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BUYING/LEASING YOUR IDEAL LICENSED PROPERTY - HELPFUL HINTS & ADVICE

Buying And Leasing AdviceThe task of acquiring licensed property or a pub presents a very significant challenge to the prospective purchaser. Do you consider outright purchase of a freehold business (where you own the whole ‘shooting match’) or perhaps a leasehold business where you buy only the ‘key to the door’ (which can be sold on at its market value) and the fixtures & fittings of the pub? Please view our premium licensed businesses for sale on our website. These include an excellent range of diverse freehold and leasehold businesses throughout the country with prices ranging from £10,000 up to £2million.

With a freehold purchase you are ‘king of your castle’ beholden to no-one and able to negotiate significant discounts on your wet supplies which can increase profit margins very considerably. The downside is that you will have to pay a heavy price for the privilege. Freehold pubs can often command prices around 2 to 3 times the pub’s turnover and it is therefore absolutely crucial to assess the viability of the business – particularly if you propose to borrow money to fund the acquisition. Many people buy a freehold by raising specialist commercial finance. As a guide, you should have a minimum cash input of approximately a third of the total price, although additional equity may be taken into account. In most circumstances, the business should be able to repay a loan of up to 70% - 75% of the total purchase price. If you require a loan or require advice on raising finance contact our excellent associated broker who specialises in the licensed trade. Tel: Howard Thomas on 01332 344566 / 07932 107553. Quote “Guy Simmonds” to secure a preferential deal.

The attraction of a freehold pub is not only the freedom you enjoy but the prospect that every additional pound of turnover (sales) delivers additional profit to you (without the brewer or pub company taking a slice via a proportionate increase in rent). The further bonus is that improved turnover has a direct impact upon the value of the business – known as its ‘goodwill value’. So, if you buy a pub and increase its turnover and you will benefit not only from increased trading profits but a growth in the asset value. This should produce for you a very considerable capital gain upon disposal of the business. But remember what it says on the bottom of your ISA Application Form – “The value of your investment is NOT guaranteed, and may go down as well as up!” Run efficiently and profitably a freehold licensed property should prove to a tremendous investment for the owners. In future years owners should have the choice of selling the entirety through Guy Simmonds or engaging Guy Simmonds to create a new free of tie lease, thereby enjoying both an annual income and retaining the property for investment.

ContractLet’s now consider a lease offered by one of the major pub operating companies where you will be tied at full list price for a very considerable portion of your wet supplies. There will also be a very weighty legal document governing the basis on which you operate the business – including an obligation to usually fully maintain the entire premises and to insure against all property & trading risks at your cost. Such leases offer the opportunity to acquire a business that may be out of financial reach as a freehold. The fundamentals of a tied lease are that you pay a “lease premium” upon acquisition and a rent for the duration of the lease. Initial terms (on the creation of a new lease) are upwards of 10 years’ duration.

However, leasehold businesses are more often acquired on a re-assignment of an existing lease where the purchaser acquires the remaining period of the lease. Under the Landlord & Tenant Act the lease will normally be automatically renewable which provides the lessee with considerable security of tenure. The purchase price (known as the ‘premium’) buys the fixtures & fittings (in much the same way as with a conventional tenancy) but unlike a tenancy where the tenant has no stake in the asset of the business, the lessee purchases the business opportunity. This opportunity has value and is directly related to the turnover and/or profits of the business, and so (similar to a freehold) it is possible to produce a significant capital gain by improving the performance of the business. Guy Simmonds have been involved in re-assigning hundreds of these leases and they can represent excellent value for money, providing the lessee with an excellent life-style, home and income – in return for a modest initial outlay. You will find many of these re-assignable leases under leasehold properties for sale on our web-site, throughout the whole of the country.

The rent on a lease should provide the freeholder (the pub operating company or brewer) with an acceptable rate of return on its property asset. Rents in the order of 10%-15% of the VAT-exclusive turnover are the norm but purchasers should be very careful to ensure that turnover is proven or your projections of turnover are realistic. Raising finance for the purchase of a leasehold business can be problematic but Guy Simmonds has a special relationship with a leading specialist commercial finance broker who has access to a number of major lenders who will lend up to 50% of the total price depending upon the lease. i.e. you will need a MINIMUM of 50% cash input of the total lease premium, unless you have additional equity in domestic property. Usually, the easiest way to arrange any necessary loan is to re-mortgage your existing house to release sufficient equity. Letting income on the house should more than service the finance costs, and you then retain a foothold in the domestic property market as well as acquiring the business. Tel: Howard Thomas on 01332 344566 / 07932 107553. Quote “Guy Simmonds” to secure a preferential deal.

