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Advice for new buyers

This is a list of questions to which many purchasers need answers before starting on their search for a suitable licensed property. It is only meant to be a guide as there may be variations with every property which can be explained to you once a particular property is of interest. We hope this helps point you in the right direction. Should you have any further questions do not hesitate to contact us and we will be happy to assist.

Questions:

First a comparison chart:

Questions

Freehold

Leasehold

Tenancy

What is the difference?

You buy the building and business outright.

If taking from an existing lessee you pay for the business, fixtures and fittings and rent the building.

You buy the fixtures and fittings and rent the building.

Am I tied to a Brewer or Pub Co

You own the business, you trade as you wish

You will normally be tied for beer, cider and alcopops.

You will normally be tied for all drink supplies.

Do I need experience?

Not essential but lenders like to see some business knowledge.

Not essential as most Pub Co's and Breweries have compulsory training courses.

Not essential as most Pub Co's and Breweries have compulsory training courses. 

Do I need any qualifications?

No, but you will need a Personal Licence.

In addition to a Personal Licence you are likely to have to attend a training course and obtain certificates of training from the landlord Company.

In addition to a Personal Licence you are likely to have to attend a training course and obtain certificates of training from the landlord Company.

Can I borrow money?

Sometimes up to 70% of the purchase price, see our funding section.E

Possibly on well traded operations or if other security is offered then up to 50% loan could be available.l

No. Possible overdraft type facility.

What am I buying?

The price is a mix of property and business value.

The premium is for fixtures and fittings, existing trade goodwill and value of the lease.

You are buying the fixtures and fittings. The figure is agreed by a specialist valuer.

What is the rent and review date for?

You don't pay rent.

You rent the building. Most rents are reviewed at regular intervals, maybe 3 or 5 years. There is likely to be annual RPI increases.

The rent is renegotiated at the end of the term or at regular intervals, maybe 3 or 5 years.

Who looks after the property?

The property is entirely your responsibility.

Your lease will normally make you responsible for all repairs and decoration.

Normally you are only responsible for decoration and minor maintenance.

Are there any other costs to pay?

Stock is bought on the day of take-over. Other costs may be solicitors, licences, stock taker, stamp duty and in some cases VAT.

Probably rent in advance and a security deposit as well as stock on the day. Solicitor, stock taker, obtaining a licence and training course costs.  On new leases stamp duty may apply.

The 'ingoing' quoted normally includes an estimate of inventory value, stock and takes into account brokers fees, working capital and security deposit.

What do accounts tell me?

They should show you the recent annual turnover, the gross profit achieved and the relevant overheads.

They should show you the recent annual turnover, the gross profit achieved and the relevant overheads.  On new let leases accounts may not be available.

You are not buying the business. Limited barrelage figures may be available.

What is gross profit?

The amount remaining after the cost of purchases is deducted from sales, i.e. 50% gross profit = £50 from every £100 of turnover after deducting VAT. From this your overheads are deducted to leave a net profit. Tied houses often show 50 - 55% gross profit. Free of tie regularly show 60 - 65% gross profit.

What is a barrel?

The brewery may quote turnover as barrels, either just beer or all sales including wines and spirits which are explained as composite barrelage. 1 barrel is 36 gallons = 288 pints.

What can I earn?

It is down to you. Remember you are living out of the business, so profits are yours to reinvest.

Do I need a solicitor?

Most probably to carry out the legal work.,

Advisable to check the lease details and also the legal work relating to an assignment.

Not essential but you may wish for a solicitor to advise on the tenancy agreement.

Do I insure the property?

Yes. You will need cover from exchange of contracts. Our Innplan Insurance Department will be able to help.

Yes but your rent may include building insurance. Our Innplan Insurance Department can cover the rest.

Brewers and Pub Co's requirements vary but you will have to insure fixtures, fittings stock and Public Liability.

What happens when I want to move?

You sell your property and business. Contact Sidney Phillips to find a buyer.

You sell your lease and business. Contact Sidney Phillips to find a buyer.

You cannot sell your tenancy. You give notice to your Brewery/Pub Co.  Your stock and inventory can be valued by Sidney Phillips.

What do I do now?

Hopefully you have now decided what type of licensed premises you will go for. By keeping in touch with our offices we can update you of properties as they become available. You can check regularly on www.sidneyphillips.co.uk

 

Now we continue with individual questions:

Q - I want to buy a pub, what is the process and how long does it take?

A - The process and time scale depend upon what type to business you are buying, freehold, leasehold or tenancy. Typical scenarios are:-

 

A. Freehold - let us assume you have:

a. Sufficient knowledge for a lender to be comfortable with lending you the required mortgage;

b. Have the necessary deposit of the purchase price, cash in the bank;

c. Made an offer for a business which has been accepted, subject to contract.

1. Raising the finance:

  • The agent indicates that the offer is acceptable in principle and the solicitors will be instructed concerning a sale when you have a confirmed offer of finance;
  • You provide details of the business to your bank or mortgage broker and accounts for the business confirming the trade;
  • The lender makes an 'in principle' offer, you pay a valuation fee and wait for the valuation.

