Property

What to expect from the lease reassignment process

By Liam Coleman contact

- Last updated on GMT

What to expect from the lease reassignment process

Related tags: Pub company, Landlord

We've given you some tips on how to prepare for a lease assignment. Hopefully that will give you the confidence for the challenge that awaits. In the second part of this two-part series, it’s time to go through the actual process. 

Check your code of practice

The first port of call should be the code of practice for your specific pub company because each process and situation is unique. The code of practice will tell you when you need to inform the pubco of your decision to reassign your lease.

While this is different with each pubco, Paul Davey from business agents and valuers, Davey Co, says that the pubco does not need to be informed straight away. “Strictly speaking, they [the pubco] should be [told at] the point that they [the assignors] take it to the market but, in practice, there’s nothing that needs to be done at that point,” he says.

“The only thing that would really have any bearing on the pub company at that stage is to prepare a schedule of dilapidation but in our experience of doing an awful lot of lease assignments, one should never second guess how that process is best dealt with until we know more specifically who is likely to be taking it on and what they’re likely to want to do with it.”

For that reason it is worth checking when the pubco need to be informed. If it doesn’t need to be told straight away, it may be easier to bring them into the mix later on in the process.

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What to do about dilapidations

Once the pub company has been brought in as part of the process, they will serve a schedule of dilapidations. This will tell you what maintenance and repair responsibilities are needed of you before you leave the pub.

This means that if you signed a ‘put and keep’ agreement, the pub company may well still ask you to bring the pub into a perfect state of repair because that was in the agreement you signed.

On top of this, the pub company is likely to insist that the pub is permanently kept in a perfect state of repair, which will require constant maintenance. Kay Head, who is currently looking to assign the lease for her Nottingham pub, the Johnson Arms, is midway through a five-year lease has given her insight into this constant pressure. “Say your windows need painting, you might do that next year, but because you’re assigning the lease, you’ve got to do that all right now,” she explains.

Paul Davey on what to research about the assignee

"There are certain things that need to be looked into, mainly to do with the covenant strength and financial ability of the prospective assignee to take on that particular site. Not just in affordability terms but in terms of credibility with the landlord going forward. They must have the ability and skillsets to realise that they can fulfil the terms of the business plan."

Finding the right assignee

Regardless of when you tell the pub company that you plan on assigning the lease, you will need to find an assignee that will ultimately take the pub off your hands.

What is the best way for finding that right assignee for your pub? Kay Head has taken a 21st century approach to promoting the Johnson Arms. “Me, personally, Facebooking it and our pub Facebooking it has got it out in the Nottingham area much more than I expected,” she says.

Once there is an interested assignee, background checks should be done to check that there is absolutely no possibility that the pub company will reject the assignee that is being introduced to them. Punch Taverns, for example, will reject any assignee that lacks a personal licence; has insufficient funding or excessive debts; has an unachievable business plan; lacks professional knowledge or accredited training; has a poor credit history or a criminal record.

Paul Davey on why lease sales are more challenging than freehold sales

"You could possibly say on a freehold sale, it’s far easier because there’s only two parties (buyer and seller), whereas in a lease you have a tripartite scenario where unless all three are happy, nothing is happening at all."

Getting an agreement in place

If all is well with the prospective assignee, it is time to sit down and get all three parties (landlord, assignor and assignee) on the same page for the remainder of the process.

Before the new assignee signs the paperwork, the pub company will insist that the new assignee is provided with all the documents and information that the pub company provided the initial lessee with at the start of the process. That is the only way that the assignee can make a rational decision for taking ownership of the lease. When meeting with the assignee, it would therefore be wise to have business plans and utility certificates all up to date and ready to be presented.

Part of the negotiations between landlord, assignor and assignee will be around the state of repair of the pub. In some situations, the assignee will be happy to take on the repairs themselves and buy the lease for a reduced rate. If such an agreement is put in place, the pub company should be involved with all stages of this discussion.

Getting an agreement between all three parties can take hours, weeks or months, but the sure-fire way of getting ink on paper in as pain free way as possible way is by being organised and constantly communicating with all the parties throughout the process.

The MRO option

Like all aspects of the pub industry, this process is not set in stone. The changes to the pub code may be being delayed, but their shadow still looms large over the world of lease assignment, as much as it does over the rest of the pub landscape.

Paul Davey says: “The context of the MRO (the market rent-only option) being implemented doesn’t materially change the process of the assignment of the lease, but it may affect the conversations and discussions that take place between the landlord and the prospective assignee.

“The actual mechanics of the process won’t change,” he adds. “What the landlords will want to offer as incentives and what they would be prepared to put on the table for a prospective assignee is going to come into sharper relief.

“In other words, the existing lease is the existing lease and the existing landlord cannot under those terms unreasonably withhold consent for the assignment of that lease in its entirety from the existing lessee to the proposed assignee.”

Regardless of any changes that will be introduced through the new legislation and despite varying codes of practice between different pub companies, the main principles that can lead to a smooth assignment process are set in stone. Those principles are organisation, communication and a canny bit of know-how.

Related topics: Property law

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