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Lease, Tenancy or Freehold: What’s Best for Commercial Ownership?

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Whichever sector you operate in, leisure property choices are a balance between cost and control: the cost of obtaining your property versus the control you have over it. Owning a property outright allows you to set up your restaurant, bar or pub however you like, but the cost can be prohibitive. And a first-timer operating on a shoestring, or a pop-up restaurateur will have different requirements from a cash-rich chain that is looking at ways to diversify its assets.

So which of the three types of property ownership is best for you will depend on your business. Here are some pros and cons of each approach.

1. Tenancy

This is usually the cheapest way of opening up, but means different things for restaurants and pubs. A pub tenant will usually sign an agreement of up to five years with a brewery or pub company (pubco), with a beer tie obliging them to take a limited range of beers.

They will offer some support, including training, drink discounts and take care of repairs. But this means that pub tenants cannot shop around, and some can find the lack of control stifling. Restaurant franchises work in a similar way. In both situations, the initial investment required from the tenant is generally quite low and can be achieved for as little as £20,000.

Independent restaurateurs can also operate on short-term tenancies, which offers flexibility. If business isn’t going well, there are no long-term ties. However, the flexibility also applies from the landlord’s side which means potential rent increases and the possibility of moving out with a month’s notice.

2. Leasehold

Restaurant and pub leases offer more control and the potential for greater profits for a successful operator. If you create a restaurant with a strong local reputation and develop a strong, committed customer base, then you may be able to sell the lease at a significant premium.

There are other advantages. A long-term lease lasting more than 20 years provides much greater security for any establishment, which means that any investment in creating a particular ambience is safe.

But the terms of the lease may have a significant impact on the future of your business, so the set up costs are bigger – you’ll need a solicitor and a survey as you’ll be responsible for more of the maintenance. A leasehold pub is still likely to be subject to a beer tie, and the relationship with the pubco needs to be managed.

3. Freehold

If you want to control everything about your restaurant, bar or pub, then freehold is the ultimate goal. A freeholder owns the property. That means no beer ties, no franchising, no rent hikes and the possibility, particularly in cities like London, that the value of the property will rise in the future.

The cost of buying property is obviously significant though, particularly in the capital, which means it can be out of range for many restaurants and pub owners. Commercial mortgages are an option, but these require a deposit and a comprehensive business plan to convince the lender to give you the money.

There are other issues to consider: you’ll be responsible for all repairs, insurance and property costs, which can be considerable.

Whichever form of property ownership is appropriate for you, Restaurant Property can help find you the right place. Call our friendly and knowledgeable team today on 020 7935 2222 or email enquiries@restaurant-property.co.uk.

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