( Offer ) Option to Buy Pub in Prominent Location.

[flatlettings20]

Hi,

I have had my eye on Pub C with a kitchen for Lease for some time now, prime location.
The landlords terms are £1000 per week for 5 years with option for another 5 & £50.000 Deposit.
It has been out of operation for over 10 years (No recent accounts & No Goodwill) but is in great condition.
The Rent appears to be heavily linked to the property valuation which I understand and given his Terms this rent would value his property near to £520.000 perhaps more.

Just for context there has been a another pub recently leased out with a kitchen but the kitchen is not in operation therefore appears to be a Wet Pub for £15600 for 20years & it is just around the corner, great location to be fair as well.

Back to .
The Landlord & his family Ran a steel product manufacturing business & used there profits to accumulate a lot of Commercial property over 40 years.

They bought there first pub in the 1990s & then Bought and redeveloped a second pub in 2004 this is Pub C the one I am interested in.

Going by there Limited company accounts that I can find online they are bringing in rent on various other commercial property's like warehouses etc: and it is like as if some of there property is now been treated like trophy assets & is sitting pretty in a multi million pound portfolio.

I can sympathise with them to a certain extent some of there other property's have Class A tenants and presumably they couldn't be bothered with B players in there properties, rights, hassle, Rent not payed on time etc: along with the age of this Landlord.

However he has been prepared to talk to me & I do have the Deposit & Money to start this venture today.
but I also could come up with the means to buy this premises in a year or 2.

So I was wondering if I could approach him with an offer something like,

10 year lease with an option to Buy on the 5th year @ Market rate or agreed price today whichever.

1.Blend, Rent + Business Rates > £962.5 per week, Therefore Rent > £812.5 per week but landlord pays rates
2.Rent Review negotiable for the Landlord.
3. Six to twelve months free rent.
4. Ten percent of lease paid to the landlord each year for option to buy (£5000 a year)
5. He wants £50.000 any ideas on how there could be a solution for £25.000?

Alternatively,
If it were a 20 year lease with option to buy could the rent be cut in half but keep his building valuation high example £500 x 52 = 26000 x 20 = £520000 subject to rent reviews.

Any tips or advice on how this could work or people I could engage with to broker such a deal.

This landlords portfolio does seem to be linked to various other companies & perhaps he would be triggering capital gains tax if he were to sell an asset from the company.

I have heard of deferrals of capital gains & I know about using losses against gains however I never see him sell any of his property, the ones I know of at least.

This Pub has been advertised for lease for nearly 10 years!

Thanks for reading.

 

[Newchodge]

This Pub has been advertised for lease for nearly 10 years!

Why?

 

[flatlettings20]

Fair question, The last Tenant over 10 years ago left bills hence the £50.000 deposit.

That is how he explained it.

 

[Newchodge]

Fair question, The last Tenant over 10 years ago left bills hence the £50.000 deposit.

That is how he explained it.

That doesn't explain the complete lack of tenants for 10 years, although it may explain the deposit. Red flag, I would say.

 

[MBE2017]

FWIW, forget being sympathetic towards the landlord, this is a business decision, and he certainly doesn’t sound like he needs any charity. You are looking at a ten year old unused building, it will still need plenty doing to get it up and running IMO.

Work out your OWN figures, forget everything else so far, start from scratch. Unless this works for you there is no point starting, and a £50k deposit sitting in his account would be of much better use for yourself in yours. If your figures say only £3k per month rent plus a 3 month deposit, the ONLY offer that. You can always increase your figures, he can always come down as well.

I get the feeling, maybe, just maybe you have been over enthusiastic so far in your communication with him, and he is currently basting you up nicely ready to take advantage of you.

Hard to say a great deal more, it could be in a fantastic location, it could be in superb condition, this could be a deal of a lifetime, but ten years with no one else taking the building on suggests otherwise.

You are also entering an industry likely to feel the full effects of a major recession more than most, but I truly wish you well.

