New Lease

Capital required for new leases are essentially the same as for a tenancy:

• fixtures and fittings;
• stock and glassware;
• deposit;
• working capital.

 

You will also need funds to cover fees associated with the transaction:

• valuer’s fee (fixtures and fittings);
• stocktaker’s fee;
• licence cost and associated solicitor’s fee;
• training course fees.

 

Over and above these, further money is required to cover the following fees and expenses that are specific to taking on a leased pub (and are not required for a tenancy):

• Legal fees for a solicitor to act on your behalf regarding the completion of the lease: allow £ 600–£ 800 to cover these.
• Property Surveyor’s structural survey of the premises: allow £ 500–£ 800 for this.
• Some companies require payment of rent in advance: allow 1 month– 3 months’ rent payment.
• Stamp duty land tax (see below).

Buying An Existing Lease On Assignment

The cost of acquiring a pub in this way will require more capital than if a new lease had been issued. This is because the person selling their lease (the assignor), is likely to be asking for a premium for the lease, to account for the goodwill they have built while operating the pub. Successful pubs making good profits will be valued more highly than ones trading less well. The price is determined by a pub valuer, using the pub’s profitability and the remaining term of the lease. The price should be supported by verified trading accounts. Professional advice should always be sought as to whether the asking price is a fair one.

• Typical prices range from £ 50,000–£ 200,000.

 

Additional money will be required to cover additional items (as per a new lease, details above), with the exception of fixtures and fittings which are usually included in the asking price. Stamp duty land tax (SDLT) will normally be higher in the case of buying a lease on assignment. This is because SDLT is also calculated on any premium charged.

Stamp Duty Land Tax On Leases (Lease Duty)

Stamp duty land tax (SDLT) is a new tax that was introduced by the Finance Act 2003, replacing the old Stamp Duty system. SDLT is charged on ‘land transactions’, including leases. Payment of SDLT is the responsibility of the purchaser of the lease. The grant of a lease of more than 7 years generally attracts SDLT. It may also be chargeable on shorter leases that meet particular criteria. The tax payable is based on rent and any premium that is charged, and is quite a complex calculation. There are also circumstances where SDLT may not be chargeable. A solicitor or accountant will advise you on how much SDLT may be payable on your lease.

• Allow: £ 1,500–£ 4,000 to cover SDLT.

Freehold

Freehold pub values are based on a combination of the bricks and mortar value and the value of the business, including goodwill. Valuations are calculated by pub valuers and, again, should be supported by verified accounts.

• Typical prices range from £ 250,000–£ 750,000.

 

You will also need to have sufficient funds to cover:

• stock and glassware;
• stocktaker’s fee;
• licensing costs and associated solicitor’s fee;
• legal fees relating to the purchase of the property;
• structural survey fee;
• working capital;
• training course fees;
• stamp duty (SDLT).

Will Vat Be Added To The Price?

If the seller and purchaser are carrying on the same kind of business, the transaction will be regarded as a going concern, and not be subject to VAT. A pub transferring ownership from a brewery or pub company to an individual may attract VAT. This is because a brewery or pub company carries out a different kind of business to an individual. A transaction between individuals, operating the pub in the same way, is not likely to attract VAT.

It is always worth clarifying whether VAT will be added to the price of a freehold.