Running due diligence on a landlord before you sign

The licence binds you to the building

Most leases fail on paper long before they fail in court. A brewery or brewpub licence in India is granted for a specific premises. If the landlord turns out not to own the building outright, or the floor is not approved for the use you need, you can lose months of licensing work and every rupee spent on the fit-out.

So the due diligence is on two things at once: the person and the property. Rules on documents and approvals vary by state and city and they change. Treat this guide as the list of questions. A property lawyer and a licensing consultant give the answers for your site.

Prove the landlord can actually lease it

Start with title. Ask for the sale deed or title deed, then match the name on it to the person signing your lease. Where several family members inherited the property, every co-owner usually has to consent. One unhappy cousin can stall a licence renewal years later.

• Encumbrance certificate. Ask for one covering at least the last 13 years. Many lawyers ask for 30. It shows mortgages and charges registered against the property.
• Bank NOC. If the building is mortgaged, ask whether the lender has agreed to a lease.
• Tax receipts. Up to date property tax and electricity bills in the owner's name.
• Power of attorney. If an agent signs, read the power of attorney and confirm it is still valid.

Check the building is allowed to hold a brewery

A landlord can own a building outright and still be unable to rent it to you for brewing. Ask for the sanctioned building plan and the occupancy or completion certificate. Then compare the approved use with what you plan to do. A floor approved as an office, or a basement approved for parking, can block your excise or fire approvals.

Several states set minimum distances between liquor outlets and schools, hospitals or places of worship. The distance and how it is measured differ from state to state. Walk the radius yourself before you fall in love with the frontage.

The physical checks a landlord will not volunteer

Here the brewer in us takes over. Brewing equipment is heavy and thirsty. It also drains a lot. Check these on site with your own engineer:

• Floor load. A 10 hl fermenter full of beer holds about a tonne of liquid before you count the steel, all sitting on three or four legs. Ask a structural engineer to sign off the slab, especially above ground floor.
• Power. Find the sanctioned load on the electricity bill. Electric brewhouses and glycol chillers can need far more than a restaurant. Upgrading a connection can take months and the landlord must sign the application.
• Water and drains. Brewing uses several litres of water for every litre of beer. Ask where wastewater goes and whether the drain line can take hot caustic from cleaning.
• Height and access. Measure ceiling height and the widest door. A tank that cannot get through the door is a very expensive sculpture.

Our guide to buying an existing brewpub covers the same checks when a fit-out is already in place.

Read the landlord, not just the lease

Ask how long they have owned the building and who the previous tenants were. Phone those tenants if you can. A landlord with three restaurant tenants in five years is telling you something about the rent, the building or the relationship.

Then ask the questions that matter for licensing. Will they sign the NOC and consent letters your excise, fire and pollution control applications need? Will they sign again at every renewal? Put that duty in the lease in writing. Many brewers learn too late that a landlord's signature is needed every year.

Terms that protect a long payback

A brewpub fit-out often takes three years or more to pay back. The lease needs to outlast that comfortably. Points to raise with your lawyer:

• Lease term and lock-in, with renewal options at a capped escalation.
• A rent-free fit-out period that runs until the licence is granted, not from signing.
• An exit clause if the licence is refused for a reason tied to the building.
• Who owns fixed services such as drains, platforms and the cold room when you leave.
• Registration of the lease, since many licences ask for a registered agreement.

Running these numbers against the lease is where a business plan stops being a spreadsheet and starts being a decision. That gap between knowing the clauses and pricing them into your plan is the part founders most often skip.

Red flags that should end the conversation

Some answers mean you should walk away, however good the footfall looks. A landlord who will not show the title deed. A building with no occupancy certificate and a promise that it is "being arranged". A refusal to register the lease. A demand for a large deposit in cash. A property under litigation, which the encumbrance certificate or a court records search can reveal.

None of these is rare. Each one has stopped a licence somewhere. Losing a deposit of a few months' rent hurts. Losing a fit-out worth many times that hurts far more.

Your first step this week

Before the next site visit, send the landlord a written list: title deed, encumbrance certificate, sanctioned plan, occupancy certificate, last tax receipt and the sanctioned power load. A serious landlord will send them within a few days. One who stalls has just done your due diligence for you.

Common questions

What documents should I ask a landlord for before leasing a brewpub site?

The title or sale deed, an encumbrance certificate, the sanctioned building plan, the occupancy certificate, recent property tax and electricity bills and consent from any bank holding a mortgage. Your lawyer may ask for more.

Does the landlord need to sign anything for my brewery licence?

Usually yes. Excise, fire and pollution control applications often need a landlord NOC or consent letter, sometimes at every renewal. Write that obligation into the lease.

Can a brewery go on an upper floor?

Sometimes, but full fermenters are very heavy. A 10 hl tank holds about a tonne of beer on a few small feet, so get a structural engineer to approve the slab first.

Is this legal advice?

No. Rules on title, leases and licensing vary by state and change. Use a property lawyer and a licensing consultant for your specific site.