Leasehold and tied or tenanted pub finance

Who can borrow and what lenders look for

Because there is no freehold to fall back on, a leasehold lender underwrites the operator and the cash flow harder than on a freehold purchase. They want relevant experience or a credible plan, an unexpired lease long enough to comfortably outlast the facility, and trade that covers the rent, the tie cost and the loan repayment with headroom. The tie matters to the maths: a tied lease pays a brewery price for its beer and a rent, so the lender tests whether the margin after the tie still services the debt, while a free-of-tie lease keeps a fuller margin but usually carries a higher rent. They look at the lease terms that affect risk, the rent review pattern, the repairing obligations, the assignment and break provisions, and on a pubco agreement the support and any tie release options. Security is typically a charge over the leasehold interest and the business assets plus personal guarantees, so the lender is lending against the business and the operator rather than the building, and the operator covenant carries real weight. We present the lease, the tie position, the trade and the operator covenant in the way the lender needs to see them, and we flag any lease term that could affect the funding before it becomes an obstacle.

How much you can borrow

Leasehold lending is sized on the cash the business generates and the strength of the operator, not on a property loan to value, so the amount is governed by what the fair maintainable trade can service after the rent and any tie cost. The premium an outgoing tenant asks for the lease and the fixtures and fittings sets much of the funding need, alongside the refit and the opening stock and a working-capital buffer to trade through the early weeks. A free-of-tie assignment with a healthy margin can support more borrowing against the same rent than a tied lease, because more of the turnover stays in the business after the beer is bought. Lenders will usually want the operator to put in a meaningful share of the premium and costs from their own funds, so the borrowing tops up the operator's capital rather than covering the whole entry. We model the premium, the fit-out, the stock and the working capital against the trade and the operator's own contribution, so the facility is sized to get the business trading without overloading it with debt the rent and tie leave no room to service.

Rates and costs

Leasehold and tenanted pub finance is priced above a freehold mortgage, indicatively from around 9 to 14 percent, because the security is a leasehold interest and business assets rather than a freehold, and the lender leans more on the operator covenant and personal guarantees. The rate reflects the lease length, the tie position and the strength of the trade and the operator. Expect a lender arrangement fee, legal costs including the landlord's consent to assign on an assignment, and on a tenancy any entry costs the pubco or brewery sets. The tie itself is a running cost rather than a finance cost, but it shapes the affordability, because the price you pay for beer under the tie reduces the margin that services the loan, which is why a free-of-tie lease at a higher rent can sometimes carry more debt than a tied one at a lower rent. We disclose our broker fee in writing, set out the all-in cost of the funding alongside the rent and tie that sit beside it, and never claim an exclusive tie to any lender.

Leasehold finance, a freehold purchase or a tenancy

Leasehold finance is the right product when you are taking on a pub you will run from a lease rather than own, whether a pubco tenancy, a tied lease or a free-of-tie assignment. It needs far less capital up front than buying a freehold, because you are funding a premium and a fit-out rather than a deposit on a building, which makes it the common route into the trade and the way many operators run multiple sites without owning the bricks. The trade-off is that you build no equity in the property and you carry a rent, and on a tied lease a beer tie that trims the margin. If you want to own the building and its future value, and you have the deposit, a freehold purchase funded by acquisition finance is the alternative, and many operators move from leasehold to freehold as they grow. A supported pubco tenancy is the lightest entry of all, with the lowest premium and the most landlord support, suited to a first-time operator, while a free-of-tie lease assignment suits an experienced operator who wants the open-market margin. We match the funding to the route you are taking and the capital you have.