2. Confirming the sale, subject to contract:

  • Hopefully you will have a valuation report and loan offer within 2 to 4 weeks;
  • Assuming the business is still available you confirm your funding is in place and the sale is agreed, subject to contract.

The various processes between instructing solicitors, exchange of contracts and completion can typically take 4 - 12 weeks - quote often 6 - 8 weeks.

3. The contract process includes:

  • The sellers' solicitor produces a contract;
  • Your solicitor prepares lots of questions to be answered by the seller;
  • Your solicitor sends off to the Local Authority, the Land Registry and Land Charges Registry searches to confirm that the ownership of the property and business are as expected and not subject to any unanticipated or undisclosed drawbacks. Authorities vary in the time they take to respond.

If the building is old and you have any doubts about structural conditional you might:

  • Commission a structural survey. You should have the result of this within 10 days.

Assuming you are a first time publican:

  • You will need to have a Personal Licence (see licensing section to follow).
  • During the pre-contract period your solicitor will:
  • Complete arrangements for the mortgage funds to be drawn from your lender;
  • Co-ordinate the draw down of the funds, completion of the mortgage deed and the purchase of the business.

Your solicitor will not recommend exchange of contracts until he has unconditional confirmation from the lender/mortgagee that the loan will be made available for draw down in readiness for the proposed completion date.

Fairly soon after solicitors are instructed concerning the sale a detailed inventory of the trade furniture, fixtures, fittings and effects will be prepared which is to be included in the proposed sale. After the inventory has been approved by the seller copies will be provided to the solicitors for use with the contract.

4. Completion

  • You will discuss with the seller potential completion dates;
  • When your solicitor confirms that the contract is satisfactory you will pay him a deposit, usually 10% of the purchase price which will be passed to the sellers' solicitors when contracts are exchanged. When contracts are exchanged you are committed to purchase the business and will forfeit the deposit if you fail to complete in addition to the many other costs of a resale;
  • It is usual for the sale to be completed within 14 days of exchange of contracts, giving time for change arrangements to be arranged such as stock take and furniture removers.

B. Leasehold purchase

Similar to freehold but let us assume you have;

a. At least half of the purchase price as cash in the bank.

1. Raising the finance:

Borrowing is generally restricted to no more than half of the purchase price. Lenders realise that there is no security on the majority of leases so a valuation is not always necessary.

2. The valuation process is replaced with:

  • An application to the landlord/freeholder for consent to take the assignment of the lease. This can be a fairly drawn out process which includes interviews with the landlord (assuming this is a Pub Co), the supply of references and the preparation and approval of a detailed business plan.  It is likely that you will need to go on a compulsory training course run by the Pub Co landlord;
  • You will also be strong advised to commission a survey of the property to ensure that it is good condition bearing in mind that you will be responsible for putting and keeping the property in good order. However most Pub Co's commission a schedule of dilapidation on assignment which you will see and learn the landlords view on the condition of the property;
  • Once you have been approved by the landlord, the sale and contract negotiations are broadly similar to those for a freehold transaction. Typically 4 - 12 weeks - quite often 6 - 8 weeks.

3. The contract process:

Similar to the freehold transaction. In addition your purchase cannot be completed until the landlord has given formal consent to the assignment. 

 

C. Brewers' tenancy

The quickest process by far because:

  • The length of tenancy is usually fairly short;
  • Your responsibilities and liabilities in respect of the property are far fewer than for a longer lease;
  • The agreements are generally fairly simple and you may not need to instruct a solicitor to protect your interests.

Once you are approved by the landlord and have produced proof that you have the funds to cover the costs of the ingoing you take over at fairly short notice.

  • 4 weeks would be considered a leisurely time scale;
  • 1 week is by no means unusual.

During this time you need to

  • Make arrangements to have the inventory valued which you are to purchase - to be agreed between your valuer and the valuer of the outgoing tenant.

 

Q - Should I get experience?

A - Yes. Quite a few couples have a dream of running a pub but then find they dislike the lifestyle having taken the plunge. Make sure you and your partner know absolutely that you like the pub lifestyle.

 

Q - My partner and I have been made bankrupt and we have County Court Judgements against us. Can we buy a Pub?

A - The question of a freehold or leasehold is almost certainly out of the question. However, some Pub Co's or Brewers will offer a tenancy to a couple and allow them to fund part of the ingoing price out of cash flow by allowing them to pay for the trade inventory in instalments. This is only likely to happen if your trade skills are considered to be a good match for the pub in question and that your financial troubles were caused by a combination of unfortunate circumstances rather than your own bad judgement or money management.

 

Q - I have money/assets abroad. Can I raise finance in the UK on these assets?

A - Generally no. If there is a bank or other finance business in the foreign country which also has offices in the UK you could try them in the foreign country to see if they can make funds available in the UK.