 

[flatlettings20]

@Newchodge he figures no one will come up with the deposit.

@MBE2017 Your right he doesn't require Grace.
I am trying to strike a balance in my own head first, Totally agree it has been lying empty.

I haven't suggested what I have to him but yes he is starting with a high Bar & I will seriously take on board aiming well below.

I'm surprised that a A class operator hasn't brokered something either given the amount of time it has been on the Market.

Thanks

 

[Mark T Jones]

Avoiding the inevitable questions around why you believe you can make this work when others have failed or declined - and in tough times for the sector (I'm not one of those who bangs on about the pub trade dying, but it genuinely is tough at the moment)

What do your numbers suggest that an achievable rent will be?

What will the costs be to bring the premises to your desired standard and who will be footing them (on what terms)?

What are rents on a range of nearby premises with similar demographic?

 

[WaveJumper]

I am going to echo the above what makes you think this is going to work. What actual experience do you have to run a restaurant / pub.

And to be frank your numbers make no sense as far as a negotiation goes. Have you written a business plan, how much investment is needed to bring the premises up to scratch ready to open for trade.

 

[MBE2017]

Just something too consider, but the property might be a better option for conversion into flats, HMO etc. You mentioned a working kitchen so not sure if you are after a pub or a food place, or both, or not bothered by anything other than making some money.

 

[Gyumri]

As has been said a boarded up pub for 10 years says a lot. My local in London is The Castle in Holland Park Avenue - great food even worth taking a photo of the bangers and mash and a good house red and no doubt making a healthy profit.

You shouldn't need to pay a rent deposit especially when the lessor hasn't received any rent from anyone for 10 years.

It's a bit cheeky to even ask for a deposit.

 

[DontAsk]

Just for context there has been a another pub & it is just around the corner,

This Pub has been advertised for lease for nearly 10 years!

So that's two huge red flags flapping in the wind.

 

[flatlettings20]

Look I know it is frustrating, @Mark T Jones

A lot of the time with Landlords its all about Rent Roll and how it is linked to the ultimate BANK valuation.
I could be wrong, can you agree a future price but pay a cheaper lease.

To be honest without food offering a fair rent would be £400 per week

Apart from functional aspects of the premise I am happy with its condition.

Sure, Pub around the corner without food £15600 per annum 20 year lease, Bargain.
Another pub with food £30000 per annum 10 year lease both do great business.

Then there is Pub that recently reopened & in not a great location, small bar, no food, Hung with £25000 per annum was closed for 4years



@WaveJumper
Your reaction to the negotiation terms are right, In a perfect world having trading accounts would enhance my position to get a loan, property's are going for North of a half a million on this street.

Perhaps drop in with a £350 per week offer for 20 years with an option to buy..

I of course will mention that I need start-up money & I can pay a 3 month deposit with 6 months free rent.

The sweetener of a 10% levy is just for the option to buy, I of course would not be mentioning in the beginning that I would pay a levy.

He will want Rent reviews, up or down I will say..

Perhaps a break clause but that will weaken the lease from his banks point of view, why not have it in there you can always take it out.

Finally I can say that it is me bringing up the Goodwill & intangibles that will keep his property price high.

& There is more..

@MBE2017 preferably no food.

@Gyumri Fair point it does sound cynical or perhaps a starting point for a drawn out negotiation.

 

[WaveJumper]

I can't believe or should I say would be very surprised if a premises that has been sitting empty for ten years is going to not need some money thrown at it. Unless you have a proper survey undertaken you are not going to know the true state / condition.

I would not go above a five year lease, certainly you are going to need a break clause, and yes the landlord is going to have a line in the lease regarding rent review that's a given.

Now the rent free period and a landlord contribution are all going to depend on the money you are going to have to throw at getting the business ready to open. As an example you need 50k to get works done, personally I would be looking for min 6 months rent free and a 50k contribution from the landlord.

