Property

Leases: How to sell on your pub business

By Paul Davey

- Last updated on GMT

Leases: How to sell on your pub business

Related tags: Pub company, Landlord, Want, Lease

You’ve been in your current pub for five years and you’d like to realise your assets and take a break before you decide on the next challenge in your career. Trouble is there’s five years left on your lease and no one has told you how to go about assigning the business. Paul Davey reveals how its done

All leaseholders expect to complete at least the full term of their lease. Yet the reality is that circumstances change over what can be a lease period of epic lengths. The result of that is that the lease needs to be reassigned to a buyer, but many lessees are never told how to prepare for selling on their businesses. Paul Davey from business agents and valuers Davey Co, gives us his seven tips on how to prepare for listing your pub for lease.

Understand the market

“I would say that the market is good, but the only caveat to that is that you must be able to support the proposition you’re taking to the market. You can’t just go with a hoped-for value; you need some justification to explain to a purchaser why your business is what they’re looking for in a particular site.”

Have an idea of potential buyer

“Market operators and pub operators vary tremendously in terms of how they operate, the profile of their trade and how they have got their existing business set up. 

“I say this because preparatory steps are going to be largely determined by how the current business is perceived by the market and, therefore, where the likely buyer is going to be coming from.

“In other words, if it’s an operation that is trading at full tilt, where the licensees are completely on top of the operational side of things and they’re at the top of their game, there is less to consider in terms of the assignment process. The reason I say that is because things like dilapidations may not present an issue, which can mean that the operators of that building don’t need to worry too much about it.

“Similarly, at the complete opposite end of the scale, where you’ve got a lessee in a site that has had a succession of lessees and the standard and presentation of the property is likely to warrant refurbishment, then if the likely buyer is someone who wants to refurbish it, then they [the assignor] may not need to worry about dilapidations because that issue can be absorbed in the negotiation process.

“The lessee is almost going to have to second-guess what somebody else is going to want to do in their refurbishment.”

Research the assignee

“You can waste so much time running with a lot of hot air and not actually doing the basic checks on financial affordability of the prospective assignees and making sure they have a chance of standing it up and cutting the mustard with the pubco. We do that very early on in the process because without those things, all the good intent is going to go nowhere.

“There are certain things that need to be looked into, mainly to do with the covenant strength and financial ability of the prospective assignee to take on that particular site. Not just in affordability terms, but in terms of credibility with the landlord going forward. They must have the ability and skill sets to realise that they can fulfil the terms of the business plan.”

Know the pub company’s interests

“If a pub company has got a perfectly happy scenario with a long-standing lessee paying their rent and observing the terms of the agreement, they’re going to be happy and they don’t want to see that assignment go anywhere. You could say there they’re not going to put a lot of resource into facilitating an expedient and smooth assignment, as it is not really entirely in their interest for the current lessee to disappear.

“If they’ve got a problem with the existing lessee and they’re keen to see that existing lessee replaced by somebody more competent that can take the business further in a different direction, they’ll probably be viewing that transaction differently to somebody that is already doing well there.

“The landlord is only interested in the interests of the landlord. The existing lessee, therefore, has to facilitate everything happening well with the landlord in order to facilitate the sale of the business at thepremium that’s first negotiated.”

Have paperwork in order

“The things to consider are dilapidation and the requirements that may fall to the outgoing lessee or incoming assignee and if they’re going to absorb those dilapidations.

“They [the sellers] need to have all their accounts up to date, including profit/loss accounts and VAT returns, to assist in the correct assessment of the best possible premium return.

“The basic property certification, meanwhile, all needs to be up to date.”

Know the pub company’s code of practice

“Each pubco has its own variation in terms of code of practice. They’re all very similar, but they all have their own nuances and some company landlords have codes of practice that need close management.

“Codes of practice have different requirements; different hoops for prospective assignees to jump through; and change even with the same pub company. So it is fraught with potential complications and it does need careful management by somebody that knows what they’re doing.

“You could possibly say on a freehold sale, it’s far easier because there’s only two parties (buyer and seller). In a lease you have a tripartite scenario where, unless all three are happy, nothing is happening at all.”

Keep the BDM in the loop

“The interaction between the assignee and the pub company, through its BDM (business development manager), needs to be handled in the right way and should only occur when certain things have been put in place, such as the business plan that they’re going to be discussing. The referencing for the prospective assignee also needs to be looked at by the agent that is managing their process.

“In other words, it’s a case of getting all the ducks lined up in a row, so that when there’s the first interaction between the landlord and the assignee, a number of matters have already been attended to. Always proceed in this way rather than leave it to the existing lessee to contact the BDM and putting them in direct contact with the person that wants to take it on — that is a recipe for disaster.”

Related topics: Property law

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