Closure of business due to ending of lease

[ididntknow]

We run a small but very busy tea room that we sublet from the landlord (LL) who themselves hold the header-lease for the premises.

The header-lease LL who at present manages the business premises, will be terminating their lease in December 2021 due to the new owner of the premises being a little intrusive and confrontational in their involvement with the LL and tenants to whom she sublets. And this before the new owner takes over proper ownership of the premises in January 2022. We were hoping to sell this busy business in 2022 partly due to us getting a bit long in the tooth for running the business and due to my partner having serious health issues (he has cancer). All this has now changed.

Our lease was renewed in April 2016 and which we thought was a direct copy of our previous lease. That was until we checked it recently with a view to sell or to renew our tenancy and to see what rights or not that we had, especially with a view to selling a successful business.

We noticed to our shock that under the heading General sub heading Landlord and Tenant Act 1954, that: “The Tenant agrees that Sections 24 to 28 inclusive of the Landlord and Tenant Act 1954 is excluded from operation in respect of this Agreement”. Not understanding the full implications of this, we signed.

Having recently spent some time trawling the net to see what this exclusion meant we realised that when the header lease is terminated, ours would be too. Also, I learnt that we should have been issued with a notice/declaration allowing the LL to exclude the provisions of Section 24 to 28 of the LTA 1954 and should have been given to us 14 days prior to receiving the new lease in 2016. This never happened. And so from what I understand, we no longer have a business worth selling and indeed won’t have a business at the end of the year! That is unless we sign a new lease with the new owner who is very liberal with issuing letters via her solicitor. This has proved to be a real blow after 10 years of hard work and looking forward to retiring in our sixties and now have that snatched away from us and notwithstanding my partner having cancer.

Looking at our options:
1. Sign up to a new lease with the new LL, a contract that we feel may be unfavourable and leave us vulnerable with our tenure. All this to hopefully sell early 2022.
2. Sell the business before termination of the header-lease and without a lease. Doubtful and not enough time.
3. Walk away from the business and cut our losses. The only hassle free option?

So I would like to know:
1. are we required to issue a Section 27 to our present LL, issue them 3 months notice of our intention to leave.?
2. and with regard to End of Agreement will we be required to return the Property to the LL in good state and remove any additions we’ve added ie shelves, storage etc and is the LL required to give us time to do so, especially with removal of equipment? We may consider closing down before the current LL terminates – they haven’t given a date yet, only sometime in December and we don’t want to be caught out.
3. and, if the new LL who takes over in January 2022 is not happy with regard to leaving the property in good state, can she retrospectively call us back after we’ve left and is there a time limit on that?

Any advice with our situation would be much appreciated.

 

[The Byre]

That is unless we sign a new lease with the new owner who is very liberal with issuing letters via her solicitor.

Obviously, a woman who makes nails that have heads on them (German saying). In plain English - she does things properly. She gets legal advice BEFORE she does anything - something you should have done!

So my 30 cents worth is to say yes to a new lease and then sit down with a decent property lawyer and thrash out what to ask for and what to watch out for. Then take any lease agreement offered to that solicitor and get them to go over it.

Yes, it will cost you money - good lawyers and good accountants cost good money. But as you have found out - NOT going to a good lawyer is far more expensive!

 

[Deleted member 59730]

So my 30 cents worth is to say yes to a new lease and then sit down with a decent property lawyer and thrash out what to ask for and what to watch out for.

Or before you do that ask a professional commercial property estate agent for advice on value.

While the circumstances may vary I did that once, renewed the lease and sold it straight away making a very quick and useful profit.

 

[Lisa Thomas]

I'm sorry to hear your circumstances.

To comment on your options per your list:

I guess 1) will depend on how flexible the landlord is and whether your business can actually be sold (and how much for).

I agree that 2) doesn't seem feasible in the circumstances.

3) May be the only real option here. Have you had the business valued by a professional agent? I guess the potential (lost) sales value will determine how disappointed you will be.

I don't mean to sound harsh, but if the business is (hypothetically) worth very little then there is not much point in worrying about the lease. You could simply close and move on. So the key is the valuation.

If the company is insolvent and you liquidate and have been long time employees of the Company you may be entitled to redundancy (and other monies) than you can claim from the government.

Overall as this all relates to the lease I can only suggest you take specialist legal advice, but that will cost money and eat into any potential profit that may be made IF the deal can be done and business sold. That's one too many ifs and buts for my liking.

 

[ididntknow]

Many thanks for both of your replies and much appreciated.

