Previous magazine articles 
Pubco Vs Private Landlords: Which Is Best for New Pub Tenants?
Despite the smoking ban and the widely-reported decline in beer sales and numbers of successful pubs, the attraction of becoming a pub landlord remains undimmed.
However, the reality of a being locked into lease is somewhat different, and while it is relatively straightforward for an aspiring pub tenant to make the move into the industry, choosing the right sort of tenancy is vital.
Roy Hudghton highlights the potential pitfalls of a pubco lease, and advocates caution when signing a private landlord's agreement…
Industry-standard pubco leases are nowadays regarded as a flawed business model by most solicitors, surveyors and property professionals in the leasing, valuation and sale of pubs. The onus and responsibility is generally placed on the individual, and the consequences can be dire for both the business and the individual if things go wrong. Would-be tenants should therefore take advice from solicitors and surveyors prior to proceeding with such agreements.
In broad terms the pubco is in control and, in our experience, rigidly insists on enforcing all of the terms of the lease, with no room for any manoeuvre. Essentially there will be no chance of achieving a rent reduction or any other sympathetic measures aimed at preserving the long-term future of the tenant as an individual.
Privately owned properties, with more generally acceptable forms of commercial leases, are normally a better proposition and they are often owned by individuals who have either been in the pub trade and have built up solid local portfolios, or by those who employ area managers from a similar background.
Private leases, however, require stringent legal scrutiny prior to being entered into, but we find that such landlords often display a reasonable degree of flexibility which is noticeably lacking in other cases.
While the rent review clause is likely to be upward only, it will normally be drawn up on a reasonably straightforward basis and will not necessarily incorporate an RPI increase on an annual basis, something which is totally unreasonable and should be avoided.
There is absolutely no point in a private landlord contributing to the failure of the tenant by raising the rent unfairly. Indeed, landlords - virtually without exception - tend to prefer their income to be stabilised, and therefore accept that pub investments will not necessarily produce rapidly rising rents on an ongoing basis.
One other important factor seldom if ever seen in dealing with pubcos, is that private landlords often motivate the tenants by offering them a kickback from the substantial level of barrelage discount the landlord receives from the supplying brewers. This level is related to their bulk-ordering status, and also to the number of outlets they own.
I have seen examples from as low as £20 per barrel offered up to £70 per barrel to the tenant, and often these agreements are staged to encourage the tenant to order more through their improved efforts, receiving higher levels of discount when certain targets are reached.
Because we operate in such a fragmented market, it is difficult to chart whether private leases are increasing, but given the undoubted drawbacks of industry-standard leases, there is a definite built-in dynamic in favour of private agreements, providing the landlords focus on the medium to long-term, and do not concentrate only on short-term gains.
This article has been edited from its original version. For the complete feature, please see Catering in Scotland magazine November/December 2008.
To join our database, go to
Media Pack on this website and click on
Subscribe.
