Over-Burdened Hotel Lessee

NZ Truth, Issue 978, 23 August 1924, Page 7

Over-Burdened Hotel Lessee

Limit to <( Goodwiir , ' Problem of Increment m a "Strategic " Hotel Is Inflation of Lease Values a Danger to , the Public Interest? ' i; (From "Truth's" Dunedin Rep.) Deflation does not yet seem to have reachedthe prices paid for the "goodwill" of hotel leases. Perhaps the comparatively poor showing qf prohibition at last poll has helped to firm these prices. '■■':;...• But, it is, not m the public interest that hotel leases should be acquired on financial terms that may tempt the lessee to resort to dubious methods; and sometimes it is not m the private m- , terest of tine owners of hotels that leases should be trafficked with an excosaive load of overhead. In Dunedin the other day an owner who refused to consent to the trajpfor '-of a lease to a new licensee, and who was, m consequence, sued, won his case. The judgment is of more than usual interest.

Are the goodwill values, placed on come hotels an aid to the proper working of the Licensing Act arid a safeguard of the freehold owner's interest? A case bearing on the point, and possessing some unusual features, was heard m the Dunedln Supreme Court last week, when Lucy McVeigh and Alexander Richards sought to have it determined whether Charles Hull Cotton's refusal, to consent to transfer to Richards the lease of the licensed premises of the- Georgetown Hotel (of which defendant Cotton is the owner) was arbitrary and unreasonable. Georgetown is a quiet country settlement m North Otago, and is to Oaraaru what Wallacetbwn is to Invercargill; it being the Mecca of many a motor car from the no-license area. TERMS OF THE DEAL. Mr. J. B. Callan (who, with, Mr. W. h. Moore, , represented plaintiffs) said it was. on Bectlon 179 of the Licensing Act that, the application was based. The hotel In question was situated at Georgetown* some eighteen miles inland- from Oamaru. It had the advantage of being on the border of , a no-license area, and he had no doubt that this fact had considerable bearing on the action. Mr, McVeigh obtained a lease of the hotel for 'three years by the payment of £1500 goodwill and £400 per annum as rent. He also had tho right of renewal for three years. Mr. died, and his widow became the lessee from January 24 last. She entered Into a contract to sell to Richards tho balance of tho term of tho lease, from June last, the leaso then having two and a half years to .run.'- Richards was to <^pay £2500 goodwill and also take over the stock and furnishings at valuation, it being stipulated that the latter item would ndt exceed £1500. , Richards's total liability was £4000, of which £1500 was to bo paid m cash^and tho balance at the rate Of* £100 monthly, so that he >srould be clear m just over two. years time. These were the conditions that Cotton refused to give his assont to. Richards had boon granted a licohso by the Magistrate, and it was estimated that ho would make from £750 to £800 pert annum from the business, although Cotton suggested that he wouldn't make anything. After the death of McVeigh the placo had boon Bub-loased to his son, but he had not "made, a success of it and latterly It had been managed by an experienced publican from Dunedln. "Richards has been connected with hotels for a lengthy period." concluded counsel, "and has satisfactorily conducted a hotel lit Alexandra, while his wife is also an expert m tho conduct of nn hotel." ■Mr. Moore stressed the fact that Richards had been given a certificate of fitness by the Magistrate and* as Magistrates were chairmen of licensing committees it was their duty when Issuing certificates: to ascertain that an npplicunt was not likely to commit any broach of tho licensing laws. In thla case it was purely a question of finance, i His Honor: It is suggested that Richards has taken on such a financial burden that he could not carry on without committing breaches of tho Licenslng-Act or starving tho business. Mr. Moore: If tho buslnoss were starved It would be to tho detriment Of Richards rather than to that of Cotteo. When the goodwill was fixed

m 1921 things were not at their best so far as hotel-keeping was concerned, and goodwills have jumped up considerably since then. WHISKY GAMBLE IS NO INDEX. Mr. Hay (for defendant) said that Richards had been m an hotel at Alexandra, where his profits were set out as £790, which were spread over 3% years. Prior to his experience m the hotel business he was a barman, and, prior to- that, a cook. The Georgetown Hotel was m a peculiar position m that it required a man with free capital to carry on the business successfully. In 1915, when business was at a low ebb, Mr. Cotton paid £3500 for the freehold of the place, and he had really made the business. The years 1918 and 1919 were exceptionally good years, but this was because of Cotton having made a wise deal m whisky \in 1917. Last year's profit was £ICGO. There was strong competition from the Glenavy Hotel, and it was absolutely necessary that a man going into such an hotel as this should go m under the most favorable conditions. What defendant was afraid of was that the business would go back to where it was before he started to work it up. A good "deal of business had to be dono on credit with farmers, and it was absolutely essential that the man m charge should have plenty of finance. "Defendant contends that the price paid by Richards is' too high, even if he had the money to pay it all oft. The position is that out of a deal of about £4000 Richards has about £700 to put into the hotel, as the other £90 will go m legal and other expenses. The freehold has been offered for £7000, bo it is pretty obvious that a two and a half years' lease is not worth the money proposed to be paid," said counsel. There was the point, also, that the hotel, being on the borders of a no-license district, was closely watched by the police and a great deal of. solicitation was made by peoplo who came from the no-llconse area. His Honor gave Judgment m favor of defendant Cotton, holding that a tenant or lessee who is not doing well m his business may be a source of dangor to" the owner, and that the owner, m refusing his consent for tho purpose of avoiding such a contingency, is not acting unreasonably.