Property Solicitors: How To Invest In Pubs And Licensed Premises

Property Solicitors: How To Invest In Pubs And Licensed Premises

If you work in the licensed trades you may be looking to grow or change your business by buying or selling your pubs or premises.

Both freehold and leasehold tenures can provide key investment opportunities. However, individuals seeking to buy or sell pubs must carefully and strategically evaluate their options.

At Else we have an expert team of commercial property solicitors that specialise in representing pub owners, landlords, and other business leaders in the licensed trade. They have put together a list of tips on how to safely invest in pubs and other licensed premises.

Invest In Pubs: Development Potential

Over the past five years, changes to planning legislation have granted developers increased freedom to convert buildings with limited planning permission.

This has provided a broader spectrum of potential buyers to the traditional pub market as it increases the asset potential for the existing tenants and relief in a market that was struggling for business buyers.

There is now fresh interest from larger operators and breweries to acquire these type of properties. Those looking to sell freehold pubs that suit both the tenancy and managed model are particularly attractive in the market, with some being sold at very good prices

Invest In Pubs: Opportunities To Look Out For

If you are looking to enter this market now is a good time to do it. Pub companies and landlords are increasingly willing to understand the operator and provide low-entry deals.

You should look for pubs with the following key characteristics; location, trading potential, and style of operation.

However, you should also be considering opportunities for capital gain potential, security, growth in trading markets, and potential supplier discounts as part of the freehold purchase.

Invest In Pubs: Limiting Risks

Pubs and other licensed properties are assets with limited liquidity in comparison to other investments and they are very capital intensive. Any investments must be carefully assessed in order to limit the risk of financial and business failure.

Although a correctly valued freehold pub should be capable of borrowing at around 75% of the purchase price, the buyer must assess whether to accept the risks involved in a new business acquisition and any further capital pressures that this might entail.

Invest In Pubs: Terms Of Agreement

When buying a lease there is a lot to consider, and as such the Terms Of Agreement are essential.

Usually, the lease will include the trading business, the trading fixtures and fittings, and an amount issued for the benefit of the lease and licenses.

However, the buyer will be responsible for their own costs and any stock will be purchased by a separate valuation on the day of completion.

If the buyer and landlord are separate entities, the landlord must be notified as soon as these terms are agreed. The landlord will then be required to create a schedule of dilapidations, as appropriate to the repairing covenants in the lease.

The wording in the repairing covenant is critical and all parties should examine this carefully in order to assess their potential liability.

Invest In Pubs: Tied Leasehold Arrangements

Tied leasehold arrangements under managed house operators can provide acceptable returns on investment.

For this to be successful the rent must be properly assessed. With tied supply terms at around 20% of gross and net margins, it would be very easy for the profitability of the business to decline rapidly if such considerations are not met.

However, if managed appropriately leasehold assignments can provide consistent profitability, and as such become very attractive when re-introduced to the buying market.

Invest In Pubs: Free-Of-Tie Leaseholds

Another popular option is to obtain a free-of-tie leasehold. In a free-of-tie leasehold the property is owned by a party who may seek to acquire a rental return on their property but has no interest in supplying wet products.

The main advantages of this are that the individual is capable of trading free of tie as well as the decreased capital demand of investing in a freehold property.

If you have a portfolio of pubs or would like to begin investing in licensed businesses please contact our commercial property solicitors via 01283 526200 for advice. Alternatively, you can send us a message and we will get in touch at a time that suits you. Click here to find out the services we provide to licensed businesses.

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