Why the landlord contribution, well you would not be wanting to throw 50k (example) at the premises only to break your lease in a couple of years time because it's not worked out for you.

Back to basics though, the business plan, how much are the business rates, have you factored in energy costs, just look at some of the threads on here concerning current commercial energy rates they are through the roof. How many staff are you going to need, the list goes on and on.

You never did say if you had any experience in running a pub / restaurant

 

[Gyumri]

The pub is in a prime location and in great condition but hasn't been in operation for 10 years.

Somebody then is pulling your leg and rather than dreaming of pulling pints you need to ask yourself why has the pub been empty for 10 years?

Once you can answer that question to your satisfaction and not just accept what the freeholder is telling you then you can consider the terms of a lease.

Nobody else seems to be interested in the place so I would say you're in the driving seat - but remember a fool and their money are soon parted so go in with your eyes wide open!

 

[MBE2017]

If you decide to make a serious offer, go and inspect it, get a minimum of three professional valuations from commercial letting agents, preferably with pub letting experience, and get at least three estimate / quotes for the refurbishment costs.

I would do all this without making any counter offer, use all the bad points in justifying a reduction from what seems to be the very high initial offer.

The costs are likely to suprise you.

“Somebody then is pulling your leg and rather than dreaming of pulling pints you need to ask yourself why has the pub been empty for 10 years?”

The other simple question is why were the other pubs taken over in preference to this one?

 

[Mark T Jones]

Look I know it is frustrating, @Mark T Jones

A lot of the time with Landlords its all about Rent Roll and how it is linked to the ultimate BANK valuation.
I could be wrong, can you agree a future price but pay a cheaper lease.

To be honest without food offering a fair rent would be £400 per week

Apart from functional aspects of the premise I am happy with its condition.

Sure, Pub around the corner without food £15600 per annum 20 year lease, Bargain.
Another pub with food £30000 per annum 10 year lease both do great business.

Then there is Pub that recently reopened & in not a great location, small bar, no food, Hung with £25000 per annum was closed for 4years



@WaveJumper
Your reaction to the negotiation terms are right, In a perfect world having trading accounts would enhance my position to get a loan, property's are going for North of a half a million on this street.

Perhaps drop in with a £350 per week offer for 20 years with an option to buy..

I of course will mention that I need start-up money & I can pay a 3 month deposit with 6 months free rent.

The sweetener of a 10% levy is just for the option to buy, I of course would not be mentioning in the beginning that I would pay a levy.

He will want Rent reviews, up or down I will say..

Perhaps a break clause but that will weaken the lease from his banks point of view, why not have it in there you can always take it out.

Finally I can say that it is me bringing up the Goodwill & intangibles that will keep his property price high.

& There is more..

@MBE2017 preferably no food.

@Gyumri Fair point it does sound cynical or perhaps a starting point for a drawn out negotiation.

Sorry but you are coming across on here very much as someone who is trying to justify paying, rather than someone who is creating a business proposition.

Question 1. Do you have a fully researched, current plan and projections?

 

[Mark T Jones]

Let me add here, people love to slate pubcos.

I don't

I know that they are property companies whose duty to their shareholders is to bring in rent and other income from tenants.

Many of those tenants happen to be suckers and deaners.

Most will view no more than 3 ' opportunities ' of which they will fall in love with 1

From that point they will he absolutely determined to pay deposit to get rolling.

80% will fail.

If you recognise even a hint of your situation there, get out now!

 

[flatlettings20]

I did point out that this Landlord has a valuable portfolio & seems to be treating it a bit like a retirement holding.
I'm surprised that smarter cookies than me haven't got the premise on more favourable terms.

@WaveJumper Helpful response Thank you, He has suggested that any structural or internal fixture that needs improvement or upgrading before the lease begins would be absorbed by him, but the survey is critical.

