Pub tenancy and lease agreements will include requirements to keep the property in good condition and the agreement will (or should) make clear who is responsible for what. At the end of the tenancy or lease, the pub company may claim for ‘dilapidations’ i.e. for the cost of carrying out the repairs that should have been done by the licensee. As might be imagined, this is an area where disputes are rife.
Dilapidations are covered by the Landlord and Tenant Act 1927. This states that a landlord can only claim for any diminution in the capital value of the property that stems from repair obligations not having been undertaken. The Act also disallows the landlord from charging for work where tenants intend making alterations e.g. repairing an internal wall which will then be removed as part of a renovation scheme.
Most tenancies these days are, what is called, ‘put and keep agreements’. This means that if something is in disrepair, you take on the responsibility to put it right. Some pub companies have used this to claim the cost of rectifying very long-standing structural faults so tenants need to take great care before signing the agreement, including getting their own structural survey. They should then negotiate some kind of discount to compensate for the work that both parties agree needs to be carried out. An agreed schedule of condition at the start of the tenancy will limit both liability and the scope for later argument.
Pub companies are required to provide a schedule of dilapidations either six months before the tenancy ends or within two months of notice being served on or by the tenant. (However, a wise tenant will start negotiations well before this. They could, for instance, insist on an annual ‘want and repair’ schedule documenting any potential issues, thus making unexpected final demands easier to challenge.) The company will employ a surveyor to inspect the property though the tenant will have to meet the cost (around £800). The outcome will be a schedule setting out all the alleged breaches of repair liability along with a bill payable to the company to carry out those repairs — although the tenant can choose to arrange the repairs themselves, which just might turn out cheaper.
Should the tenant not accept the report they can then appoint their own surveyor (albeit at a cost). The parties then need to negotiate agreement on a fair bill — easier said than done in many cases. If no progress can be made then the Royal Institute of Chartered Surveyors offers a Dilapidations Dispute Resolution Scheme which levels the playing field by having an independent surveyor produce a report. Outcomes can be revealing e.g. in one case the company’s surveyor costed repairs at £168k while the independent’s figure was £25k.
Tenants and tenant campaigners regularly accuse pub companies of ‘trying it on’ with dilapidations, using them both as an income stream and a deterrent to pursuing the Market Rent Only option. They also have evidence that where the costs of dilapidation are charged to outgoing tenants, the work is rarely if ever done and therefore inherited by the new people. The Pubs Code Adjudicator acknowledged the difficulties that often arise and so established a working group, led by the British Beer and Pub Association, to investigate what could be done to address the issues. The final guidance was due to be published ‘by the end of 2019’ — nothing has yet materialised but the BBPA are ‘hopeful’ that it will by the end of 2021. (At time of writing, October 2023, there is still nothing.)
A tenant who does their homework, looks after the pub and knows their legal rights ought to have little to fear but messy disputes still arise far too often. We’ll finish off with one such story.
In 2005, a couple took on a pub company pub in the Peak District on a one-year Tenancy at Will basis. Before doing so they sensibly had surveyors carry out a full structural survey. During the first year they spent around £50k of their own money on refurbishing the interior (which was in a terrible state). They then began negotiations on a 21-year lease. The survey had revealed some substantial structural defects, notably an eroded and bowed external wall (a very long-standing issue) and rampant woodworm. The company agreed to treat the latter but refused to repair the former, threatening to withdraw the lease offer if the couple didn’t sign it. Faced with losing the money they had invested and with nowhere else to live, they felt obliged to sign.
Over the next 14 years, they worked hard and built a strong business, investing a further £120K of their own money. The wall problem was raised many times with the company who continued to do nothing. At the most recent rent review, the couple decided to pursue a Market Rent Only option under the Pubs Code. The company, which up to then had never produced a dilapidations schedule, suddenly presented one demanding that the wall be fixed at a cost of £78k. The couple are clear in their own mind that the two events were closely linked and that this was bullying behaviour by the company — for whom they have made a great deal of money over the years. However, given the longer-term advantages of going MRO, they decided they had no option but to pay up.
Paul Ainsworth
Paul Ainsworth
Paul Ainsworth
Paul Ainsworth
Paul Ainsworth
Paul Ainsworth
Paul Ainsworth
Paul Ainsworth
Paul Ainsworth
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