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Six steps to assigning a restaurant or pub lease

By Paul Davey

- Last updated on GMT

Looking to leave your existing site and assign the lease to another business owner? Follow Paul Davey's six steps to assigning a lease first to avoid any frustrations
Looking to leave your existing site and assign the lease to another business owner? Follow Paul Davey's six steps to assigning a lease first to avoid any frustrations

Related tags: Lease

Paul Davey, managing director of Davey Co, talks through how restaurant and pub owners can assign the lease on their properties if they want to move on. 

So, you own a leasehold pub, inn or restaurant and you are ready to move on. How do you go about it? Where do you start? Who needs to be involved? Is it just a matter of finding a buyer to pay your required price and then over to your solicitor to sort out the paperwork? 

Here's my six step essential guide to ensuring your lease is assigned quickly, smoothly and with minimal risk of failure or frustration.

Step one: Be prepared​ 

Before going onto the market check your lease for any obligations or constraints the lease places upon you in order to assign the lease. Some leases have non-assignment periods, often two years from the date you took the lease on.

Some leases will require you to notify the landlord about your intention to assign the lease, even well before you have actually agreed a sale or assignment with your buyer. With this in mind, ensure your business is ready for marketing. Compile an inventory of trade fixtures and fittings, get your last year's accounts prepared, prepare management reports showing sales and overheads for each month since your last year end point or keep copies of your VAT returns as they are prepared and compile an up to date staff list.

Also, make sure you have a copy of your lease to hand as your buyer, his solicitor, finance broker or bank manager, valuer and your solicitor may all require a copy. Take advice from a recognised agent early to ensure you are good to go when you press the button and to avoid unnecessary delays.  

Step two: Can you assign the lease if it only has up to two years left? ​ 

The answer is 'yes', subject to conditions. If your lease is within the 1954 Landlord & Tenants Act there are usually only two reasons why your landlord can refuse to grant a new lease upon expiration of the existing lease. These are if the landlord wishes to occupy the premises himself or wishes to re-develop the site.

If the lease is outside the 1954 Act, you will need to obtain confirmation from your landlord as to his view on the terms of a new lease and you should seek professional advice. A buyer will require comfort as to the security of his tenure of the premises if he is to pay you a decent premium for it. 

Step three: Check the state of repair

When you took over your leasehold premises there would almost certainly have been a Schedule of Condition Report produced by a surveyor appointed by the landlord. This basically details the state of repair of the property at the point you became responsible for it.

You will be required to ensure the property is in at least the same state of repair when the lease is to be assigned and in order to ensure this is the case, the landlord will instruct his surveyor to re-visit the property and produce a report itemising any works required. You will be responsible for the cost of these works – it will be covered in the repairing obligations clause within your lease.

It is advisable to have this report produced early on, in order to ensure there are no unexpected nasty surprises from a cost point of view.  

Step four: Agree the sale 

As any decent agent will tell you, agreeing a sale is frequently the easy part and it is from here that the real work starts. You must remember at all times that although you have agreed your sale with your chosen buyer, there are in fact three parties involved in a leasehold transaction, not two. Your landlord will require satisfaction over your buyer’s suitability and reliability as a prospective lessee – if he is not, you will not be allowed to assign your lease to him.

Whilst almost all leases have a ‘not to be unreasonably withheld’ provision in respect of the lease assignment, at the very least he will require trade or personal references, a bank reference, sight of a business plan and cash flow projection proving your buyer is at least planning to be able to pay his rent, and will also probably wish to meet him in order to grant permission for the lease to be assigned to him. Your agent should take responsibility for collating all of this, together with obtaining confirmation of your buyers finance arrangement, if indeed he hasn’t already done so prior to agreeing the sale. If your landlord is a pub company and your lease is tied, they will also need to be satisfied your buyer will operate the pub within the terms of their trading agreement and is suitable for the size and style of your particular unit within their tied estate

Step five: Instruct a solicitor 

You as current lessee, your buyer and the landlord will all instruct your own solicitors. Your solicitor will prepare a draft contract and send it with a copy of the lease to your buyer’s solicitor. He will also contact the landlord solicitor to put him on notice that an assignment is required and a ‘licence to assign’ document will need to be produced. This document will need to be approved by your buyer’s solicitor also. The references and business plan will be forwarded by your agent either to the landlord directly, or to their agent if they use one to deal with assignments for them. The interview needs to be arranged, and your buyer will probably need to produce a copy of his personal licence at or before the interview. Your buyer’s solicitor will raise enquiries against the contract, obtain the searches and liaise with your buyers mortgagees/brokers if he is not a cash buyer.

Step six: Exchange of contracts and completion​ 

It is only at the point of exchange of contracts that you, your buyers and your landlords are legally bound to complete the assignment. Therefore the sooner you are in this position, the chances of the sale falling through are substantially reduced or eliminated. This is why it is important to be properly prepared before you market your leasehold business. There can be a delay in between exchange and completion in order to have property repairs completed if this has been agreed between all parties at the negotiation phase. If this is the case, your contract will probably need to be conditional upon this. Completion is the date you receive your money and you hand over your keys. Don’t forget the stock take, as this will also be carried out on completion day, the cost of which is usually split 50:50 between buyer and seller.

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