@Gyumri It sounds absurd that it would be in general good condition but this Landlord does be running heat into the premises has the HVAC reports etc:

I know of others that have inquired & its the same spiel.

It kind of reminds of offshore money that buys top tier apartments & then never rents them out, just sits on them.

@MBE2017 I have spoken to local agents & they know of people that also tried to broker.

Pub for £15600 without food the landlord has a New mortgage on the property.
Pub for £30000 with food the operator took the lease out 10 years ago.
Pub for £25000 without food is dicey.


@Mark T Jones

The only other scenario that I could think of is the landlord isn't depended on the rent & is casting a net out for ill informed prospects.

Finally, Why haven't really skilled operators brokered a lease with this Landlord?
Its 2000sqft on the centre of the main street opposite a state of the art 13 year old shopping centre etc:

 

[Paul Kelly ICHYB]

Sorry if I have missed this, but @flatlettings20:

• what experience do you have in running a pub/bar?
• what experience do you have in running a restaurant?
• what experience do you have in running a pub/restaurant?

Regardless of the property, without experience, you have an unbelievably high chance of failure.

As for the property, the owner has been paying bills on this for years and anything you pay them will be better than they are currently getting - use that to your advantage.

Also, a properly costed business plan, bearing in mind the renovations required, should be a priority.

 

[HFE Signs]

Anyone wishing to take on a pub or restaurant right now is in a very strong negotiating position, you are few and far between

 

[simon field]

I’m pretty sure I heard on the news the other day that there are now something like 700 MORE pubs, and 3,500 MORE bars/restaurants than there were pre-pandemic.

Which is great news! ?

 

[MBE2017]

I’m pretty sure I heard on the news the other day that there are now something like 700 MORE pubs, and 3,500 MORE bars/restaurants than there were pre-pandemic.

Which is great news! ?

Well, it will keep myself busy for a month or so lol.

 

[Stedurham]

Ive no idea on how to run a pub but bought one a year ago as it was v cheap, ive now got planning on it that I thought id get. However decided to rent it at the start as wasnt sure on how long planning etc would take. Its worth move levelled with planning on, that it would be as a pub. So a relatives best friends ran pubs and wanted a go at it, gave him 6 months free and a fair rent. He spent 25k to get it open after only being closed for 2 years, beer line chillers coolers etc all needed work or replacement the list of things that he did was endless. So if this has been closed 10 years id be extremely suprised if it doesnt need a big chunk spending on it top open doors

 

[estwig]

Why?

Possibly because before you can convert an old pub into residential, flats, you have to show that everything possible has been done to keep it as a pub, a facility for the local community.

It needs to be advertised in the right way, in all the right places, for quite some time. Those in the know start this process very early, often whilst the pub is still viable, often for terms no-one would want.

 

[The Byre]

10 years out of action means it's not a pub, but just another building.
10 years out of action means it will need a complete refit.
10 years out of action means even those bits that still work will be old and need replacing.
10 years out of action means the building will need repairs.
10 years out of action means there is no goodwill.
10 years out of action means a complete redecoration, inside and out.

And as has been stated repeatedly before, 10 years out of action means others have looked and have walked away - and certainly for good reason!

 

[tony84]

£50,000 deposit... what?!?
When we became tenants of a pub, we paid £20k for the fixtures and fittings, £10k was paid upfront, the other £10k was paid in installments over a couple of years.

Interesting despite the fact we upgraded plenty in there, when we came to sell them back they were only worth half the price, but we were not allowed to remove them... That was an interesting 12 months with solicitors letters going back and forth.

Forget that you want this pub.
Do the figures stack up. Its impossible for you know for sure as the pub is closed as with the next 2 years looking like it is going to make people tighten their belts, you need to be very cautious. Also bare in mind that you are going to have a cellar cooling the beer 24/7, that cost us a fortune in 2010, I cant imagine what it would look like with todays utility bills.