To give a bit more meat to the bone: my partner was diagnosed with Pancreatic cancer in November 2019 and due to his failing health we temporarily closed the business in December (not that busy for us anyway) to sort out what treatments were available for him to go through such as chemotherapy - which he is still undergoing. Since when he has not been capable of carrying a full days work at, but does his best to help me. Up until that time he has been my right hand man with running front of house and supporting me in the kitchen and sorting out the staff.

Due to this stressful situation (survival rate for Pancreatic cancer is 5%) we decided to consider selling in 2020 but then of course the China virus hit us and we closed down. Thus not creating the best selling environment, so this was put on hold until this year to start showing reasonable returns on the business ready for selling. But then we got to hear about the header-lease LL leaving in December 2021 and the new LL (she of the head on nails type) taking over, and we both decided is it worth the stress to deal with a person who is difficult to talk to but is quite happy to poke their nose into how we run our business. This was when we paid more attention to our renewed lease 2016 and noticed the section 24 to 28 exclusion.

And of course hindsight is a marvellous thing and we should have invested in seeking out a good lawyer at the time. But do we need this stress in our lives right now, working under a LL who doesn't understand the principles of leaving the tenants to run their own business when I don't know how much time my partner has left?

Anyway, my point still stand that we were never issued a Statutory Notice of change to Section 24 to the 8 exclusion prior to signing the contract in 2016. Below from the legislation.gov.uk website regarding this:


Agreements to exclude sections 24 to 28
22.—(1) After section 38 insert—

“Agreements to exclude provisions of Part 2
38A.—(1) The persons who will be the landlord and the tenant in relation to a tenancy to be granted for a term of years certain which will be a tenancy to which this Part of this Act applies may agree that the provisions of sections 24 to 28 of this Act shall be excluded in relation to that tenancy.

(2) The persons who are the landlord and the tenant in relation to a tenancy to which this Part of this Act applies may agree that the tenancy shall be surrendered on such date or in such circumstances as may be specified in the agreement and on such terms (if any) as may be so specified.

(3) An agreement under subsection (1) above shall be void unless—

(a)the landlord has served on the tenant a notice in the form, or substantially in the form, set out in Schedule 1 to the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 (“the 2003 Order”); and

(b)the requirements specified in Schedule 2 to that Order are met.

I've highlighted Part 3 (a) with reference to not being issued a statutory notice. So does that make the exclusion void? BTW, I'm about to go out and seek legal advice from a commercial solicitor...!

Many thanks, Rachel

 

[Lisa Thomas]

If the cafe has been closed for some time then there may not be any goodwill to sell.

Sorry Rachel, I can't answer about the lease as I am not a Solicitor. Hopefully the Solicitor you are seeing can help.

Keep us updated.

 

[bodgitt&scarperLTD]

In your situation you really don't need the hassle. Businesses like these have only one value- and that's sucker value. I've seen it time and time again.

All they have is some secondhand catering equipment (worth very little) and a lease. A lease is not an asset. It is a liability- a promise to pay £XXXX per month for X years, regardless of trading conditions, as many have found to their cost during Covid. The only time a lease can have value is when the location and terms of the lease are favourable.

What usually happens is this- some starry eyed person or couple comes along, full of ideas but no brain. This is the sucker. This is who you need. Tell them that it's a great business, and that the new landlord is happy to issue a new lease to a new tenant. You only want £xxxx for having spent the last however many years building it up.

Surely nobody would be that daft?? Think again! In our little village, the tearoom changed hands last year, as Covid struck!! A three bedroom house owned by the local estate, with a tearoom downstairs. The only reason the business used to be 'profitable' is because they used to also rent the 5 bedroom house opposite for £900 (!!!!) and use it as a BnB. When the Estate management changed, and they upped the rent to a more sensible £2.5k for a property worth around 1.5mil, the tearoom owners (also going through a divorce) decided to sell.

Enter the sucker. Mother and daughter, brand new cars every year, apparently made her money in 'flipping property' but I can tell savvy when I see it and that ain't her! I'll put a pound to a silver pig that given the absence of hubby it's divorce money. Full of ideas of converting the old stables to live-in (but no concept of the idea of planning laws), and thought £250 plus VAT per day for a builder too expensive.

