Pub tenancy vs. lease: What is the difference?
Date added: Tue, 10/12/2019 - 10:56
Do you know the difference between a pub tenancy or lease? If the answer is no, then you are not alone, because this is one of the most common questions we are asked by those interested in running a pub.
There has been a lot of scaremongering about the plight of tenants and lessees in the pub sector. For many, taking on a tenancy or lease can be an extremely profitable way to run a business and gain invaluable experience within the pub sector.
There are three different ways you can choose how to run a pub, which are explored in more detail on this post on Pub Tenancies, Leases and Freeholds. If you are not in the market for purchasing a pub outright, then your best options will be looking at pubs for tenancy or pubs for lease. Whichever agreement you decide to choose, there are pros and cons for both, so here we share a quick overview for you to digest and help you make the right decision.
Pub tenancy agreement
Pub tenancies are recognised as a cost-effective route into the pub sector, and one of the more convenient ways to own a pub business. It is also regarded as an ideal way for newcomers to dip their toes in the industry.
Tenants will not own the pub, instead they will be renting the premise off the pub landlord (such as a brewery or Pub Company like Greene King) and will assume the right to occupy the pub for an agreed period – typically up to five years – with the opportunity to extend their agreement to continue running the pub for many years. The rent will include the fixtures and fittings, stock, glassware, crockery, cutlery, fuel and other essential supplies. Should any of these need replacing or repaired, you will be solely responsible for ensuring this happens.
Pub tenancy agreements are generally a ‘full tie’ but can vary from pub companies. A ‘full tie’ means that you are required to purchase stock such as ales and cider from the pub landlord, as well as other drinks. Tenants in a ‘partial tie’ agreement will have more freedom to purchase products from other suppliers. You can guarantee that if the pub is owned by a brewery, then you will be tied into selling the brewery’s products!
During a tenancy, you will be self-employed meaning it is your responsibility to employ all staff members and pay their wages.
- You rent a pub from a brewery or pub company
- You will be self-employed and be responsible for all employees in the business
- You have shared responsibility for repairs to the property
- You cannot sell on the goodwill of the business
- Typically, a short-term agreement (five years).
Pub lease agreement
A lease or leasehold agreement means you, as the licensee, take on the right to occupy the pub for a fixed term to run the pub as their own business. The agreement is usually ten years plus, meaning many licensees can develop their business plans for the medium and long-term offering more vision and stability than a tenancy. A lease can be created by a landlord such as a brewery or can be sold or assigned by another pub owner.
This is certainly a more expensive option, but it does mean that the terms of the lease are longer than a tenancy and you will have more control over the premises and direction of the business.
The pub will usually be tied in for the beer and other products. One of the key differences to a pub tenancy is that you are solely responsible for the cost of running a pub including all the repairs and maintenance for the building. However, unlike a tenancy, you do have the option to sell on the goodwill of the business – so if you build a very successful pub, you could potentially sell the business in the future and achieve a good return on your investment.
- You lease a pub from a brewery or pub company
- You’re self-employed and you employ everyone in the business
- You take on full responsibility for repairs to the property
- You can sell on the goodwill of the business
- Typically, a long-term agreement of ten years plus.
Always seek independent advice before taking on a pub tenancy or lease.
The Standard Tenancy Agreement and the Standard Lease Agreement are the most common type of pub agreements, but Greene King do offer other options. Full details can be found here.
If you wish to discuss these options in more detail, please do get in touch with our team, who will be more than happy to talk through your specific circumstances, plans and goals, as well as help you identify what type of pub agreement is best suited to you. Our team can be contacted on 01284 843200 or email@example.com