Risk & Reward

In order to get the very best start from the pub you are looking at you will need an agreed set of facts, this would usually be the pub advert, figures on cash flow, break evens and gross profit (gp’s). It should also cover (where offered) promises of work to be done, such as redecoration’s or replacing cellar cooling equipment, advertising materials from the pubco and promotional literature perhaps from a recruiting seminar or from a website.

There are useful tools soon to be available in the PAS Pack that will help you calculate, record and apply these and many other variables to the venue your interested in. Being in a position to refer to these facts and figures will demonstrate to anyone wanting to take you on as a tenant or lessee that you are more than capable of fulfilling that role in a professional way.

By far and away the biggest consideration (and most overlooked) you should be asking yourself is what you think is the right level of reward in exchange for all the late nights, early mornings, weekends, bank holidays, constantly being happy for thirsty & hungry customers seven days a week. Not forgetting the dealing with cleaning, red tape, staff, licensing conditions, VAT and the occasional customer who’s had a bit too much.

Is £25,000 enough (?) is £45,000 enough (?) if you can put a figure on your reward you can place this against the premises you are looking at. Its only with such a basic figure can you go on to establish the total sales (turnover) required to meet the reward you would like. For example you might wish to ask a pub company “what level of turnover will i have to do at this site in order to take home £25,000″ understanding this calculation will inform you as to whether your goal/reward is achievable at the site you are interested in.

The following isn’t a complete list but it covers most of the essential things you should consider before proceeding.

  • Drinks & Food
  • Marketing & Events
  • Insurance & Banking
  • Health & Safety
  • Utilities / Energy Performance Certificates
  • Food & Fire Safety inc Gas / Elec Certificates
  • Training & Staff
  • Reward v Turnover

Lease Points for any potential pub tenants to be aware of:

1. Understand that signing a lease on a pub is not something that can be got out of – if the lease is for 10 years then that is a 10 year obligation to make any payments and fulfil any obligations which arise under the lease.

2. The lease may make provision for the possibility of assigning the lease to a third party during its duration (if the tenant wants to sell it on) but may well require the outgoing tenant to essentially guarantee the tenant’s obligations even after assignment.

3. A lease creates property rights and binding and enduring obligations – independent legal advice should always be sought (and taken very seriously) before entering into such a contract. It is tempting to avoid the expense of such advice at the outset but it is often the case that such costs are dwarfed by the legal costs later incurred when disputes arise because of non-compliance with obligations under a lease (which can be potentially ruinous from a personal financial perspective).

4. If the lease which a tenant acquires is over 7 years long that lease needs to be registered under a separate title number at the Land Registry – if it is not and the landlord sells his interest (the freehold) to a third party, the tenant’s right to stay in the property if the new landlord wants to recover possession of the premises will not be protected.

5. Remember that if a couple is purchasing a lease of licensed premises, the lease will endure even after any relationship breakdown – that needs to be borne in mind when determining who should be party to the actual lease (for example, if a romantically involved couple decide to acquire licensed premises together, only one of the parties having relevant experience, in the event of a separation, if both have signed up to the lease, they will almost certainly both be jointly and severally entitled and liable – the implications of that need to be considered and, if appropriate, the lease conveyed only to the party who would stay and continue to run the business in the event of a relationship breakdown).

6. It should be remembered that leases in respect of licensed premises often carry a solus tie (requiring the purchase of products from the landlord) – the business efficacy of any such tie needs to be considered – the solus tie is frequently enforceable (there are rare examples of them not being) and any departure from its terms will render a tenant liable to compensate the landlord and will amount to a breach of tenant’s obligation which could result in the forfeiture of the lease.

Chris Wright

Risk managment, specialist debt & credit advisor

Website: twinpier.co.uk Email This email address is being protected from spambots. You need JavaScript enabled to view it.
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