Restaurants, Bars, Pubs and Clubs
Selling or buying or lease restaurants, pubs, bars & clubs

Commercial conveyancing – are you considering buying a pub lease? Are you business savvy?

It is not as simple as you think and you stand to lose out if you fail to instruct specialist solicitors like Tariq Phillips at TP Legal Ltd.

In the recent case of Luffeorm Ltd v Kitsons LLP [2015] EWHC B10 (QB) (2 July 2015) it was held that the solicitor acting for the buyers had been negligent in failing to properly advise the buyers of a pub lease that without restrictive covenants against the sellers trading in competition nearby they could lose out on trade. However, the buyers failed on causation (no compensation) because the judge held that even if they had the legal advice they would still have purchased the pub. This case demonstrates that you should always choose your solicitor carefully.

We can usually divide the transaction into four main areas requiring our legal assistance:-

1. The asset/share purchase contract

2. The commercial property aspects

3. The employees

4. The licences

Selling or buying restaurants, pubs, bars & clubs

The sale of well established licensed premises includes the sale and transfer of:-

• remaining years left on the commercial lease (the property);
• reputation (the goodwill), any website and trademark rights;
• business accounts current debts and profits and advance bookings;
• existing supplier contracts and credit hire agreements;
• staff, employees and workers;
• fittings and fixtures (cookers, bars, tables for example);
• licences (to sell alcohol, play live/recorded music, or serve hot food for example); and
• stock.

2. The commercial property aspects

Commercial lease of licensed premises

The seller usually owns a commercial lease of the premises from which the licensed premises are trading. It is important to recognised at the very outset the obligations in the commercial lease. The rent, rent deposit, service charges, buildings insurance contributions, rent reviews, permitted use of the licensed premises, ability to carry out alterations to the premises, the repair and decoration obligations, and restrictions on opening times must all be considered.

What is commercial litigation?

Commercial litigation is where unfortunately one party in a business transaction resorts to commencing legal proceedings against the other over a dispute on what was agreed.

Landlord’s permission to sell the lease

Where the legal ownership of a commercial lease is changing hands, the seller will need to apply for the landlord’s consent to the sale of the commercial lease (called a licence to assign). The commercial lease usually contains the landlord’s right to require the seller to pay his legal and surveyors costs upfront and whether or not the sale takes place. The landlord will usually be entitled to make his consent to the sale of the lease conditional upon the payment of any outstanding rents and/or repairs to the licensed premises. The landlord also usually has rights contained in the commercial lease to refuse the sale to the buyer if the buyer does not present a convincing case that he will be able to run the licensed premises profitably and pay the rent on time. References will be required, including bank references to confirm that the buyer can afford to meet the rent payments on time, and previous trading references to show the requisite experience in running a successful business. If the buyer is a newly formed company the landlord will require the company’s directors to guarantee the payment of the rents and may require a larger rent deposit or other security to guarantee the performance of the obligations contained in the commercial lease. Additionally, sometimes the landlord of the licensed premises is a brewery or restaurant franchisor and the lease will contain additional legal obligations (a) to buy a minimum quantity of drink/food from the landlord and (b) to only purchase drinks/food that you intend to sell from the licensed premises from that brewery/restaurant franchisor at set prices.

Local authority searches

The buyer will want to know that the licensed premises has planning permission and buildings regulation approval and whether there are any outstanding breaches of obligations to the local authority where the premises are situated. The Town and Country Planning (Use Classes) Order 1987 (as amended) puts uses of land and buildings into various categories known as ‘Use Classes’ The current use categories are A3 Restaurants and Cafes – For the sale of food and drink for consumption on the premises – restaurants, snack bars and cafes;

A4 Drinking establishments – Public houses, wine bars or other drinking establishments (but not night clubs); and Suis Generis- clubs, nightclubs It is always recommended to instruct your legal advisers to purchase “searches” which are responses from public authorities to industry recognised questions. The cost of these searches vary from one council to another, one water authority to another and, depending on the size and location of the licensed premises the environmental bodies who can provide this information.

3. The employees

If you are purchasing an established licensed premises, it is probable that there will be existing employees. Employees’ rights are protected by the Transfer of Undertakings (Protection of Employment) Regulations 2006 as amended by the Collective Redundancies and Transfer of Undertakings (Protection of Employment)(Amendment) Regulations 2014 (TUPE).

The TUPE rules apply to organisations of all sizes and protect employees’ rights when the organisation or service they work for transfers to a new employee. The TUPE regulations apply if a business or part of a business moves to a new owner or merges with another business to make a brand new employer. Additionally, there is a legal obligation on the seller to provide the buyer with certain information about current and former staff (called employee liability information) at least 28 days before the transfer of the employees (and therefore usually the business) completes. Otherwise, the seller risks contractual and statutory claims for non-disclosure in the event an employee brings an employment claim against the buyer. Employees’ contracts of employment will therefore need to reviewed by the seller and checked with due diligence by the buyer’s legal representatives as early as possible.

4. The licences

Premises licence and personal licence for the sale of alcohol

The licensed premises will need both a premises licence and at least one personal licence for the sale of alcohol. You must be or appoint, a designated premises supervisor who must have a personal licence. Without these, the business will not be allowed to operate. The seller’s paperwork will be checked to ensure the appropriate licences are in place, and that the incoming buyer will be able to comply with any conditions. All necessary licences will be checked to ensure the buyer’s needs are matched.

Playing of recorded and live music in public places

If you play recorded music or music videos in public, you are legally required to have a PPL licence. Licensed premises playing recorded music in public (whether live or via CDs, radio/TV broadcasts, background music systems or other sources) will usually need to obtain a licence from both PPL and PRS for Music. PPL collects and distributes licence fees for the use of recorded music on behalf of record companies and performers, while PRS for Music collects and distributes for the use of musical compositions and lyrics on behalf of songwriters, composers and publishers. The range of live music performances that can take place without a licence under the Licensing Act 2003 was extended by the Live Music Act 2012.

Licence to site gaming machines

The alcohol licence gives restricted permission to operate fruit machines, slot machines. However, anybody applying for a new premises alcohol licence will need to notify the licensing authority of their intention to make gaming machines available for use, and pay the fee again. The buyer might have to register to pay.

Why use our commercial conveyancing solicitors?

We offer competitive fees. Our 10 years previously qualified solicitors are experienced with a whole range of commercial real estate transactions and will be able to handle any problems. As well as dealing with commercial lenders and banks on a variety of deals including; bridging finance, site acquisition and disposal and option agreements.

If you have any questions on this please or any other queries, don’t hesitate to get in touch with one of our specialist team of expert solicitors.