Exiting licensees cash in on assignable pub leases

Prices of assignable leases are rising as the UK pub market is witnessing a shortage of available freehold premises.

While the larger pub chains are snapping up good freehold premises at premium prices, increasing numbers of licensees are assigning leases at premium rates.

Yaser Martini, director of property agent Fleurets, believes assignable leases can be profitable and are a good way for newcomers to get into the industry.

He said: "Leases have been sold in excess of £100,000 in some instances. For new people coming to the industry the new letting is less risky."

Assigning the lease on a pub could bring a healthy lump sum for someone who wants to exit the pub trade and can provide a new lessee with a profitable ongoing business.

Lease reassignments can be an easy way of taking on an existing business at a reasonable price and can mean that the lessee who has built up their business can leave making a good profit. Any person who takes on the lease of a pub will take it on as a going concern and will simply take on the remainder of the lease.

The cost of purchasing such a business is generally based on a calculation of turnover and profit which will include fixtures and fittings, stock, goodwill and how much time is left on the lease. But the exiting lessee will have usually had to be in the pub for at least two-years. Unique Pub Company is one exception with no minimum length of tenure. A pub company will check the credentials of the new proposed lessee but they will generally not get involved in any of the financial transactions, as the exiting lessee will be selling direct to the new person purchasing the business.

Rob May, operations planning director of Unique, confirmed that licensees can make a profit when getting out of a pub business. "If the lessee has generated a good business in the pub they can expect to get a premium price," he said.

Peter Grove, operations director for the southern region of InnSpired, advises those considering taking on the remaining term of a lease to view at least the last two years trading performance.

Some of his pubs have changed hands for up to £195,000 "Take into consideration the turnover, wet and dry, and any additional source of income," said Mr Grove.

"Look at operational costs, everything from rates, purchase costs, fixed overheads, variable overheads, to net profits."

He also advises that in taking on a new pub, the lessee will also be taking on the responsibilities of employees and any redecorations that are required with the business.

Mr Grove said: "As you are buying the business as an ongoing concern, you are also acquiring the existing staff."

"Ensure that you consult your solicitor to reach a full understanding of your responsibilities."

Advice for licensees looking to take on an assignable lease​

• Appoint a solicitor to advise on the terms of the lease and any employment issues
• Take on an accountant to advise on the pubs performance and the value of the business
• Get a valuer to value the business, its fixtures and fittings and value stocks
• Take insurance and make sure that you are covered for all eventualities.

(Information supplied by InnSpired Pub Company)​