Pensions freedom stirs lease market

Ed Jefferson, chartered surveyor at Sidney Phillips​

The leasehold market has been a refuge for those unable to raise finance to acquire a freehold or those embarking on a new career in the licensed trade.

Over recent years there has been strong demand for free-of-tie leases from private freeholders. These are often available at relatively low premiums due to a lack of trading information and often a requirement for investment — these are frequently pubco disposals that no longer fit a corporate business model.

As well as buyers looking to run their own pub there is a diverse group of investors ranging from professionals utilising the building for their SIPP (self-invested personal pension) to villagers clubbing together to preserve their local.

This is a real growth area in our business, with one of our private clients now owning seven freehold pubs within 30 miles of our Hereford office, all of which are held as investments under free of tie agreements.

In recent months it has been noted that some operators have acquired tied leases at low premiums on terms with which they are familiar rather than take on a “new let” and having to purchase the fixtures and fittings at valuation.

The uncertainty regarding the market-rent only option has also affected the market with many vendors deciding to remain in situ to see how values may change.

Stephen Taylor, managing director at Guy Simmonds​

The premiums leasehold pubs command are usually determined by trading performances. But often leaseholders requiring a rapid exit for personal reasons such as health or matrimonial issues will compromise on the premium they seek, in order to generate as much interest as possible — and this has seen demand for leaseholds under £20,000 remaining strong.

One client called recently to discuss selling his village freehold. Its current turn-over is £200,000 (ex VAT, trading on limited hours) and would command a price of circa £400,000.

But recent liberalisation of pension rules opens up interesting possibilities. Guy Simmonds is already taking many instructions from those looking to buy pubs as a means of providing a safe home for their pension pots.

Acquiring such a pub for £400,000 and then creating a free-of-tie lease with an initial premium of £20,000 and annual rental of circa £20,000 delivers a steady 5%-plus return, better than some of the returns volatile ‘paper investments’ might deliver — with the massive benefit that the capital is safely invested in bricks and mortar under the control of the freeholder rather than investment fund managers.