Beer BarrelsThe significant advantage of being a freetrader can be combined with the cost-effectiveness of buying leasehold by going for a ‘free-of-tie’ lease. Here the property will be owned by a private individual or a company who seeks an adequate return on their property investment but has no interest in the supply of wet products to the outlet. Such opportunities are very popular and are quickly snapped up so it’s crucial for prospective purchasers to be ready and able to close a deal when the right opportunity presents itself. Compared to a tied situation, the availability of freetrade discounts has a beneficial effect on gross and net profits, and as the value of any leasehold business is primarily based upon its net profits, increased profits will demand a higher lease premium. Guy Simmonds has a number of major investment companies who seek to acquire top-class licensed premises (purely as a property investment portfolio) and who wish to create free-of-tie leases at competitive rents – sometimes with no premium being required. Guy Simmonds also specialise in creating these leases on behalf of freehold owners who wish to retire and live off the rental income. Please contact us or view our website (under leasehold properties) to see the current businesses available.

To give prospective purchasers some guide to prices: if a freehold business were to be correctly valued (based upon its turnover) at £300,000 one could imagine the same business costing in the region of £50,000 as a tied lease, and perhaps £80,000 as a free-of-tie lease.

However, these are generalised guidelines and there are many factors which are taken into account when arriving at valuations. Please telephone us if you require advice regarding purchasing a licensed business on 01332 865112. We strongly recommend you attend our Award Winning Inn Business Training Course including the 1 day APLH Course and 1 day Cellar Course in order to gain both the essential business knowledge and the industry qualifications which you will need to obtain your licence.

From all of this, prospective purchasers can see that they face a considerable dilemma in determining the most suitable tenure option for their purposes – and all this before selecting a specific pub. We have covered this only briefly above and this is one of many topics covered in depth on the independent Guy Simmonds ‘Inn Business’ Course. Guy Simmonds expertise in both Licensed Trade Training and Property Sales is available to all those seeking to acquire licensed premises. Contact Guy Simmonds on 01332 865112, or click on our training menu to book on-line. Our Award Winning Courses are held monthly. All dates and information are featured on the website.

If you are genuinely seeking to purchase/lease a licensed property remember to either telephone on a regular basis or view our website every week to view the latest businesses we are instructed to sell.

Hardinge ArmsWhen a sale has been agreed we will require ‘proof of finance’ from the buyer including details of any loan etc. Our policy (successfully formulated over the past 35 years) is for the buyer to lodge a preliminary and totally refundable deposit with Guy Simmonds as an act of good faith, commitment plus ability and desire to proceed. When both vendor and purchaser are ready, we will then formally instruct solicitors to proceed with the transaction (full written details will be given). Our website will then be endorsed to illustrate that a deposit has been taken and solicitors instructed on each specific business. Speed on exchange of contracts is therefore in the interests of all parties and we will use our best endeavours to move the transaction forward to a speedy exchange of contracts and successful completion.

Please be assured that in the unlikely event of the sale not proceeding to exchange of contracts for any reason whatsoever then we will immediately refund the deposit on request.

On the advice of good commercial solicitors, it is not our policy to take non-refundable/lock-out deposits. We are advised that this is not good business practice and we do not want to damage our hard-earned reputation that has been built up over the past 35 years. Sales do occasionally ‘fall-through’ due to any number of reasons and it is unfair that the purchaser should be financially penalised by losing their deposit, especially if it is not the purchasers fault - likewise the agent acting for the sale should not be rewarded financially if a sale does not proceed due to the purchaser not being able to proceed. No solicitor would ever recommend paying a non-refundable/lock-out deposit. To quote the international Law firm Seddons, ‘such agreements must be entered into with some trepidation as the buyer must remember they are being ‘locked’ into an agreement and face losing their non-refundable deposit if they cannot or do not wish to proceed with the purchase’.

We can offer you our own award-winning training courses to include business management, cellar management and the APLH qualification.

We will offer our help and guidance in the buying process and if you require specialist services we will be delighted to put you in touch with our associates – which include solicitors, specialist finance broker, insurance, accountants, stock takers etc. Further details are included within this website, or please contact us for further details.

 

Guy Simmonds Business Transfers Ltd
Coppice Farm, Ashby Road, Melbourne, Derbys DE73 8BJ.
Tel: (01332) 865112 (Main number & answerphone - 24 hours & fax - 5 lines)
www.guysimmonds.co.uk
sales@guysimmonds.co.uk
Registered No. 2727033
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