She paid a grand total of £90K for 'the business', consisting of a five year, full maintaining lease on this village tearoom. Based, no doubt, upon idealism and if any figures were involved, then they were figures from when the business included the BnB rented at a quarter of the market rate. That's not all. The day before she signed the contract, the country went into lockdown. Whilst I was negotiating a house purchase and asking for a discount, the thought of negotiation never even entered this woman's head, even as businesses such as the one she was purchasing were barred from opening. Had she done even a smidge of due dilligence, she would have also known that the village pub was to become a cafe/pub/post office under a 'community buyout' (basically three rich villagers put in a load of money, issue 'shares', and then wonder why nobody from the vilage council estate is interested in buying shares at £100 a go in a pub which alienates them). More importantly, she should also have seen the planning application for change of use for a barn at the top of the hill on a major hiking route- in order to open a cafe there! Walkers and cyclists no longer face half a mile down hill to the village for lunch, then a gruelling half mile back up with a full stomach. Passing trade slashed.

The previous owners got incredibly lucky. They deserved to walk away with nothing, but they found their sucker (as they once were). And so the cycle continues.

In your shoes, I'd have a go at finding a sucker, but be prepared to throw in the towel and walk away with nothing for the sake of your remaining time with your fella.




As an aside (and another lesson in the short sightednes of the sucker- that barn that's been converted to a cafe, right alongside the south downs way with in excess of 1000 people passing within ten feet of the front door in peak season? A vegetarian cafe, because the 'lifestyle' partners cared more about opening something like that than maximising profits upon the USP of the site- the massive captive market. You think your average group of mountain bike buddies want a vegan quiche? Hell no- they want a quick and simple bacon butty and a cup of coffee, and are often quite happy to wolf it down and go. Only a napkin required, you can produce hundreds with ease and minimal staff training- PROFIT! Instead, it's sit down china plates and things that need to be washed up.

A vegetarian cafe like that should be opened in a posh market town or Brighton, where the target market are numerous. Morons.

Suckers and idiots are everywhere. Look for divorced women, couples escaping the city, for the good life and civil servants with generous early retirement plans.

 

[Deleted member 59730]

I admit that the circumstances need to be right to follow my example above. Many years have passed but a couple of years ago an ex-assistant emailed me to say that my studio is now the Covent Garden Apple store.

 

[ididntknow]

In your shoes, I'd have a go at finding a sucker, but be prepared to throw in the towel and walk away with nothing for the sake of your remaining time with your fella.

I agree with all you've said Bodgitt & Scarper. The times we've heard "suckers" mince in and say "ooh, I'd love to run a tea room like this". What with the temperature in the kitchen reaching 35c as you're cooking off 1 large English breakfast literally every 5 minutes, or churning out a load of bacon butty's for 20+ cyclists, or controlling grumpy public because they've had to queue 10 minutes to be served because of said cyclists (who haven't phoned ahead to say their enroute), or waited 10 minutes for their skinny latte which they think will help them lose weight. BTW, we don't serve skinny latte, or Coke or Diet Coke (unless in powder form - I joke...! That joke goes over the heads of some of the customers when my other half was on the front).

We work fast and hard with good quality of food, hot drinks and service to boot. But we think we may need to throw in the towel on this. We don't want to deal with a new LL who could stab us in the back at any time - well I think it's already happened. So tomorrow we'll dig out a commercial solicitor, pay them a better wage than we could ever think of to see where we stand. But it looks like £30k to £40k thrown away.

BTW a tip, don't go into catering - it can make you very cynical about people and life.

 

[ididntknow]

If the cafe has been closed for some time then there may not be any goodwill to sell.

Sorry Rachel, I can't answer about the lease as I am not a Solicitor. Hopefully the Solicitor you are seeing can help.

Keep us updated.

Many thanks Lisa, we increased the turnover of this quaint little tea room fourfold in 10 years through hard graft - and there's still plenty left in the tank for a younger couple without health issues etc. Plus they may be more tolerant of a slightly unhinged LL.

I'll keep you updated.

Best wishes, Rachel

 

[The Byre]

BTW a tip, don't go into catering - it can make you very cynical about people and life.

I was a proud owner of that t-shirt in my younger years!

As for health issues, I watched as a very close friend had to go through exactly the same, so I do have some knowledge of what you are going through.

As for the business and any possible sale - I doubt that a tea shop is a saleable business.

Put it this way - I have invested in businesses and I have sold three - one sizeable one and two micro businesses. All three had actual assets that made them saleable. It was the assets that I sold. In the case of the sizeable business, it was the know-how and record of the staff that made it saleable. One of the micros had contracts that were worth something, but not much! The other had vans and equipment.

