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31

Jul 2020

Extending eating areas into outdoor space – issues for landlords and tenants

Now that hotels, pubs, bars, and restaurants are back in business, leisure and hospitality operators are looking for ways to attract enough customers to remain viable.  Most caterers are acutely aware of the number of customers required to break even financially, and they need to reach this magic number while enabling social distancing and reassuring customers that any risk of infection has been minimised.

‘Making use of outdoor space to extend eating and drinking facilities is the obvious option if space allows,’ says Yildiz Betez, a Partner in the commercial property team. ‘However, some establishments have rushed to make changes in time for Eat Out August, without considering all the regulations and long-term implications.  Landlords and tenants need to ensure arrangements are properly documented to avoid a number of pitfalls.’

Permissions

A hospitality tenant must have permission from the landowner before putting chairs and tables in space outside the premises. 

If the external area is owned by the same landlord, such as a car park or garden area, then the landlord may be willing to grant new rights which can be done by a licence or variation to the lease (see below).

If neighbouring land which would be suitable is owned by another landowner, then you will need to approach them to get the necessary permission either as a temporary licence or a permanent easement.

If a café is in a high street and the owner wishes to place tables and chairs on a pavement, or pedestrianised street, they will need a license from the relevant local authority.  Any sale of alcohol must also be covered by the appropriate licence. 

Getting good legal advice will enable landlords and tenants to make the necessary arrangements quickly and easily.  The revised arrangements can be documented in two ways:

Short term licence

The simplest and quickest approach is for the landowner to grant a temporary permission (known as a licence) to use space outside the premises.  This will be personal to the current occupier and it will enable the landowner to end the arrangement on notice if the occupier breaches any of the terms of the agreement.

It also gives the occupier flexibility to see how it goes during the summer without a long-term commitment.  There is one trap that the landowner must avoid.  If the occupier uses the extra space for business for more than 12 months, there is a danger that they could get security of tenure under the Landlord and Tenant Act 1954, making it much more difficult for the landowner to remove them from the outside area in the future.  To avoid this, it is vital for landowners to involve their solicitors in documenting the arrangement.

Variation to the lease

If the landlord and tenant want a long-term arrangement, the best approach is to vary the lease to add a new right to use an area outside the premises and make any other required changes.  This will be a permanent change to the lease, giving both landlord and tenant more certainty and avoiding the 1954 Act issues that come with a licence.  If the lease is assigned to a different tenant, the right will pass with it, unless it is expressed as personal to the current occupier.  The potential trap for landlords here is that if the tenant has a guarantor, they must sign up to any variation, otherwise they could be released from their guarantee.  Your solicitor will ensure this is documented properly.

Other key property issues

Whichever way the arrangements are documented, landlords and tenants must also deal with a number of other key issues: 

Payment to the landowner

Where rights are granted in a licence, the landowner will expect a licence fee (similar to the rent payable under a lease).  Hospitality businesses are struggling with cashflow, so will probably request weekly or monthly payments.  They may want to link the licence fee to their turnover, but this will make the drafting more complex and introduce more administrative work for the landlord and occupier. 

If the rights are granted as a variation to the lease, a landlord may seek additional rent for use of the extra space.  Either way, commercial property owners should be realistic about what hospitality businesses can commit to.  It may be better to allow use of external space with little or no additional payment than to be left with empty premises.

Complying with the law

The occupier must be required to comply with statute.  This will already be covered in a lease, but it should also be set out in any short term licence. 

Landowners may want to include specific obligations in relation to social distancing and to reserve the right to ensure that the occupier’s use of external space does not cause a nuisance or compromise the ability of any other business to comply with social distancing rules. 

Queues will have to be managed carefully to ensure that queuing customers are kept distant from people sitting at outside tables or queuing to enter other premises.  In the past, the court has held a landlord liable for nuisance caused to one tenant by customers waiting outside another tenant’s shop.

How we can help

If changes have been implemented to take advantage of the summer sunshine and the ‘eat-out to help out’ scheme, then you should speak to your solicitor as soon as possible.  They will make sure that all the important points are covered in your lease or licence and give you a checklist of issues to think about. 

Getting this right now will ensure that both landlords and tenants can avoid potential problems later. 

For further information, please contact Yildiz Betez in the commercial property team on 0208 290 0440 or email yildiz.betez@thackraywilliams.com.  

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