How do you go about leasing a pub? What does it take to be the boss of your own thriving pub business?
Essential Face to Face Courses
- How to buy and run a pub course
- Beer quality and cellar management course
- Personal Licence course
- Beer tasting and matching course
This is our essential guide on leasing a pub and what you need to know to run your own pub & be a successful pub landlord:
15 tips for leasing a pub and running your own pub
2. How do I get pub knowledge?
3. What type of pub do I want?
4. Should I rent or lease my pub?
6. Can I run a pub or bar with no experience?
7. What are the key decisions in setting up a pub?
8. Do I rent, lease or buy the pub or micopub?
9. What are the costs and returns of renting a pub?
11. What is the potential profit from running a pub?
12. The pub business models evaluated.
13. What are the relative returns?
14. Why is a pub landlord at a massive disadvantage?
15. Why Take Our Pub and Micropub Set Up Course?
1. How do I rent a pub?
It is relatively easy to rent a pub.
To rent a pub you just need to:
- Find a pub that is available to let with either a pubco, brewery or a private pub landlord
- Agree the terms of a pub tenancy
- Undergo certain mandatory checks and credit checks by the landlord to make sure you are suitable for running a pub
- Ensure that you take a certain amount of personal licence training and understand how you ensure beer quality and manage a cellar and obtain your own personal licence to sell alcohol
The ease of renting a pub and being able to sign a pub tenancy can be the problem for a lot of newbie pub landlords. Because they are so keen to get going and they have 10 grand in their pocket to put up front the pubcos will promise them everything and before they know it they are the landlord of their own pub.
Once the newbie pub landlord signs the tenancy agreement they are then quite often stuck running a pub…... This means that the pub controls them and they are swamped with day to day issues meaning that they end up working very hard for very little. However, if you have the mindset to own your own business you can end up with a very valuable pub business and will ultimately get properly rewarded for all the hard work and sacrifices made when setting it up. To find out more read on….
The critical issue for a new pub landlord is how to get into running a pub in a way that will give them a sporting chance of making not just a reasonable income but a successful pub business which has real value.
Otherwise, all you will be doing is working very hard in your pub for no gain.
2. How do I get pub knowledge?
Brew-School offers a one day boot camp course on how to rent a pub or micropub and signing a tenancy agreement with the pub landlords.It is an essential guide on how to run your own pub business from a standing start. It will put you in control of the facts and insights of what you need to know before signing a pub tenancy or lease or committing to buy a pub.
Firstly, when we say PUB we actually mean pub / micropub / bar / tap room. The looks may vary but the fundamental principles of selling beer, wine, spirits and food are pretty much the same. So if you are thinking of any of these businesses please read on.
We assume NO previous PUB landlord experience on the course and this is ideal for somebody who would be totally new at running their own pub.
If you are thinking about signing a pub tenancy DON’T without reading on… this advice could save you and your pub business tens if not hundreds of thousands of pounds. At the very least you will go into a pub tenancy with your eyes WIDE open.
3. What type of pub do I want to rent?
There are many different styles of pub that a new landlord could choose to rent.
The British Beer and Pub Association (BBPA) have very helpfully included an example of 9 different classifications to analyse the pub finances and figures (see more below).
They are as follows:
Turnover per week
Small community local £4k
Community wet-led £5k
Community wet-led £8k
Community wet-led £15k
Rural character £5k
Rural character £8k
Town centre pub/bar £10k
Town/country food-led £10k
Town/country food-led £15k
4. Should I rent or lease my pub?
Whlist choosing the right sort of pub for you is critical, even more funamental to the success of your pub business is how you obtain and pay for your pub premises.
The easiest and cheapest way by far is renting a pub using a tenancy agreement. This offers easy in and easy out options for BOTH you the prospective tenant and also your landlord the pubco or brewery.
However, when we say easy in it doesn’t alway means it’s easy to walk away from your pub tenancy agreement if things don’t work out for you without incurring big debts.
The other option is to lease a pub. This is a sort of halfway house between renting and buying. The capital outlay is much less than buying a pub because your pub lease will probably be for between 5 -25 years. The advantage to you as a pub landlord is that the pubco can’t get rid of you easily or jack up the rent without a formal review. You will probably not be responsible for the repair and maintenance costs of the pub’s building structure during the lease. You can also sell on your pub business at the end of the lease which, as I go on to demonstrate, will have a massive impact on your overall pub business returns.
5. How do I find a pub?
If you are looking at finding a pub to rent or lease there are loads of pub finder websites listing hundreds of pubs to rent across the UK.
