FREEHOLD

What is freehold?

Freehold is where you buy the pub outright and become the owner of the premises. The term ‘freehouse’ is often applied to these pubs, though historically, it tended to refer to the fact that the pub was ‘free’ from a drinks tie rather than ‘freehold’, which is property terminology. You own the bricks and mortar and are able to make all decisions about how you run your pub. Buying a freehold pub generally requires you to have much more capital available than for a lease or tenancy, and you tend to have to run the pub with limited support from your suppliers.

What’s good about a freehold pub?

You own the pub and so are able to make your own decisions about how you operate it. You do not have brewery or pub company agreements to abide by and you are not accountable to them. You decide which drinks to stock and you can shop around for the best suppliers. Owning the premises means that you can plan for the long term. Any investment decisions you make can be assessed over a longer period. There are no rent reviews or renegotiations of agreements that can disrupt long-term planning.

As you build your business, the value of the pub is likely to increase too. You may be able to sell on your pub for more than you bought it.

Capital requirements

Buying a freehold pub requires more financial resources than a lease or tenancy. An average freehold pub will cost in the region of £ 300,000 to £ 500,000 to buy. Pubs with higher turnover and profitability will command a higher price than less successful ones. Obtain professional advice from a public house valuer, chartered surveyor or accountant as to whether an asking price is reasonable.

You may be able to borrow money to fund your purchase, but most lenders will require you to have a minimum of 30% of the asking price. You will also have to budget carefully to ensure that any loan can be repaid, and fees and interest rates need scrutiny too. See Chapter 4, Funding the Business, for more information.

Structural survey and repairs

It is important to have a thorough structural survey undertaken prior to making an offer for a freehold pub. Any repair issues need to be identified as they will be your responsibility once you have bought the property. Significant repair issues may provide an opportunity to negotiate on price or may be sufficient to dissuade you from going ahead.

Trading agreements with breweries

As the owner of a freehold pub, you have the ability to choose which drinks to stock and which suppliers to use. Many freehold pubs choose to have trading agreements with breweries. These are agreements under which the pub buys its drinks supplies from the brewery. Terms will cover price and discounts available, delivery, payment terms and beer dispense equipment. They are negotiated through a brewery representative, normally from its Free Trade department. These arrangements may be linked to a brewery loan, which some people use to help purchase their freehold pub. In these circumstances, the brewery agrees to lend you an amount of money to help purchase your freehold pub, eg 60% of the asking price. In return, you agree to stock some of their products on which you get discounts. When you start trading with them, this discount is then deducted from the value of the loan rather than off the price of the products you buy from them. In this way, the loan is reduced each time you purchase products from them.

If you have not used a brewery loan to fund your freehold pub, drinks discounts are deducted from the cost of the products or, in some cases, paid directly to you in the form of a bonus.

Other drinks suppliers

An alternative to purchasing your drinks supplies directly from a brewery is to use a wholesaler. Wholesalers stock a range of products from various breweries and drinks manufacturers. Some operate on a cash-and-carry basis while others provide a full delivery service with credit facilities. They operate by offering drinks supplies at discounted prices. Wholesalers operate in virtually every area of the UK. Most of these are reputable businesses but there are some less respectable operators too. It is advisable to do some research when deciding whether to use them to supply your drinks supplies. Factors like product quality and service need to be considered along with price and credit terms. Dealing with well-established wholesalers and ones with a good reputation is a way of avoiding potential problems.