Wake-up call: Under pressure

22 March 2016
Wake-up call: Under pressure

Landlords may urge pub operators to enter into a new lease before the new Pubs Code comes into force. Thomas Freeman explains

The problem The tenants of a large pub company are waiting for the Pubs Code to come into force. This will give them the right, at certain review points in the life of their lease, to end the tie and instead pay Market Rent Only (MRO), which could save them a considerable amount of money as they would no longer be forced to purchase the majority of their supplies from the landlord.

The law

â- As the Pubs Code does not come into force until May 2016, there is currently no right for tenants to move onto an MRO.

â- Under the Landlord and Tenant Act 1954 (LTA), a landlord has the right to serve a s.25 notice to bring the current lease to an end on a date specified in the notice.

â- In order to give a valid s.25 notice, the landlord must give at least six months' and not less than 12 months' notice to terminate the lease.

â- An s.25 notice cannot bring the lease to an end before the end of the contractual term. Once the contractual term has ended, a s.25 notice can be served at any time so long as the landlord gives the right amount of notice.

â- The parties can agree an extension to the date specified in the notice to enable further negotiation. But if no agreement is reached, the tenant must protect their right to review by making an application to court.

â- If the parties cannot agree on the terms of a new lease, either party can apply to court and it is then for the court to determine what the new terms should be.

Expert advice When it comes into force, the right to move onto an MRO may save tied tenants a significant amount of rent. As a result, the large pub companies are likely to be keen to defer these changes.

There are several trigger points at which this right will arise, but most commonly these will be on a renewal of the lease or at a contractual rent review. Here, by renewing the lease before the Pubs Code comes into force, the landlord is hoping to defer the right to move onto an MRO until the next trigger point - which will most likely be the next rent review in a few years time. The large pub companies might well seek to use this tactic to their advantage.

However, under the LTA, the court has a wide discretion to decide what the terms of any new lease will be. You can ask the court to vary the terms of the current lease by requesting an early rent review or to move onto an MRO on completion of the new lease. The court will ask whether there is a good reason for the changes and consider whether these are fair between

the parties. If you can put forward a positive business case for wanting to vary the terms of the new lease, there is a good chance the court will make such an order.

In summary: you should not be pressured into agreeing a new lease and you can negotiate with your landlord.

To-do list On receipt of a s.25 notice:

â- do make a note of the date on which the notice expires;

â- do seek advice from a solicitor and/or a surveyor;

â- do not be afraid to negotiate with your landlord;

â- do not be pressured into agreeing terms that you do not want; and

â- do not ignore the notice.

Beware If you let the deadline in the s.25 notice expire without agreeing an extension with your landlord in writing or applying to court, your lease will end and you will lose the right to remain in your pub.

Contact Thomas Freeman is a solicitor at HLW Keeble Hawson LLP thomasfreeman@hlwkeeblehawson.co.uk

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