Some of the best are:
6. Can I run a pub or bar with no experience?
The simple answer is YES. Don’t be put off by negative press about being a publican and landlord. Running a pub is a great business. It's sociable and provides a fantastic community facility and if you get it right you can MAKE A FORTUNE. Seriously! If you have drive, determination and a passion for hospitality and get the right pub in the right location YOU COULD MINT IT. A love of good food and drink also helps.
7. What are the decisions in setting up a pub?
The thing which is going to make your pub business a success is that you need to get some critical decisions right at the very start of the process and well BEFORE renting or buying a pub or setting up the pub business.
Key decisions are:
- Whether to rent or buy a pub or bar premises (SEE BELOW)
- What type of lease do I sign if I decide to go down this route.
- Getting the right advice early on
- What rent I pay for the pub tenancy
- Having enough working capital to finance the start up of my pub business
If you are new to running a pub business or owning your own pub (even if you have worked in a pub and pulled the odd pint) then getting the essential insights before you commit to renting or buying a pub is critical. DO NOT sign a pub tenancy agreement or a lease for a pub BEFORE you understand every element of what you, as a publican, are agreeing to. Don’t go along with a pubco without first obtaining independent advice. This is essential. A pubco might appear to be helping you to start your own pub business but don’t forget they are also your pub landlord and will ensure that the tenancy you sign will be primarily of benefit to them, not to you and they will safeguard their interests as pub owner and freeholder. It’s essential that you obtain expert independent advice on renting or leasing a pub or upskill your own knowledge by doing the right independent pub start up course.
8. Do I rent, lease or buy the pub or micopub?
Whether to sign a pub tenancy agreement or lease or buy a pub is a critical consideration for those looking to run their own pub and for most people it will come down to resources. In simple terms, this means available cash or access to mortgage finance to buy the pub business.
In addition, given that you are still looking at the plans for setting up your own pub, it will also depend on your exit strategy when in the future you look to sell your pub or micro pub. I know that it seems strange to be thinking about selling your pub business before you have even got going but this is critical when evaluating your business model and your likely future returns. I’ll illustrate this through a couple of very simple worked examples of pub finance (the reality is that things are much more complicated). I have used some of the excellent resources from the HOW TO RUN A PUB website.
9. What are the costs & returns of renting a pub?
If you are looking to rent a pub from a pubco or brewery they are, as you might expect, very helpful in offering you FREE pub training, FREE business support, your own Business Development Manager and of course only a LIMITED up front FINANCIAL investment. This sounds great doesn’t it?
They will probably tell you that you can get up and running with your own pub business for as little as £15 grand; maybe less (if it is a really run down pub in a dodgy area….that they can’t find anyone to lease) and also that you don’t need to worry that you have never run a pub before BECAUSE they will help you with everything..ok…right. All YOU need to do is sign this standard pub tenancy and you are ready to get going. FANTASTIC.
However, just stop …do you know what are you signing? Are you an expert on landlord and tenant law and do you understand the full effect of the Landlord and Tenant Act 1954 and how that impacts on you as the new landlord of the pub as detailed in the 50 odd page tenancy agreement.
10. What is a pub tenancy?
The first thing you should know is that at the end of the tenancy period for the pub you as the landlord have NO security of tenure. Having built up a great pub business the pubco is under NO legal obligation to allow you to stay. So for instance at the end of the tenancy the rent comes up for review and your landlord or pubco can double it overnight. You as the pub tenant have the options of paying the increased rent on your pub, appealing the rent increase (expensive and long winded) or leaving.
In the Morning Advertiser the former BII Licencee of the year Bill Davison left his pub after 16 years after the pubco tried to double the rent on the tenancy renewal.
As well as having no security of tenure with a tenancy you as the pub landlord cannot sell on the Goodwill of the business because you cannot assign a tenancy to another party. So, having spent 3 to 5 or even 10 years building up a business, you have nothing to sell at the end.
Looking at the tenancy agreement or lease agreement you sign with the pubco do you really know:
- who has responsibility for the maintenance of the building
- if you improve the pub and invest in it how will you get the benefit on the sale of the pub business
- how will signing the pub lease impact on what beers and wines you can sell
- who can you buy them from and ultimately what will the beers and wines cost?
These are just a handful of literally a hundred or so of these questions that you should be asking.
The pubcos won't be telling you what the important questions that you should be asking are. Without professional guidance or an insight on what questions you need to ask the pubcos before entering into a lease, of which there are many varieties, you will be walking blind into what could be a pub business disaster.
There are unfortunately literally tens of thousands of stories where uninformed, well intentioned, new pub landlords have crashed and burned in months or worked like a slave for years having only realised after they have signed the pub tenancy agreement what massively important constraints were placed on their business by the tenancy agreement or lease. Unfortunately, by then it’s all TOO LATE.
Don’t be one of them..
Let’s have a look at the effect on your potential profit from renting a pub vs buying a pub.
