Freehold, Leasehold or Tenancy

What’s the differences?

Freehold.

100% ownership of the property and business

Leasehold.

The right to occupy a property for a fixed term, subject to conditions and in return for rent. Most leases are assignable, which means they can be sold in the open market, subject to the buyer being firstly approved by the Landlord.

Tenancy.

A short term agreement (initially 1-5 years), often with the tenant having the right to continue as tenant from year to year. The only value in a tenancy is the fixtures and fittings / stock.

The types in greater detail.

Freehold

Freehold licensed businesses are generally sold as a complete Business. It is owned outright and a owner can borrow up to around two thirds of the price on the mortgage as the freehold property offers good security. A  freehold is almost always "free of tie" which means that the owner can buy wet products and all other supplies from wherever they choose. Being free of tie, the owner can negotiate discounts with the suppliers, buying at prices which are very substantially lower than those charged to tied lessees or tenants. The profitability of the business can be much higher than with leases and tenancies, enabling the freeholder to service substantial mortgages.

Leasehold

There are effectively two leaseholds.

Sale or assignment of an existing lease.

Leaseholds usually sold as a going concerns which include trade furnishings and trade, but the occupier holds the property for a fixed number years in accordance with outlined lease - which is usually a lengthy agreement .

The lessee/tenant pays rent and is obliged to comply with the conditions of the lease in order to stay on site. The main terms and conditions are usually to pay the rent (!), insure the property, keep the property in  repair, trade inline with statutory regulations and to comply with the law.

Some pub leases are free of tie, leases are generally granted by Brewers or Pub company’s and are subject to a tie, where the lessee/tenant must purchase specified products from the landlord or its nominated supplier.

Many pub leases are granted for initial terms of between 10 and 25 years, and the lessee must  pay the rent throughout the term unless they can sell the interest by assignment. The purchaser of the lease is obligated to comply with  the same terms and conditions as the original lessee for the remainder. An assignable lease can be sold in the open market for whatever price the seller can obtain, and - where a business has been taken from a level of modest profitability to a much higher trade and high profitability - the lessee can sell for a much higher price than the original cost.

New lease by a landlord

New leases are offered by brewers/pub company’s and private owners. Sometimes "without premium". This means that the new lessee / tenant does not make any payment for trade goodwill. You would only purchases the trade furniture, fixtures, fittings, plus stock and glassware, and is usually required to pay a security deposit (equivalent to one to three months rent). New leases are sometimes restricted to a non assignment period of 12-24 months from the start of the lease, but after that period the lessee can sell the business.

Tenancy

Tenancies are fairly short-term agreements, where the tenant buys only the fixtures and fittings, bar glassware and stock, and pays a rent for the property. A security deposit is usually required around 1-3 months rent for security against non - payment of rent and goods. Tenancies are not assignable, so tenants cannot sell on any business interest at a profit.