For many people new to the pub trade the differences between freehold, leasehold or tenancy agreements can be confusing. However the decision on whether to consider, freehold, leasehold or tenancy usually comes down to what you can afford and what opportunities are available.
Here we aim to highlight the differences between the 3 forms of tenure which will be of particular use to those considering a new career in the pub or licensed industry.
Freehold licensed businesses are owned outright which means owners have the freedom to purchase products from any number of suppliers.
Freehold owners therefore enjoy considerable leverage when it comes to negotiating beer, wine or spirit prices. The ability to negotiate lower wholesale prices means that freehold operations will have higher profit margins.
As a freehold owner you will have the opportunity to benefit from increases in the value of the property as well as the value of your business.
The availability of freehold opportunities, however, may be limited and the prices asked for a favourable site may be extremely high.
Leasehold operations confer the right to occupy and trade within premises, subject to many conditions, for a fixed period of time in return for the payment of rent.
Many leasehold agreements will be subject to a tie whereby the leaseholder must purchase products from the landlord or their nominated suppliers. The price of the products under this tie is often higher than could be obtained by a freehold owner.
Leasehold agreements can be any length but are usually between 10 and 25 years, during which time the lessee is committed to pay the landlord rent.
Most leasehold agreements are assignable meaning that they can be bought and sold on the open market, subject to any new purchaser being approved by the landlord.
Successful operators can therefore increase the value of a leasehold business and sell it on at a premium just as unsuccessful ventures can lose value.
The cost of leasehold agreements is much lower than that of freehold opportunities and the initial capital investment is lower. There is also considerably more choice of available outlets.
However as leases hold little or no security for lending companies or banks, mortgages associated with leasehold agreements require significantly higher deposits and come with a number of associated conditions.
Tenancy agreements are usually short term agreements where the tenant buys only the fixtures and fittings of the business and agrees to pay rent.
Tenancy agreements are not usually assignable so profits from the business can only be made on the actual trading figures of the venture not on any capital gains.
On the termination of the tenancy the tenant returns the property to the landlord and usually sells the fixtures and fittings at valuation.
Whilst the decision often comes down to your finances and the availability of suitable properties, advice as to which form of agreement best suits your particular circumstances can be obtained by talking to one of the licence trade experts at Fleurets, the UK's largest firm to specialise in the sale and valuation of licensed premises.
Why not call your local Fleurets office for further information.