The British Beer and Pub Association estimates that over 300 pubs in the UK will permanently shut their doors this year. The crisis affecting hospitality operations has led to a slew of hospitality venues coming onto the market for let, often at seemingly competitive rents.
For many prospective operators of pubs, bars and restaurants, this has provided a great opportunity to acquire a premises at a competitive annual rent. Whilst appealing, retail and leisure experts are warning caution must be taken. Acquiring a lease can be a gateway to success or could potentially open the door to significant financial liabilities.
Alfie Carlisle, specialist retail and leisure solicitor at national law firm Clarke Willmott LLP, has compiled a list of key issues to look out for when taking a lease of a new hospitality premises.
Permitted User Clause and Planning Permission
Ensure the lease permits your intended use of the premises: whether as a pub, wine bar, café, restaurant or late-night venue. Note that some leases may include permitted hours, restricting the times during which you are able to be open for business. Conversely, some leases can contain “keep open” clauses, forcing you to keep the business open, even if this does not make commercial sense. This is more common in larger centres who wish to maintain similar trading hours amongst all tenants to encourage maximum footfall from customers.
The clause must be broad enough to cover current and potential future business models, such as the provision of food and drink via the popular delivery apps. Many landlords will seek to exclude these uses because of the perceived nuisance or disruption to other tenants.
It’s worth noting that simply because the landlord grants a certain ‘Permitted User’ under the lease, this does not remove the requirement to obtain the necessary planning permission from the Local Authority. It is therefore important to carry out appropriate due diligence to investigate the previous use of the property and the permitted use under planning law. Our planning lawyers can advise on this. If the Local Authority decides to enforce a breach of planning law, this is likely to be against the operator, not against the landlord and so it is important to get this right. For example, if a premises was previously used as offices and is now being re-developed into a late night bar with live music, specialist advice should be taken.
Licensing
Premises used for alcohol sales and late-night entertainment must have the appropriate licence from the Local Authority. While licensing is separate from the lease, your ability to operate profitably will often be intrinsically linked to being able to sell alcohol and operate late into the evening. It is therefore essential to ensure that you do not accidentally tie yourself into a lease without a cast iron assurance that the relevant Local Authority licences will be transferred simultaneously.
Enquiries should be made to the Local Authority to determine who currently holds the premises licence – this may be a previous tenant, or it may be the landlord.
An ’Agreement for Lease’ is the contract in which the tenant agrees to take the lease and the landlord agrees to grant the lease, often subject to certain conditions.
When negotiating this document, it is vital to agree wording which requires the landlord to transfer the premises licence to you at the same time as legal completion of the lease. The landlord should also agree to lodge the appropriate application forms with the Local Authority.
Tip: Request sight of the premises licence early on or use the Local Authority’s website. Consider whether any variation will be needed.
Repairing obligations
Hospitality venues endure heavy wear and tear. Most leases impose a “full repairing” obligation, meaning you must keep the property in good repair and condition, even if it wasn’t in good condition to begin with.
Points to watch:
- Request a schedule of condition to limit your liability to the property’s state as at the date you acquired the lease.
- Understand whether external or structural elements are included in your responsibilities (especially in standalone pubs or units in multi-let buildings or centres).
In addition to legal advice, you should also obtain an inspection from a surveyor. This inspection should include parts of the building which are not let to you, but which you have a financial responsibility to contribute to. For example: lifts, other expensive plant and machinery, and the structural parts of the building.
Be aware of your potential exit costs at lease end. A landlord may serve a schedule of dilapidations, requiring you to reinstate the property to a certain standard or compensate the landlord accordingly.
Initial fit-out
You’ll likely need to carry out works to make the premises suitable for your brand and so it is important that your lease allows sufficient flexibility to evolve your space.
Most commercial leases only permit internal non-structural alterations, but these are often still subject to the landlord’s consent. It is vital to get ahead of this and submit your drawings and specifications to the landlord early on in the lease negotiation process, so that both points can be dealt with at the same time. This is often more cost effective. Check also whether alterations to the signage and/or the fascia of the premises require landlord consent. Changing the exterior look of the premises may also require advertising consent (planning permission) from the Local Planning Authority.
When obtaining a new lease, or taking over an existing lease consider:
- Is landlord’s consent required?
- Are there restrictions on signage, external extraction/ventilation, external furniture, or kitchen installation?
- Will planning permission or building control approval be needed?
Outside seating and pavement licences
Outside seating is increasingly important to the hospitality sector, especially post-pandemic. However, the legal right to place tables and chairs outside the premises is not automatic and often falls outside the lease demise.
Your solicitor should undertake investigations to understand whether the seating area is owned by the landlord as part of its remained land, or on public highway maintained by the Local Authority.
If the seating area is not demised to you in the lease, but it is owned by the landlord, then consent is usually required to use it. The landlord may charge an additional licence fee for this.
The nature of a licence is far more precarious than a lease and can often be terminated by the landlord on short-notice, with little room for the tenant to appeal.
If seating extends onto public highway, you will likely need a pavement licence under the Business and Planning Act 2020 (originally temporary, now extended and revised). Such licences are:
- Issued by the local authority
- Typically valid for an initial period of 12 months
- Sets limits on hours, layout, and number of covers
- Conditions may be imposed (e.g. accessibility, smoking/non-smoking areas)
Consideration should also be given to insurance and liability, ensuring that the tenant’s public liability insurance extends to outside seating areas.
Top tips:
- Make sure the lease permits the use of outside space (even if under separate licence).
- Check who bears the cost and risk if the pavement licence is refused or revoked.
- Negotiate flexibility to expand or reduce outdoor space as your business evolves.
Conclusion
A hospitality lease is a significant commitment, often lasting several years and carrying substantial legal and financial obligations. Taking time to get the lease right upfront can prevent costly disputes and operational headaches later. Our team of specialist retail and leisure solicitors act for hospitality clients on a daily basis to: negotiate favourable terms, identify and mitigate risks and to protect your commercial interests.
If you’re considering leasing a pub, bar or restaurant, especially one with outside seating – ensure that you have the benefit of legal, surveying and planning advice early in the process to prevent delays to the opening event.
To speak to Alfie or another member of our commercial property team, please contact us online or call 0345 209 1000.
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