you must meet to keep the MRO avenue open. So, if you think an MRO lease might be of interest to you, getting proper advice at an early stage is vitally important, as getting it wrong could prove to be a costly mistake.

If however, you decide that you want to leave the premises at the lease end, don’t think that you can just walk away!

When you end the lease, unless the landlord is going to comprehensively redevelop the premises, there is a likelihood that you may be landed with a dilapidations liability, a legal claim to make good any disrepair deemed (by the landlord) to have occurred. If your landlord serves such a claim on you there are a number of remedies available. You can do the works, assuming you have sufficient time, which unfortunately is often not the case) or you can try and negotiate a better settlement.

In both cases, there is significant value in appointing a surveyor on your behalf, as dilapidations is a complex area of property law and what may seem reasonable and realistic to you, may, in the eyes of the law, simply be not!

As a tenant, one of the primary defences is under s18 (1) of the Landlord and Tenant Act 1927 (LTA27), which effectively places a limitation on the landlords claim, of no more than the diminution in the value of the property due to the repair works required. This however, isn’t necessarily all the proposed costs. As only those costs that are considered value affective will impact on the value of the reversion. This is where the skill of a specialist surveyor is required. Working with a building surveyor, your valuer should assess the costs proposed by the landlord to see whether a) they are reasonable and b) whether the disrepair alleged really reduces the value of the property as much as the landlord’s surveyor suggests. S18(1) can be a really powerful tool in the tenant’s arsenal when defending a dilapidations claim and can potentially save you significant sums.

With any lease event, the old adage of the 5 p’s is as relevant as ever (Proper Planning Prevents Poor Performance) and although it may seem counter intuitive to spend money up front before anything has happened, getting proper advice at an early date, whilst it may cost you some cash, could potentially save you significantly more further down the line.

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