11. What is the potential profit from a pub?
OPTION 1 - PROFITS ON A PUB TENANCY WITH A PUBCO
Year 1 - 5 Pub Tenancy with a pubco
Take the example of a wet led pub tenancy with a gross profit of £4000 per week that the pubco is looking at getting you to take the lease on. The figures have been taken from the HOW TO RUN A PUB website and are based on British Beer and Pub Association
Turnover £4000 * 52 = £208,000 pa
Wages/ salaries (20%)= £41,600 pa
Trading profit (16%)= £33,280 pa
Out of the trading profit you need to pay the rent or mortgage
Rent (9.6%)= £20,000
Net trading profit=£13,280
The above shows that profit plus wages/ salaries are: £54,880. This is the money before tax which could be available to pay you for running and working in the pub. However, remember you probably won’t be able to run the pub, clean the pub, work 7 days a week in the pub; so inevitably this money will have to pay some staffing costs.
OK so we assume that there will be enough for a decent wage for you if not a fortune.
Over the next 5 years you work your butt off to build up beer sales and the trade in your pub. So just before the end of the first pub tenancy you have built up the sales to £6000 a month…. a 50% increase. FANTASTIC….so what do the figures look like for your pub business?
Year 5 - 10 Pub Tenancy with a pubco
Turnover £6000 * 52 = £312,000 pa
Wages/ salaries (20%)= £62,400 pa
Trading profit (16%)= £49,920 pa
Out of the trading profit you need to pay the rent or mortgage
Rent (10%)= £xxxxx
Net trading profit=£xxxxx
OK it’s looking great…. you have upped the amount that is available to distribute to yourself and your staff to a very respectable £112,320 Obviously, because your pub is now successful you will also probably have to pay out more in wages as you need more bar staff to cope with the extra sales; but assuming you carry on working in the pub business and don’t bring in a pub manager there should still be a big increase in the amount you receive for running your own pub business, even if you will have to pay more tax.
HANG ON….. before you pat yourself on the back too much….
As you can probably see there is still the rent to pay to the pubco…. previously you were paying £20,000 or roughly 10% of the turnover.
However, the pubco can see through the monitoring of your beer sales that your pub business is doing much better and turnover is up as they have an inline monitoring system installed to see how much is being sold.
What the pubco will say to you as the landlord at the time of the pub tenancy renewal is:
- We gave you a LOW rent initially to reflect the fact that you were a new entrant into the pub industry
- The wider market conditions in your area were depressed so your pub RENT WAS LOW
- over the last 5 years conditions in the pub business have massively IMPROVED as you can see from your sales and also the 2 other pub businesses down the road have stopped trading (obviously negating their previous argument)
So we are AFRAID we are going to have to DOUBLE your rent to £40,000. This rent is still only 12.8% of your increased pub sales.
You, as a pub landlord, NOW have 3 options:
- Pay up which means that your rent goes up from just over 10% of turnover to 12.8 %
- Leave the pub and don’t sign the new pub tenancy agreement (BTW you leave with nothing because remember you don’t have a business to sell on)
- Appeal the rent decision - not certainty of success - time consuming and expensive if you use an expert to fight your corner
None of these options are great and you as the pub landlord are not in a strong position. So you elect to go with the rent increase and how do your figures look then..
Turnover £6000 * 52 = £312,000
Wages/ salaries (20%)= £62,400
Trading profit (16%)= =£49,920
Out of the trading profit you need to pay the rent or mortgage
Rent (12.8%)= £40,000
Net trading profit=£9,920
So the reality of 5 years hard graft in your pub are that you have a bigger salary bill because you have to employ more staff (remember you can’t do everything and minimum wage for all workers keeps going up) and actually despite increasing sales by 50% your net trading profit (after rent) means you are worse off! You can’t sell the pub business because you have nothing to sell and you are faced with another 5 years of working harder for less….FAIR?
OPTION 2 - PROFITS ON A OWNED PUB (MORTGAGED)
Year 1 - 5 Pub mortgage
Turnover £4000 * 52 = £208,000
Wages/ salaries (20%)= £41,600
Trading profit (16%)= £33,280
Out of the trading profit you need to pay the rent or mortgage
Mortgage (11.4%)= £23,736
Net trading profit=£9,544
The above figures are based on obtaining a £200,000 mortgage 80% mortgage on a pub valued at £250,000 with an interest rate of 3.5% payable over 10 years
In this scenario you can see that as the pub landlord you have just over £50,000 or £51,144 to be exact before tax to pay you an income and staffing costs.
