Punch Taverns to trial new lease deals

Punch Taverns is to trial a series of new lease agreements later this year which it hopes will persuade more entrepreneurially-minded people to run its pubs.

Announcing the pub company's new lease agreement options, Roger Whiteside - who heads the group's leased and tenanted division - said he wanted to attract "better quality partners who are driven by more than operating a pub at Fair Maintainable Trade (FMT) levels".

Whiteside said he was determined to encourage and incentivise entrepreneurs to run his company's pubs, to help them make more money for themselves and to stay in the business longer.

The three new lease deals are the result of months of fieldwork and forums with its licensees, Whiteside said.

The first trial of the agreements will take place in September among 150 pubs in an undisclosed region of the UK, and if successful they will be offered to all of the group's pubs currently available to let - around 500 - early next year.

The long-term goal is to make such leases available to all its 5,000 core pubs at the point of rent review or lease renewal.

Whiteside recognised success was not guaranteed: "We'll have to see how [the trial] pans out. We have tried to make the deals attractive and we should be in a position to judge by the end of this year."

He also acknowledged there would be a number of licensees who were content to run their pubs as they have always done, or couldn't run their pubs beyond current FMT levels.

"The question is, do people have the appetite to make the conversion to these deals? We want quality people running our pubs and this offers them a clearer deal and the opportunity to make more money for themselves," he added.

What's on offer?

Punch is offering two new lease deals, within which there will be three price bands, focusing on the level of fixed rent and discounts its licensees require per barrel of beer, with increased discounts kicking in as beer sales grow.

The tie on ale, lager, cider and machines will remain in all three cases, but one agreement allows licensees to opt for what Punch labels 'free-of-tie pricing'.

Briefly, a pub selling 200 barrels a year and where a licensee earned an estimated £29,000 a year could be run three ways:

On a 'short term tenancy'; what Whiteside described as a "low-risk, lifestyle-type agreement", one that would be little changed from current short term deals, with relatively low fixed rent with five yearly rent reviews, being fully tied and containing no volume growth incentive.

Longer lease deals at such a pub would be split according to the fixed rent paid, but would still aim to incentivise licensees to grow their beer sales, reflecting the level of discount per barrel, with discounts rising as revenue exceeded FMT.

For example, for a pub rented at £32,500, the 'per barrel' discount would be £120, with a volume incentive of £40 discount above its FMT target.

Such pubs would be covered by rent reviews every 10 years with an option to extend and they would be able to sell cask ales covered by the progressive beer duty (PBD).

However Whiteside said the group would be looking at how this would work, since he didn't want pubs under such agreements turfing out all their beers in favour of PBD products.

"This will be more ambitious than allowing pubs just one guest ale, but obviously they can't just sell PBD beer and nothing else," Whiteside added.

Pubs on this sort of agreement would still be required to be monitored by Brulines, but unlike the short-term deal, the lease would be assignable.

The third deal sees a pub whose rent was £40,500 accorded 'free-of-tie' pricing, with a £160 discount per barrel and an additional £20 above FMT target.

Brulines would not be required in such sites, Whiteside said, "as there would be no need [for such monitoring]".

Pubs under any of the three lease arrangements would still be tied on machines, since Punch believed it offered its licensees the best deal.

Whiteside said the new deals were the risk/reward scenario "laid bare".

He added: "We offer all that anyone who wants to run a pub could ask for in terms of support to make the business a success. And I want people to be absolutely clear about the relationship between the rent they pay and the price they are charged for the beer they sell in their pubs."

He denied Punch had been pressured into re-configuring its leases by MP-led reports into the industry's practices.

"We would have said all this anyway. At the end of the day the model needs to progress. We have 5,000 pubs we believe in and want to get to a position where can all make money."