OTS p24 Property Nov08.qxp 05/11/2008 16:20 Page 24
business building · property
Knowing the right
kind of deal for you
With the respective benefits of purchasing a licensed premises on a freehold tenure, leasehold tenure, or a
tenancy agreement, being very different, Peter Darroch, director of Jones Lang LaSalle licensed leisure and
hotel team explains the advantages to each, for those interested in becoming boss of their own pub.
Property ownership structures within the The term of a lease can vary considerably, Tenancy Agreements
licensed leisure and hotel sector can be very ranging from anywhere between five and 25 Tenancy agreements are normally put in place
confusing and a particular dilemma is faced years. Generally, if substantial works are to be over fully fitted public houses and are
when looking at the differences between undertaken on the unit, a longer lease is more generally for shorter time periods. A tenancy
buying a freehold property, a leasehold agreement will include a beer ‘tie’ to the
property or taking a tenancy agreement. landlord whereby the tenant must buy all of
Generally, a decision on whether to their products from the landlord. In such
consider a freehold, leasehold or tenancy cases, therefore, the tenant loses any discount
will come down to only two main attributable to beer sales. Generally prices
factors, being affordability and paid to gain a tenancy agreement are
availability of units on the market. minimal and cover the cost of only the
Each ownership structure has its fixtures and fittings.
own merits, which are summarised Whilst the level of profitability is
below. comparatively lower in relation to
freehold or leasehold property, given
Freehold Property the requirement to pay rental and
Freehold property is where you loss of discount through a beer tie, it
purchase the outright ownership of is important to note that the initial
the property and are free to trade the capital cost to enter into a tenancy
business in any way you please, agreement can be extremely low and
dependent on planning and licensing can range between £15,000 and
regulations. When you purchase a freehold £30,000.
property, you will not be tied to buy any
products from suppliers and, therefore, will What ownership structure is correct for
enjoy full discount from negotiating beer, wine you?
and spirit supplies which, in turn, will lead to Clearly most profitability can be gained from
higher profitability. owning a freehold business although an initial
In addition, as a freehold owner of a beneficial as the tenant will be able to recoup equity investment of approximately 30% of
property, you will also benefit from the the initial capital outlay for the refurbishment the market value of the premises will be
increases in value of the property as well as over a longer period of time. required.
the value of your business. Standard commercial leases allow a tenant With lease agreements and tenancy
The availability of freehold properties, or occupier of the business to sell their agreements, the entry level in terms of pricing
however, is limited and prices asked for interest at any time during the currency of the can be significantly lower although this only
available sites may be extremely high. In lease. If the business is trading profitably, a gives you the right to occupy the premises
addition, in terms of affordability, you will ‘premium’ price may be achievable for the and pay a rental to the landlord. With this, the
generally require 30% of the purchase price going concern business. However, as the level of profitability is lower although, leasing
as equity to complete a deal. premises are held on leasehold tenure, they and tenancy agreements can be a good way
will not benefit from any increases in property to enter the licensed market and trade a going
Leasehold Agreement values. concern business with limited upfront cost.
If you acquire premises on a leasehold basis, In terms of operating a business, the
you will not benefit from ownership of the level of return or profitability of the
If you do require any advice in
freehold property and will simply have a right business is generally lower than freehold
relation to assessing potential
to occupy and trade the business from the property, given the requirement to pay a
businesses, please do not hesitate
premises during the currency of the lease rental to the landlord which reduces
to contact Peter Darroch on 0141
agreement. For the benefit of occupying and profitability. In general, the level of rental
567 6683 or by email
trading the business, you will be required to should fall in the region of 8% to 12% of
peter.darroch@eu.jll.com.
pay rent to the landlord. overall net sales of a business.
· 24 · ots · november 2008 · www.55north.com/ots_home.asp
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