Legal advice: A joint effort

The landlord and the tenant could be friends - and a joint venture could be the way to do it.

By Briony Edwards and Keith Miller of thePublican.com's team of legal experts at London solicitors Joelson Wilson.​

Reading the trade press over the years, one can easily get the impression that the pub landlord versus tenant struggle will always be with us - as eternal and classic as Holmes and Moriarty, Tom and Jerry and, of course, male and female.

Occasionally attempts are made to thaw this cold war, for example pub partnerships and Code of Practice initiatives, but the impression on the impartial observer is that nothing really changes because of the underlying landowner/vassal relationship and the divergent interests of the "partners".

The tenant is primarily interested in getting on with his or her own business without interference and sees the landlord as just a collector of money who contributes nothing. The landlord is keen to preserve his investment and maximise his receipts. Many pubcos are highly geared and have to comply with their banking covenants. They also have supply contracts with drinks distributors and wish to see their tenants maintaining a high level of sales.

So how can you reconcile these two opposing interests? Can the parties really work towards the same goal? One structure which can truly be seen as a partnership is the joint venture.

Typically, a joint venture (JV) occurs where two (or more) businesses collaborate on a particular project or business enterprise. Translated into the pub trade, this would therefore involve the tenant and landlord, although there could easily be a role for others, such as specialists in PR or entertainment. The collaborative businesses would pool their resources with each party bringing their own unique (and invaluable) contributions to the table.

How the union is cemented requires careful consideration, particularly from a practical and operational point of view so that it reflects the commercial objectives of the participants. A JV may be achieved through:

• Limited liability company​

The most appropriate form will usually be the formation of a JV company. Big Pubco plc and Little Fish Publican could establish 'Rose & Crown Ltd' and in an ideal world each shareholder would have a 50/50 stake in the company. It is more than likely, however, that Big Pubco Plc will be the main shareholder and the publican the minority shareholder.

Crucial to the effective and harmonious running of the joint venture company will be the provisions included in the shareholders' agreement and the articles of association at the time of formation. The presence of a majority shareholder will usually dictate who will hold the main decision-making power from the outset, but careful negotiation should take place to ensure that all participants are fairly represented.

Partnership​

A partnership is an arrangement where two or more parties carry on business in common with a view to profit. The partners have unlimited joint and several liability and would decide at the outset on their own contributions and their corresponding shares in its profits and losses.

Contractual agreement​

A contractual arrangement allows the parties to keep separate their respective contributions to the venture with no pooling of assets or sharing between participants. If the establishment of an incorporated entity is too formal or requires too much commitment a contractual arrangement would provide a more flexible vehicle which would be more suitable as a short term measure to see if the joint venture has a future.

Each method has its own pros and cons, according to the circumstances. As a way of taking the heat out of the landlord/tenant relationship, a joint venture should overcome some of the frustration felt by publicans at dealing with a remote landlord company and encourage them to think positively about the mutual enterprise.

For landowners, there is merit in knowing that the publican partner in the venture is motivated to work alongside them and to direct his or her efforts towards the success of the business. It is also true that the landowner often will remain the freeholder, with the JV taking a lease on reasonable terms.

The other side of the coin is that the closeness of the relationship can also bring out the parties' differences, but if a flashpoint is reached and problems can not be resolved, dissolution of the venture can be relatively easy. This compares with the years of wrangling and legal action which can mar the landlord and tenant relationship.

So, perhaps against all belief, Tom & Jerry Ltd may turn out to be a model of business harmony.