 

[fantheflames]

Anyone wishing to take on a pub or restaurant right now is in a very strong negotiating position, you are few and far between

My thoughts exactly. There is definitely room for negotiation here.

If you want to go through with this deal, make sure you have your ducks in order in terms of business plans and ask if there's an opportunity to buy in your lease agreements. Although, it may seem like you're dealing with a tycoon that may not be trustworthy.

Is the main reason you're interested in the property down to it's location? Have you looked at other locations? How do the other businesses in the area do? What's your competition like?

 

[macScot]

Unless you have experience running pubs and restaurants, my advice would be to stay clear unless you have an endless supply of cash and a good team to work with. It will take too much time and money to make it a success if it's your first venture. You may be better off testing the waters out with popup kitchens etc.
If you are still interested, then maybe try and get a profit share deal rather than paying rent and a deposit, so you only pay rent from profits or a percentage of your sales, putting the deposit money into getting the business running instead and have a get out of jail clause if you do want to exit before 5 years from your side.

 

[Robbie Stewart]

Hi,

I have had my eye on Pub C with a kitchen for Lease for some time now, prime location.
The landlords terms are £1000 per week for 5 years with option for another 5 & £50.000 Deposit.
It has been out of operation for over 10 years (No recent accounts & No Goodwill) but is in great condition.
The Rent appears to be heavily linked to the property valuation which I understand and given his Terms this rent would value his property near to £520.000 perhaps more.

Just for context there has been a another pub recently leased out with a kitchen but the kitchen is not in operation therefore appears to be a Wet Pub for £15600 for 20years & it is just around the corner, great location to be fair as well.

Back to .
The Landlord & his family Ran a steel product manufacturing business & used there profits to accumulate a lot of Commercial property over 40 years.

They bought there first pub in the 1990s & then Bought and redeveloped a second pub in 2004 this is Pub C the one I am interested in.

Going by there Limited company accounts that I can find online they are bringing in rent on various other commercial property's like warehouses etc: and it is like as if some of there property is now been treated like trophy assets & is sitting pretty in a multi million pound portfolio.

I can sympathise with them to a certain extent some of there other property's have Class A tenants and presumably they couldn't be bothered with B players in there properties, rights, hassle, Rent not payed on time etc: along with the age of this Landlord.

However he has been prepared to talk to me & I do have the Deposit & Money to start this venture today.
but I also could come up with the means to buy this premises in a year or 2.

So I was wondering if I could approach him with an offer something like,

10 year lease with an option to Buy on the 5th year @ Market rate or agreed price today whichever.

1.Blend, Rent + Business Rates > £962.5 per week, Therefore Rent > £812.5 per week but landlord pays rates
2.Rent Review negotiable for the Landlord.
3. Six to twelve months free rent.
4. Ten percent of lease paid to the landlord each year for option to buy (£5000 a year)
5. He wants £50.000 any ideas on how there could be a solution for £25.000?

Alternatively,
If it were a 20 year lease with option to buy could the rent be cut in half but keep his building valuation high example £500 x 52 = 26000 x 20 = £520000 subject to rent reviews.

Any tips or advice on how this could work or people I could engage with to broker such a deal.

This landlords portfolio does seem to be linked to various other companies & perhaps he would be triggering capital gains tax if he were to sell an asset from the company.

I have heard of deferrals of capital gains & I know about using losses against gains however I never see him sell any of his property, the ones I know of at least.

This Pub has been advertised for lease for nearly 10 years!

Thanks for reading.

I agree with other comments that there are some red flags here.
I have been in the pub industry for 30 years and this is certainly not standard practice to ask for a large deposit.
My advice is to put together a business plan based on the figures you're thinking of, this will show you if the finances at least stack up to a profit.
You can do this yourself, or we offer that service from just £150+VAT, that way you're working with one of our BDMs who know the industry inside out.
Whether you get it down yourself or by specialists like ourselves, a business plan is step on before even beginning to negotiate.
Hope that helps in some way,
Robbie