Leasehold and tenanted pub finance

How we fund leasehold and tenanted pubs

We fund leasehold pubs on the lease, the fixtures and fittings, the ingoing and the working capital, with the going-concern trade behind it. Because there is no freehold to secure against, the lending is shorter and more cautious than freehold finance and leans heavily on the strength of the lease and the operator. For taking on a lease we arrange funding toward the premium, the fixtures and fittings, the ingoing stock and the working capital, sized on the fair maintainable trade and the length and terms of the lease, at an indicative 9 to 14% per annum over a term aligned to the lease residue. We read the tie position closely: a tied lease takes beer from the landlord at set prices in return for a lower rent, while a free-of-tie lease keeps the full margin but usually carries a higher rent, and that trade-off shapes the maintainable earnings. A refinance can re-price an existing leasehold facility or fund a lease assignment. Every figure is indicative and never an offer; the terms depend on the lease, the tie and the operator.

Lender appetite for leasehold and tenanted pubs

Leasehold and tenanted pubs draw a narrower field than freehold, because there is no bricks-and-mortar security, so the lenders that fund them weigh the trade and the operator heavily. Specialist leisure and trade-business lenders, asset finance houses and some challenger banks such as Allica Bank fund the fixtures and fittings, the ingoing and the working capital against the going-concern trade, while others lend on a free-of-tie lease with a long residue more readily than on a short tied tenancy. Lenders read the length and terms of the lease, the rent and any tie, the fair maintainable trade and the operator's record, and they look for a tenant whose own funds and experience carry real weight in the absence of freehold security. As an arranger and introducer with no exclusive tie, we match the lease, the tie position and the operator to the lenders that genuinely fund leasehold pub trade, rather than assuming a freehold lender will look at it.

The leasehold and tenanted pub market

Leasehold and tenanted pubs are how many operators get into the trade, because the entry cost is a fraction of buying a freehold: you fund the lease, the fixtures and the working capital rather than the bricks. The trade-off is that the business is held on a lease, so its value sits in the going concern and the residue of the lease rather than in property, and the exit is an assignment of the lease to a new tenant, usually with the landlord's consent, rather than a freehold sale. That makes the lease terms and the tie position central to value: a long, free-of-tie or lightly tied lease on a profitable pub assigns readily, while a short residue or a heavy tie narrows the buyer pool. For a lender, the case rests on the trade, the lease and the operator rather than on bricks, which is why the underwrite is more cautious. We present the lease, the tie and the trade so the case is funded and exited on a realistic basis.