Bursting the soap bubble

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If we believe all we see on TV then valuing a pub is a straightforward matter - but Kerry Rogan discovers the soaps don't always get it rightThings...

If we believe all we see on TV then valuing a pub is a straightforward matter - but Kerry Rogan discovers the soaps don't always get it right

Things are on the move in the pub market - or at least they are in the world of the TV soap operas.

Sharon and Peggy are battling it out for ownership of the Queen Vic in Eastenders (pictured middle)​, while Fred, who bought Coronation Street's Rovers Return (pictured top)​ as a present for his bigamous wife, Eve, is less than enthusiastic about carrying on without her.

Bar Brookie in Channel Four's Brookside has just been sold and even Emmerdale's Woolpack (pictured bottom)​ is facing change, with licensee Bernice heading off on a cruise ship, leaving her mum in charge.

In soapland the pubs change hands frequently and for what seem to be completely arbitrary sums of money - the Queen Vic was once sold for a fiver.

But in the real world valuations are taken far more seriously and there are many things that need to be considered.

Richard Shaw from the Stonesmith Partnership, said: "Valuers complete a thorough examination of the property, take all necessary details, inspect licences, fire certificates, environmental health notices and complete informal local authority enquiries."

The first thing a valuer will consider is whether the pub is leasehold or freehold, whether it is tied or free and so on.

Barry Gilham, from Fleurets, said: "The Queen Vic was originally a brewery tenancy but it has been a freehold freehouse since the days of post-Beer Orders disposals.

"The Coronation Street scriptwriters have difficulty with the concept of pub ownership, but given continued brewery input I would suspect the Rovers Return is now a tenancy or lease. Fleurets has let hundreds of pubs similar to the Rovers over the past year or so and I would expect the annual rent to be in the region of £25,000."

Barney Bettesworth of Bettesworths said it is also important to know the reason for the valuation. He said advising on an asking price can often be different from valuing a pub for insurance, capital gains tax or rating values.

The next stage for the valuer is to consider the location of the pub and any outstanding features it may have.

"The Woolpack in Emmerdale will have a paddock at the rear where an owner could keep his pony," said Barry, who often uses soap pubs as an example of how real pubs should be valued.

"Property values are high in the Yorkshire Dales and a buyer will need a substantial deposit.

"The Queen Vic caters for some unsavoury characters but is also in an up and coming yuppie area. House prices locally will mean that the Queen Vic will sell for not less than £400,000 today."

Richard agreed. "Location of a pub is obviously important," he said. "A pub located in a main road position should be able to pick up a reasonable amount of passing trade, whereas a pub tucked away in a rural location will need a landlord who can draw customers in."

Location may also have an influence on whether a new owner decides to keep a pub as it is, or consider converting it.

According to Barney, in locations where residential values have risen and business has remained static, some owners may be tempted to look for an alternative use for the property.

Conversions could include a change to a private house, fast food outlet or restaurant - but, Barney warned, it is not always easy.

"Planning permission must be obtained and this is not a forgone conclusion, especially in a small village where there is no other pub," he said. "Trade and relations with locals could be terminally damaged if an application for change of use were to fail."

But he added there could be a way round the problem. "Another point to consider is whether part of the pub car park or garden can be sold for development. Residential plots in the country are fetching really good prices, sometimes in excess of six figures," he said.

"Any diminution in value of the pub, must, however, be taken into account when selling off part of the garden or car park."

Pub companies have changed the licensed property market recently by snapping up individual freehouses, which pushes up their value, as well as buying larger packages of pubs. Barney said: "The endless search by pubcos for more stock has helped fuel the market for freehouses - some of the pubcos are paying very strong prices."

Richard added: "More often than not for pub companies the wet trade is important, so they will always want to know the current barrelage."

Kieren Cole from Chesterton agreed. "Should the Rovers Return come onto the market my opinion is that it would be purchased by a pub group, Enterprise, Punch or Pubmaster, for example, who would see the opportunity to create a tied tenancy, and receive both barrelage and rental income."

But he suggested the Queen Vic could become a quite different venue. "If the area was to improve the nearby residents may start to include city commuters who may look at the option of buying the freehold between them and converting it to a trendy bar to ensure it remains 'local'," he said.

With the soap pubs being busy at all hours of the day, seven days a week, it is not surprising to hear that turnover is important when valuing a pub.

Barry said: "If the Queen Vic is properly run - and without the constant fights - it should have a turnover of around £250,000 and with current low borrowing costs will be a profitable outlet."

However, Barney warned that turnover is not always the most important aspect of a pub to consider.

"The multiple of turnover method of valuation is very dangerous and should only be used as a very rough guide or check," he said.

"Turnover can be boosted by special deals such as happy hours. Profitability is the most important aspect and is the name of the game."

Other important things valuers take into account include the pub's gross profit percentages and the level of wages.

Level of goodwill in relation to trade is also vital, said Richard. "The proportion of goodwill that is personal to the current landlord should be discounted as it is likely to disappear on change of ownership," he said. The value of the goodwill should be based on what the valuer considers to be the fair maintainable trade."

Altogether, valuing a pub is not a simple procedure, certainly not as straightforward as the soaps would have us believe, and not something for an inexperienced person to attempt.

Barney said: "The valuation should reflect interaction of supply and demand in the market place. This can only be fully interpreted by someone who is very close to the market, with comparable evidence of recent sales on which to base his opinion."

Valuation considerations

It is important to consider the following when valuing a pub:

  • is the pub a freehold, leaseholdor tenancy?
  • tied or free of tie?
  • where is it?
  • does it have any outstanding features?
  • is it suitable for a changeof use?
  • could part of its grounds be developed?
  • what is its barrelage and turnover?
  • would it be attractive to a large pubco?

Related topics Property law

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