It’s no secret that freehouse transactions have been few and far between for several years now. However, this is not necessarily down to a lack of potential buyers, but largely down to the problems of willing purchasers raising funding from the banks.
More stringent lending criteria, particularly the loan to value ratio and the multiple of proven profits, means bridging the gap between what a buyer will happily pay and what they can fund, is often a significant hurdle.
Our experience seems to indicate that trading conditions are improving, particularly in the south. Operators are reporting like for like sales growth and house prices are increasing leading to higher pub enquiry levels. With lending criteria still tight, however, buyers and vendors are looking into other ways of doing deals. This is being seen by the number of our clients who are considering letting their freehold freehouse instead of selling it.
By letting your property you remove yourself from the day-to-day operation of the business. You will continue to receive a rental income and retain the freehold as an investment. This is tempting owners because it not only removes them from the operation, but it provides a continued income, often at better levels of return than can be achieved from alternative investments.
Taking a private lease appeals to many operators aswell. It is almost always free of tie and significantly involves a smaller cash commitment at the outset than for freehold. Taking a lease of this kind quite often involves an option to buy the freehold. This enables a tenant to build a business and produce accounts with a proven track record, which they will be able to use to raise bank funding more easily in time to come - clearly a win win!
There are many important factors to consider when thinking about granting a lease on your property, here are just a few:-
Clearly, as with any investment, there are associated risks and I would recommend anyone thinking of letting their property, to take expert advice from the outset.