10 / 12 / 2020
Perplexed by property law? Relax, Solicitor Ben Dunbar is here to answer your most pressing questions…
My restaurant struggled with profitability even before Coronavirus and I now want to dispose of the premises. I have found an entrepreneur who would like to try a pop-up café at a low rent. What should I do?
The economic shock of the pandemic has put unprecedented strain on businesses in the hospitality, leisure and retail sectors. Your question will be relevant to many readers in those industries, but also anyone looking to dispose altogether of some premises or trying to reduce property costs by sharing space.
The starting position will be what your lease terms say about what you can and cannot do in terms of disposing of the premises, sometimes known as ‘alienation’. Unfortunately, the standard provisions of a lease closely restrict letting someone else in to trade from the premises. Pop-ups may be becoming commonplace but the world of leases is struggling to catch up with the concept. The usual position is that the tenant cannot part with possession, share possession or share occupation with another party. What that means in practice is that you can’t let another party into the premises either as a whole or a distinct part of the space or even throughout, for example co-retailing or hotdesking.
The landlord wants to control who is occupying to the named tenant. One of its main concerns would be that the tenant inadvertently grants any third party security of tenure or that the tenant disposes of its lease without the landlord’s consent.
The precise wording of your lease will need checking, but it is likely that it only permits you to share occupation with a company that is in the same group. Some leases do however permit sharing occupation with concessionaires or franchisees, for example in the lease of a large store where this was negotiated at the outset.
The usual two acceptable ways of disposing of the premises are by assigning the lease or subletting. These are usually permitted, subject to consent from the landlord and subject to conditions that are imposed by the lease. These won’t help here. Your entrepreneur presumably doesn’t want to enter into a formal sublease, full of the same obligations and following the same terms as your lease. Even if the entrepreneur were willing to do this, the lease will require the rent of the sublease to be at the open market level for the sublet premises. This requirement will entitle your landlord to block a subletting at less than this level. You need something more flexible, particularly if you are offering a low ‘all-inclusive’ rent.
The answer is going to be speaking to the landlord and trying to get them to agree to what is proposed. You’ll need to obtain legal advice to document the pop-up arrangement in a way that would be satisfactory to the landlord. The problem is that where the lease absolutely prohibits the proposed arrangement, then there will be no obligation on the landlord to give its consent and it will be entirely at the landlord’s discretion. The landlord will not be under a statutory or contractual duty to act reasonably or promptly in considering and responding to your application for the pop-up. One would hope that the landlord would nevertheless be open to a frank discussion about your difficulties and would agree to a temporary concession as better than the alternative of potential tenant insolvency and vacant premises. The government issued a Code of Practice for commercial property relationships in June trying to encourage landlords and tenants to speak to each other about a way forward outside the letter of their leases. Our best advice would be to get speaking to your landlord.