Lessee told to pay £30k 'debt'
A Hampshire lessee owes his pubco more than £30,000 after being lumped with the debts of licensees who had the lease assigned to them.
Roger Young says he expects he will be forced to sell his house to pay the debts. His case highlights how licensees must be aware of the "privity of contract" clause on some lease agreements, which means the person who signs the original contract is held responsible for its obligations should assignees fail.
Young took a 20-year lease with defunct pubco Inntrepreneur on the Izaak Walton pub in East Meon in 1990. The pub was later bought by Wellington Pub Company.
Young said he assigned the lease in 2001 but three years later, unknown to him, the lease was assigned for a second time to Real Restaurants, based in Waterlooville.
Young said that the company left the pub last December and he has since received a letter from solicitors for Wellington's management company, Criterion Asset Management, demanding £20,000 for debts amassed by Real Restaurants.
The pub has not traded since September and this week another three months' rent was added to the amount Young owes, taking the total bill above £30,000.
Young still has three years left on his lease and is considering selling his house or re-opening the pub to pay the debt and make ends meet.
He also plans to negotiate a reduction in his debt.
He said: "It just seems wrong that we should have to pick up debts from others."
Under the Landlord & Tenant Act, a lessee is only responsible for the obligations of the first person to whom the lease is assigned.
However, this law only applies to leases signed since 1996, six years after Young signed the original contract with Innterpreneur.
Federation of Licensed Victuallers Associations chief executive Tony Payne said the clause is still common in pubco lease agreements.
"I always recommend licensees put a premium to the company to buy out of privity of contract," he said. "It's usually available but often licensees don't bother."
Payne pointed out that it was not possible to take out insurance against the risks involved in assigning a lease.
"Anybody selling a lease has a responsibility to make sure the person they are selling to is sound."
Heading to go here please
Trade leader Tony Payne advises licensees to buy themselves out of privity of contact clause in their lease agreement.
Payne, chief executive of the Federation of Licensed Victuallers Associations, said the clause is still common in pubco lease agreements.
"I always recommend licensees put a premium to the company to buy out of privity of contract," he said. "It's usually available but licensees often say they don't bother."
Payne added: "It's important that anybody selling the lease has a responsibility to make sure the person they are selling to is sound." Payne pointed out it is not possible to take out insurance against the risks i nvolved in assigning a lease.
Response from Criterion Asset Management
"Mr and Mrs Young entered into a 20-year lease in 1990 that they assigned in 2001 with the benefit of a premium. Privity of contract is a common feature of a commercial lease that is well-known and understood in the industry. Even without seeking specific legal advice, the public domain contains multiple explanations of landlord and tenant rights and obligations. As with all our tenants they would have been advised to take legal advice before signing. On payment of the arrears they can take an overriding lease and continue running the public house, and, subject to landlord's consent, freely assign at any time, with the expectation of another premium."
