The Tenancy at Will (TAW)
It is important that you are given a copy of the TAW agreement by the company as soon as possible. Companies do not tend to make any alterations to their standard agreements. Even though this is only a short-term agreement, it will have responsibilities contained in it and it is important you understand these so you should seek legal advice before signing anything.
TAW’s are agreements which can be terminated at short notice and are often used to enable you to move into the pub and start operating the business whilst a longer-term agreement is being finalised. Companies should make it clear to you that you are taking on a temporary agreement only and as such you are not covered by any of the codes of practice or by the Landlord and Tenant Act. TAW’s cannot be assigned nor can sub-letting take place.
Rent: When agreeing the rent, ask what concessions are available in the early weeks/months of trading. Can the rent be stepped up to its full amount over a period of time? What deposit is required and will it earn interest whilst held by the company?
Trading Terms: What are the arrangements for payment of goods supplied by the pub company? Is there a credit facility available? Is a trading account deposit payable and, again, will it earn interest whilst held by the company.
Expenses: Are there any other amounts payable by you to the pub company?
The agreement should clearly state: -
• Start date of the agreement (some may also specify length of term and notice period).
• Rent payable per week and payment terms.
• Any rent deposit required.
• Other rates, taxes, assessments, outgoings applicable.
• Maintenance and repair obligations.
• Responsibility for utility and safety certificates.
• Fixtures and fittings and equipment responsibility.
• Obligation to notify the pub company of any notices received at the property.
• Requirement to vacate the property on receipt of notice from the company.
• Obligation to adhere to opening times.
• Extent of the drinks tie and payment terms.
• Details of machine tie, approved suppliers and share terms.
• Right of pub company representative to inspect premises at reasonable notice.
• Right of pub company to serve notice at any time during the agreement.
• Liability for any other fees, charges, or penalties.
Note: It is possible that the agreement will not give you any idea of likely length nor will it specify what the notice period might be. Remember a Tenancy at Will is as it states, and continuation of the agreement is at the will of each party. So, you should base your plans on the fact you could receive notice at any time.
You can, however, ask the pub company what their normal practice is in terms of dealing with terminations of a TAW.
More about the Tie
The ‘tie’ basically places an obligation on the tenant to buy certain agreed products from the company (or its nominated supplier) at prices published and determined by the company. These purchasing obligations are contained in tied tenancy and lease agreements. There are three types of tie that may apply to your TAW, you should check this before signing any agreement: -
Drinks Tie: This can vary from just having to buy just beer (partial tie) to all drink’s products i.e. beers, wines, cider, spirits, soft drinks (full tie). Remember that this may refer to both draught and bottled products.
Gaming Machines Tie: This would include amusement machines such as fruit machines, quiz machines, jukeboxes, pool tables etc. Where machines are applicable you should find out how the Pub Company deals with the split of the income.
Buildings Insurance: Most companies need to know their building is adequately insured and do so by arranging such insurance themselves and re- charging the tenant, normally on the rent invoice. You should check if Buildings Insurance is going to be charged under the TAW agreement.
So again, it’s important that you understand the detail of what ties apply to the agreement you are being offered as this will have an impact on the potential profitability of the pub and your profit and loss.
Price Lists & Discounts: The company must give you a full price list for all drinks products that you are tied for. They may offer discounts on certain products and these should also be explained. It is these prices you must use in your forecast profit and loss calculations and you should be aware these prices may differ to what may be available elsewhere, but that is what you are signing up to. An outline of trading terms (e.g. credit terms) should also be provided. Pricing and any changes to price lists should always be communicated to you in a fair, timely and transparent way.
Flow Monitoring Equipment: Your agreement may also give the right for the pub company to install flow monitoring equipment within the premises. This equipment measures the flow of beer from the cellar to the point of dispense and reports will show how many pints of each particular product have been dispensed on each and every line. Companies use this to compare dispensed volumes to purchased volumes on tied products. Flow monitoring equipment may or may not already be installed in the particular pub you are discussing and you should ask if it is installed in the pub you are being offered. The company is responsible for the installation costs, maintenance and calibration of the equipment, but responsibility for providing electricity is down to you as the tenant. The data collected in the form of reports should be shared with you and apart from its obvious role in ‘policing’ the drinks tie, it can actually be very useful for stock takers and in evaluating the success of certain brand promotions and quality checks. Many companies provide the facility for you to access these reports online or you will be able to request them from your company contact or area manager.
Breach of Drinks Tie: This is often referred to as ‘buying out’ i.e. the tenant breaks his obligation to purchase tied drink products from the company and buys from a third-party supplier i.e. outside of the tie. Pub owning companies take the drinks tie very seriously and breaking this purchasing rule is considered a major ‘breach’ of the agreement and they are likely to serve notice on your TAW and ask you to leave if you breach the tie.
The Premises
You should ask for a copy of the Premises Licence and note any conditions that apply to it. Ask the pub company if there are any issues affecting the premises licence e.g. noise orders/restricted operating hours on beer gardens etc.
You should inspect the premises, ideally with the pub company surveyor or representative, and ensure it is in a reasonable condition to open to the public. Identify any works that need to be carried out by the company and agree the timescale for these. Ask for a schedule of condition and what your obligations are on repairs/maintenance are whilst you are a tenant at will. Normally such items as building/roof/cellar cooling/dispense equipment repairs etc will remain the responsibility of the pub owning company.
Note: Because this is only a tenancy at will, you should NOT spend any significant amount of money on the premises, even on decorations, unless you have it in writing from the pub company that any money you spend will be reimbursed.
Whilst carrying out this inspection, don’t forget the domestic accommodation if there is any. It should be in a fit and proper living condition. Again, agree any works that need to be done by the company before you move in and like everything if it is promised in the future then get that promise in writing.
It is unlikely that you will be asked to purchase the fixtures and fittings, but you will be asked to keep it in good order. Ask for a full list of fixtures and fittings and check it is actually in place and in good repair.
It is a good idea to take a photographic record of trading areas and fixtures and fittings on the day of takeover.
You should also fully understand what insurances the pub company pay for (e.g. buildings, fixtures and fittings) and what is your own responsibility to take out and pay for (public liability, contents, employers etc.)
Financial Considerations
Even though this may only be a tenancy at will, you will need some form of capital behind you for a healthy cash flow and early expenses such as deposits, initial stock etc. You should talk to a licensed trade accountant who will be able to help you identify the finances needed and produce a cash flow forecast and a forecast profit and loss. There is a list of trade accountants in the Trusted Partners section of the BII website. He/she will also be able to help you with practical issues such as pricing, wage planning, registering for VAT etc.
The pub company may have some historical trading and expenses data to help in this exercise. They should also tell you about any other expenses you are liable for.
You should also appoint a stock taker and have stocks carried out regularly to make sure all is in order.
It is likely that staff will have been transferred to you under the Transfers of undertakings (protection of employment or TUPE), which is regulations that protect employees rights when the business they work for is transferred to a new tenant. It is important that the outgoing tenant provides you with the contracts of employment for any staff that TUPE to you.
Lastly, as we have tried to emphasise throughout this document, make sure you are happy with what is on offer, that promises are made in writing and ring the BII’s Landlord and Tenant helpline (01276 684449) or seek professional advice if you are unsure of anything.