Rigby Cooke Lawyers are often approached by clients who have been pressured into entering into a contract or a lease for a hospitality premises without having the opportunity to undertake proper due diligence. Consequently we have prepared this list of just some of the legal issues that impact on starting or operating a hospitality business that will hopefully give you some insight before ‘signing on the dotted line’.
Too often, people buy a business or sign a lease only to find that they do not have (or cannot get) the appropriate council permits required to operate it.
Recently, a client approached Rigby Cooke who had found themselves in a bind. They were pressured into entering into an unconditional lease with the understanding that there was an existing liquor licence for a restaurant. It was later discovered that the Council had issued a permit for a liquor licence, but the terms of the permit (including the patron numbers) were not in accordance with the conditions on the liquor licence. It is not uncommon for liquor licences that were issued some time ago to be contrary to the council permit or planning requirements for the premises. However, in order to transfer a liquor licence the Victorian Commission for Gaming and Liquor Regulation (VCGLR) require a copy of a valid council permit confirming the conditions of the liquor licence. In this case the client had to apply for a new council permit at its cost and the council refused to allow the same number of patrons without additional parking provided on the premises.
Rigby Cooke’s recommendation…
Prior to entering into heads of agreement to purchase a business or entering into a lease for a premises, you should be satisfied that the premises has the permits and licences to operate the business. Take time to ensure all legal requirements are in place from the start, rather than facing complicated (and costly) issues down the track.
The Contract of Sale or Lease should be conditional on these licences and permits being in place and transferred by settlement or the commencement date of the lease.
Enquire with the relevant council and the Victorian Commission for Liquor and Gaming Regulation (VCGLR) to ensure that the business owner has the appropriate council permit to operate the business and serve liquor (if applicable), a liquor licence (if applicable) and the relevant food, footpath trading and accommodation licences.
We are often faced with circumstances where a heads of agreement is entered into prior to our involvement, but the agreement does not legally reflect what our client thought it did.
Rigby Cooke’s recommendation…
If you are entering into a heads of agreement, it is important to have your Hospitality Lawyer look over the document prior to you executing it. It is extremely difficult to negotiate new terms once a heads of agreement is signed, especially when you have paid an initial deposit.
Rigby Cooke was approached by a client who had been provided with a copy of a lease. Prior to seeking advice or executing the lease, the client undertook preliminary work on the premises in order to get the premises ready for the commencement of the lease. However, the client then wanted to subsequently negotiate the lease terms. Unfortunately the landlord considered the commencement of work to be confirmation by conduct of the terms of the lease terms. It was difficult for our client to then challenge or negotiate the terms of the lease, as acceptance of the lease terms was implied by his conduct in occupying the premises and undertaking works.
Rigby Cooke’s recommendation…
It is always advisable to have your lease reviewed and negotiated prior to occupying the premises or undertaking any works.
We acted for a client who had purchased a hotel using a different solicitor. Prior to settlement, the Council advised that there were issues with compliance with tenant installations and the essential services works that the previous tenant had undertaken. A certification of the works was never obtained by the Council and the premises was not compliant. The purchase by our client was settled despite these issues being known to all parties.
Repairs were done to satisfy Council requirements and at the time our client and the landlord bore the costs with the view that they were to be passed back to the previous tenant, as the property should have complied with building regulations at the time of settlement. One year after settlement, both parties were still waiting to recover these costs. This may also impact on your insurance. If the essential services are not up to date and there is a fire, your insurer may refuse to cover you for the damage.
Rigby Cooke’s recommendation?
We recommend that investigations are undertaken to ensure that any recent building work has an occupancy permit or final certificate issued by a building surveyor.
It is also advisable to either delay settlement until the works are completed or retain funds to enable you to pay for these works.
For more information, contact
Partner – Hospitality & Property
Rigby Cooke Lawyers
T: +61 3 9321 7926
About Rigby Cooke Lawyers
Rigby Cooke Lawyers is a full service law firm providing commercial expertise and industry knowledge to private and public sector clients across Australia.
With origins that can be traced back to the 1840s, we have earned our reputation of achieving success for – and with – our clients, by remaining adaptive to change. We do this by understanding each of our clients’ businesses and industry, and by staying at the forefront of changes in technology and legislation.
This is because, above all else, we remain true to our mission, Our People: Your Success.
Our lawyers are technically excellent in their areas of expertise; but more importantly for our clients, they are genuinely concerned with the application of the law in the ‘real world’ to get results. We are outcome-focused and commercially-minded – helping you achieve your goals in the most effective and efficient manner is our key objective.
Our clients range from some of the largest and best known Australian and overseas companies to mid-market, privately owned or publicly listed companies, government entities and private clients with a mix of commercial and family assets and investments.