As for the businesses I invested in, none of them involved me in actually working in them. All I had to do was keep an eye on things and our Mrs. M. made sure that the books were straight and we got our money!

What you really have there is a job. You can sell a job and someone may wish to buy that job - but if I thought that a tea sop was a viable business that runs itself, I would be racing up your driveway, waving a figurative chequebook! And I ain't!

 

[Lisa Thomas]

Rachel

This may actually be a blessing in disguise. I say this, because you were intending on 'leaving' the business in January 2022. If this lease did not have the issues it has, you may have found yourself stuck with a huge liability for future rent, that you might not have been able to get out of for many years...

 

[Michael Loveridge]

The key point seems to be whether or not you were validly served with the contracting out notice.

This is a question of evidence. If the landlord can produce a copy of the notice - and particularly if they can produce some form of evidence that you did receive it then your sub-lease will automatically terminate when the head lease terminates.

However, if the notice was not actually served then your LTA rights would mean that your tenancy will survive the termination of the head lease, so that you would become a direct tenant of the new owner.

Needless to say, the new owner is unlikely to be delighted by such a development, but if you're sure of your ground you may well be able to negotiate a deal with them whereby they pay you to surrender your lease and vacate. If not, then you have the right to remain to the end of your lease, and you also have an automatic right to a new lease at the end of the lease. If the landlord is able to establish one of the grounds for terminating your lease they would have to pay you compensation in accordance with the LTA

 

[ididntknow]

Update:

Many thanks for inputs from all of you, very much appreciated.

The latest on this situation is that the tenant landlord is now terminating 31st January 2022, whereupon our tenancy automatically terminates due to Sections 24 to 28 being excluded in our contract. This won't I believe give us an opportunity to sell this profitable business due to the short notice of the LL termination and not having a business with a lease. Plus, and I know I'm lucky to be in this situation, it is too busy for me and the skeleton crew to run without my partner by my side. So we've decided it's easier to walk away without a lease renewal or sale, but be stress free from this.

One point I'd like to have your thoughts on is the tenant LL keeps asking us to write a letter to them giving 3 months notice that we're quitting so they can pass it on to the new LL who takes over 1st February. I'm confused here - if the above sections are excluded, surely a letter from us with 3 months notice isn't required as we won't have a lease/agreement after 31st January? Or am I being dim?

My partner is still having chemotherapy and is doing well all considered. We are now looking forward to spending some quality time together next year, fingers crossed!

 

[Michael Loveridge]

One point I'd like to have your thoughts on is the tenant LL keeps asking us to write a letter to them giving 3 months notice that we're quitting so they can pass it on to the new LL who takes over 1st February. I'm confused here - if the above sections are excluded, surely a letter from us with 3 months notice isn't required as we won't have a lease/agreement after 31st January? Or am I being dim?

This again tends to indicate that although the lease may contain an LTA exclusion (which may be there simply because it's just a cut and paste of the previous lease) it's of no legal effect because (as you've said in earlier posts) the necessary notice wasn't served on you.

So to reiterate what I said in my last reply - has the landlord actually produced any evidence of the notice being served? If not, you may be in a good position to negotiate a deal that would at least provide you with some financial benefit.

The 3 months' notice requirement would only be required if the LTA exclusion doesn't apply, but in any event it only kicks in after the contractual term granted by the lease has expired, so on what date does your lease actually end?

 

[MBE2017]

OP, it’s been said before, go and get proper legal advice from a solicitor. Whatever you decide you need to either continue or leave correctly.

 

[ididntknow]

Thanks Michael, no evidence of the notice has been shown because there isn't one. I know the LL will argue till blue in the face as they're already facing a hefty bill from the new owner to make good such as painting/decorating, replacing rotten flooring etc and know they'll try and wriggle off this hook.

Our original tenure is until April 2022, the new owner will now take over managing the place beginning February. Grand plans are being dreamt up in "pie in the sky land" , which won't work because it's not that sort of venue. So we want to be out by end January if not earlier.

So, after all that, are we still required to give the LL 3 months notice of termination with or without their notice of the exclusions? It was mentioned that it would save them legal fees to inform the new owner - no idea why. I think maybe they know they cocked up not giving us the exclusion notice in 2016.

Many thanks MBE, I think I'm going to bite the bullet on this and seek legal advice as you suggest. I just wanted to know where I stand with this letter I'm "required" to produce about my terminating my tenure. I really don't like being hoodwinked especially by our sneaky beaky LL.

Once again, many thanks for all your help and I'll keep you posted on my progress.

Best wishes Rachel