MyShout

When it comes to lease assignments, Peter Linacre reckons lessees should take far more care

In the ongoing open warfare that describes the relationships between some of the major pub landlords and their lessees, a new battlefield review from the trenches has revealed a fresh tactic.

As the major pubcos publicly profess their desire to see their lessees become rich, the tactics on the ground reveal a different manoeuvre. One of the largest pubcos is now publicly admitting that in its quest for total domination during its gung-ho years, operations and support were secondary to control. Credit control was all. But now in the new world of "organic growth" and "improving their retail offer", they are seeking to "change the way in which they are perceived"; they want to "work with their lessees".

What right-minded lessees would not utter a huge hoorah for that one? Well maybe the ones who have to compensate for the total inefficiency of the pubco at times of an assignment.

One of the major pubcos has decided that from now on it will force the issue of dilapidations, that the willing-buyer/willing-seller approach to assignment is OK, but it will have the last word and force a dilapidations schedule at the end of the process that will either scupper the deal or result in no assignment premium being achieved. This same pubco admits it does not carry out any annual inspections, does not monitor on any basis the condition of its premises and has not been very good at being in contact with its lessees. So the only time it can assert its rights is at assignment.

Of course, it is reasonable to check health-and-safety issues and to check compliance - but not if the only time it is done is at one minute to midnight, in my view.

The dilapidation process is something that we lessees often get wrong. We assume that the landlord can stop an assignment because it has the right to insist on dilapidations being made good before completion. This is not so.

I would strongly recommend any lessee looking to assign a lease to download from the internet the Leasehold Property Repairs Act 1938. It makes it clear that if any lease is greater than seven years in length and has more than three years unexpired, then the landlord does not have the right to force a lessee to undertake any disrepairs. The reason being that dilapidations do not cause any diminution in the net present value of the freehold capital value of the property. Lessees should simply serve the landlord with a counter notice within 28 days of receiving the dilapidations notice claiming relief under the Act.

The landlord might still claim that he is only making good health-and-safety issues or ensuring that compliance is in place. But if the pubco has been so inefficient in protecting its own interests, and has not inspected its properties for years on end, then who should be held accountable for that lapse?

Actions speak louder than words. Until this particular pubco landlord shows that it is actually looking to support its lessees with a proper structure, with proper processes, and not restrict assignments, my recommendation would be to avoid its leases at all costs. A good question to ask these pubcos at your next review - if you ever have one - is what percentage of the estate is currently operated under temporary agreements? The higher the figure, the less likely it will be that the pubco will be a good one to work with.

Peter Linacre is managing director

of Massive Pub Company