2020/NO.48 - There may be “fifty ways to leave your lover” according to Paul Simon, but there are only three ways to leave your lease. Two are legal and the third definitely not! You can (a) exercise a break clause, (b) negotiate your departure or (c) chuck back the keys in an act of abandonment.
The mantra of the moment is “we are in unprecedented times”. For many August has been good in terms of trade but the underlying shadow over the economy and the hospitality industry in general is both accumulated debt and the duration of the pandemic. If you are fortunate enough to have a BREAK CLAUSE in your lease, and in the pub business that really is quite uncommon, then beware of unintended consequences. You must follow the break clause stipulations to the letter. This is particularly relevant to the timing of the service of notices. Not all break clauses are helpful and if you get the timing wrong mainly through ‘double meaning’ break clause wording you could land up paying unforeseen extra rent and delaying the date of departure. ALWAYS take legal advice. The additional expense is essential to ensure a clean break in terms of notices. But here are the linked obligations which could be very costly….
DILAPIDATIONS…Your landlord is entitled to serve on you what is known as a Terminal Schedule of Dilapidations. That is full compliance with all the repairing and decorating obligations of the lease. Those requirements in your lease come into play“in the last six months of the term”.You are terminating the lease so the requirement of ending the term applies. The landlord will be entitled to insist that you satisfy all the stated wants of decoration and repair BEFORE you leave.
Non-compliance will result in the landlord doing the works after you have gone and probably raising a huge cost bill for so doing. Insist on an early confirmation of what will be required. Leaving the question wide open until the last minute is a recipe for disaster. Also consider the practicality of being forced to do exterior works during the winter. If the weather is good now and there are outside wants of repair, crack on with the work in good weather.
ALTERATION WORKS… You may be required to reinstate even authorised alteration works. It all depends on what was in the License to Alter document. Unauthorised works are a matter of negotiation, that is if the landlord even notices or cares. If you have made the property better because of you works, then nothing will be said unless the landlord is being particularly vindictive.
SURRENDER BY NEGOTIATION…You have little if any bargaining strength. The one exception of the site being capable for development or alternate use. Think carefully over this one. In one recent case the pub is on the cusp of being hopelessly unviable unless at near next to nothing rent. But it sits on a very big corner site in a residential area. The tenant has no desire to sit out the pandemic building up unsustainable losses. Solid bargaining strength to do a satisfactory deal maybe. Otherwise to exit ‘by agreement’ you will pretty much have no bargaining leverage. The departure is in the gift of the landlord whose ultimate and quite legal sanction is to say ‘no’.
ABANDONMENT…Definitely the last resort and to be avoided if at all possible. Depends on the landlord as to how hard and how soon they will pursue for arrears. The costs list includes repairs and decoration, security and rent deposit, trade account arrears, inventory ‘deletions’ (one recent case in point was the entire and valuable inventory was flogged off on eBay) structural damage and loss of rent. The key question is whether or not there was any Authorised Guarantee Agreement and the strength and substance of any property asset offered as security. Very messy, expensive and stressful.
We do hope the third option is not the only way out of a pub with no genuine future. Most likely it will be option two. This goes without saying that the earlier you start talking to your landlord the better. Even if you hit a brick wall you will have at least done all that you can.
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