This actually is only £3,736 less than you would have with the pubco but every month your mortgage liability goes down and if you have a reducing mortgage option so will your repayments. So during the first few months and years you will have less money available in the pub business and obviously you would have invested much more in terms of a 20% deposit of £50,000 together with all the associated set up costs of glassware, refurb, stock, cashflow, etc which could easily be another £25,000.
Year 5 - 10 with a pub mortgage
Turnover £4000 * 52 = £312,000
Wages/ salaries (20%)= £62,400
Trading profit (16%)= £49,920
Out of the trading profit you need to pay the rent or mortgage
Mortgage (11.4%)= £0
Net trading profit=£49,920
Why do so many pubco landlords leave burnt out and disillusioned at the end of the pub tenancy?
The 2 pub business models evaluated after 10 years:
We can see from each set of figures for the same pub business, the impact of different pub ownership models on your overall returns of being a pub landlord when running exactly the same pub with exactly the same wet sales and turnover.
The first example is where a landlord goes down the tenancy route with a pubco and the second example is where a landlord buys their own pub and invests not only time but a significant amount of capital.
The profit for the first model is that if you earn a few thousand pounds more each year in running the pub up to the 1st tenancy renewal after which you could be significantly worse off.
The real revelation is on disposal of the business after grafting for 10 years building it up.
THE CAPITAL RETURNS OF A PUBCO PUB TENANCY
Disposal value: £0 zero … zilch ….nothing ….dinarda
THE CAPITAL RETURNS OF OWNING A PUB BUSINESS
Original freehold value of pub: £250,000
Increase in value of pub:£50,000
Total value of tangible assets: £300,000
Value of pub business if sold on as a leasehold
Approximate net trading profit £50,000
value of leasehold pub business on 4 times profits £200,000
Total return of purchasing a pub with a mortgage : £500,000
Annualised returns (10 years) : £50,000
Initial investment in pub : £75,000
Returns on initial capital invested : 666%
12. The pub business models evaluated
So going back to my point about thinking through the exit strategy for your pub business. In the first case, with a tenancy despite increasing the sales of your pub business by 50% your net profits could easily fall after sustaining a large hike in rent. Even worse for the pubco tenant they leave with a business that is worth nothing even after 10 years of doing a great job.
In contrast, the “newbie” publican who is prepared to put in a significant amount of cash and make it a success will see those returns grow over time in terms of an increasing net trading profit but ultimately when it comes to the end of disposing the pub business and the pub freehold property.
13. What are the relative returns?
What are the relative returns of buying a pub as a posed to renting it from a pubco?
The above is a very simplistic example of what is a very complex question with many variables on the question of whether to buy or rent/lease my own pub or micro pub.
Leasing a pub from the right pub landlord with agreeable tenancy or lease terms can make sense in some cases. It is one of the things that we cover in depth in our running your own pub course giving you the essential insights on setting up and buying your own pub business.
What I would say in the first instance is that UNLESS a pub landlord can massively improve the sales and turnover expected for a pub then they are on to a loser with a pub tenancy. Examples of where a new pub landlord can generate a massive increase in turnover is where you introduce food into a wet pub; be aware though that all your costs including staff will also rocket along with your turnover.
YES you will put very little money in with a pub tenancy but don’t underestimate ALL the hard work of building up your pub business which will ultimately amount to nothing because it can’t be capitalised at the end of the tenancy.
In the second scenario of buying a pub, a new landlord risks MUCH MORE capital going into the business BUT you do have a very tangible asset to sell on or lease to another pub landlord. Your risk capital is far more but having looked at the figures your returns are infinitely more.
14. Why is a pub landlord at a big disadvantage?
Why is a new pub landlord at such a massive disadvantage when signing a tenancy agreement or lease with a pubco? Think about pubcos who have now been around for several decades and have thousands of pubs, tens of thousands of landlords and also have a bank of highly paid legal experts drafting the text of the pub leases that they give out to you as a potential new landlord.
Do really think that everything in those pub leases haven’t been carefully skewed to be totally in their favour. You DO need to understand how these pub leases work by doing a course like this or by paying an expert for INDEPENDENT ADVICE.
15. Why take our pub set up course?
We at Brew-School obviously love beer brewing, we have helped hundreds of people realise their dream by setting up their own microbrewery, distillery, cider making business and now wineries.
At the heart of all these delicious drinks is the humble but brilliant British pub. We need more great pubs and pub landlords. Pubs are at the heart of every community and deserve to thrive if we are going to have strong communities. They are places to meet, to chat and to share ideas and to be a community. For pubs to survive we need the people new to the industry and more experienced publicans to be able to make a success of their pub business. A pub is more than bricks and mortar and a number on a pubco balance sheet. Once they are gone they rarely come back. Join Brew-School’s Pub School, create a great business and help revitalise and rejuvenate your local community. If you live outside the UK why not spread the word!
