Tied versus free of tie
Whether a pub is tied to a pub company or free of tie changes how it trades, how it is valued and how a lender sees it. This guide explains the difference and what it means for finance.
A tied pub must buy some or all of its beer, and sometimes other drinks, from the pub company that owns or leases it, usually in exchange for a lower rent or purchase price. A free-of-tie pub buys its drinks on the open market, keeping the margin but paying a market rent or a higher freehold price. The tie matters for finance because it reduces the pub's wet margin and therefore its fair maintainable operating profit, which is what a lender sizes the loan against and a valuer capitalises into the going-concern value. Free-of-tie and freehold pubs generally attract wider lending appetite and higher leverage than tied tenancies.
At a glance
- TiedBuys drinks from the pub company, often at a lower rent
- Free of tieBuys drinks on the open market, keeps the margin
- AffectsWet margin, fair maintainable trade and value
- Tenanted or leasedSized on the lease and tie, lower leverage
- Freehold free houseWidest lender choice, highest leverage
- Lender viewFree of tie and freehold preferred, all else equal
What the tie actually is
The beer tie is a contractual condition, usually in a lease or tenancy granted by a pub company, that requires the licensee to buy beer, and sometimes cider, wine, spirits and soft drinks, from that company or its nominated suppliers. In return the licensee typically pays a lower rent, or bought the leasehold more cheaply, than they would on the open market. The tie can be full, covering all drinks, or partial, covering only certain products. A free-of-tie pub has no such obligation and buys everything on the open market at the best price it can negotiate.
This guide is about how the tie affects funding a pub as a business. It is not legal advice on a particular lease. The exact terms of any tie, rent review and repairing obligation should be checked by a solicitor and a licensed-trade surveyor before you commit.
The tie is the heart of the traditional pub-company model. A large pub company owns the freeholds and grants tied leases and tenancies to thousands of licensees, taking its return through the wholesale margin on the drinks it supplies as well as the rent. The Pubs Code and the pubs code adjudicator give certain tied tenants of the larger pub companies in England and Wales a right to request a market-rent-only option in defined circumstances, which can change the economics, so the regulatory position is worth understanding before you take on a tied agreement.
How the tie affects trade and profit
The tie matters to a lender because it works directly on the wet margin, the profit a pub makes on its drinks. A free-of-tie pub buys a barrel at the keenest open-market price and keeps the full margin when it sells it by the pint. A tied pub pays the pub company's wholesale price, which is generally higher, so it keeps less of each pint, even though its rent or entry price is lower. The net effect on profit depends on how the lower rent or price compares with the lost wet margin across the pub's barrelage.
A tie lowers rent or purchase price but raises drink costs. Whether it helps or hurts depends on volume: a high-barrelage wet-led pub loses a lot of margin to a tie, while a lower-volume food-led pub may find the cheaper entry outweighs it. We model both so the comparison is on trade, not on the headline rent.
Because fair maintainable operating profit is the figure a lender sizes debt against and a valuer capitalises into value, anything that changes the wet margin changes both the loan and the value. This is why two pubs with the same turnover can support very different loans if one is tied and one is free of tie: the free-of-tie pub usually shows the stronger maintainable profit on the same barrelage.
Tied tenancy, tied lease and free house
There are three broad ways to hold and run a pub, and each is financed differently. Knowing which one you are buying is the first thing a lender will ask.
| Model | What it is | Finance implication |
|---|---|---|
| Tied tenancy | Short agreement with a pub company, tied beer, lower rent | Little capital needed; not usually mortgageable, funded with working capital |
| Tied lease | Longer assignable lease, tied beer, repairing obligations | Financeable on the lease value and trade, lower LTV than freehold |
| Free-of-tie lease | Market-rent lease with no drinks tie | Stronger margin, valued on trade, still lower leverage than freehold |
| Freehold free house | Outright ownership, no tie, no landlord | Widest lender choice and the highest leverage |
A tied tenancy is generally a low-capital way into the trade rather than something you mortgage, because you do not own a saleable asset. A tied or free-of-tie lease has value that can be financed where the lease is long and assignable. A freehold free house is the strongest position for a lender, because it can take a first charge over an asset it can ultimately sell.
How the tie affects value
A licensed-trade valuer assesses a pub on a going-concern basis, taking the fair maintainable operating profit a reasonably efficient operator could achieve and applying a multiplier, sometimes called years' purchase. Because a tie reduces the maintainable wet margin, it usually reduces the maintainable profit and therefore the value, unless the lower rent or entry price fully compensates. A free-of-tie pub generally shows a higher maintainable profit on the same trade, which supports a higher value and a larger loan.
There is also a question of flexibility. A free-of-tie freehouse can switch suppliers, change its range and chase the best margins as the market moves, which a lender reads as resilience. A tied pub is more constrained, and the strength of the pub company and the terms of the tie become part of the risk a lender weighs. Neither is inherently good or bad, but the source and security of the margin shape both the value and the finance available.
Which to buy
- Choose a tied tenancy to enter the trade with little capital and learn the business with pub-company support
- Choose a tied or free-of-tie lease where you want a longer, assignable interest without buying a freehold
- Choose a free-of-tie position where wet volume is high and the lost margin from a tie would outweigh a lower rent
- Choose a freehold free house for ownership, full margin, freedom of supply and the strongest finance terms
- Always weigh the tie through its effect on maintainable profit, because that is what the loan and the value rest on
We finance leases and freeholds, tied and free of tie, and we model the tie through its effect on trade, profit, value and the terms a lender will offer, so the decision follows the economics rather than the headline rent or price.
Tied versus free of tie: common questions
What does free of tie mean for a pub?
A free-of-tie pub buys its beer and other drinks on the open market rather than from a pub company, so it keeps the full wet margin but pays a market rent or a higher freehold price. Free of tie generally means a stronger maintainable profit on the same trade, which supports a higher value and loan.
Is a tied pub harder to finance?
A tied tenancy is usually funded with working capital rather than a mortgage because you do not own a saleable asset. A tied lease is financeable where it is long and assignable, but generally at lower leverage than a free-of-tie lease or a freehold, because the tie reduces the maintainable margin.
Does the beer tie reduce a pub's value?
Usually, because the tie raises drink costs and reduces the wet margin and therefore the fair maintainable operating profit a valuer capitalises into the going-concern value. The exception is where the lower rent or entry price fully compensates for the lost margin, which depends on the pub's barrelage.
What is the market-rent-only option?
Under the Pubs Code in England and Wales, qualifying tied tenants of the larger pub companies can in defined circumstances request a market-rent-only option, paying a market rent with no drinks tie. It can change a pub's economics, so the position is worth checking before taking on a tied agreement.
Can I buy a tied pub free of tie?
Sometimes. A free-of-tie freehold can be bought outright, and some leases are free of tie or can move to market-rent-only terms. Where a freehold is owned by a pub company and sold with a tie or covenant attached, a solicitor should check exactly what restrictions transfer with it.
Funding a pub?
Send us the pub and the trade and we will come back with a view on fundability and likely terms within one working day.