Union Pub Company's lease deal aims to bring more flexibility to licensees.
Union Pub Company (UPC), the tenanted arm of Wolverhampton & Dudley Breweries (W&DB), relaunched its range of tenancies and leases last year.
Over the past 12 months its estate of 1,140 pubs, which has sites stretching from Bristol to Derby and from Milton Keynes to South Manchester, has transferred just under half of its publicans over to new leases.
The company now offers three deals to its licensees, its 21-year Open House lease agreement, a three-year tenancy called the Pathway and its Square Deal short-term lease as options for its existing and potential licensees.
The new Open House lease marked a change in approach for the company, which had previously looked to introduce a long lease across its estate and had been trading the former Bank's, Marston's, Camerons and Mansfield Brewery sites it owned under traditional short leases.
Chris Proctor-Smith, property director for UPC, said: "We are more flexible in terms of lease agreements. We now offer a three-year agreement, Open House and a tenancy at will for new starters.
"Since we launched last July we have put 470 lessees and tenants on new agreements."
The group said it was concerned that it must offer a range of agreements that are easy to understand and flexible for their licensees. Open House has gone from a beer tie to a full-tie, where all drinks including wines and spirits must be bought through the company, with rents reduced accordingly.
The 21-year lease is reputed to offer some of the best discounts in the market with lessees knowing exactly what they are going to get when they join up to the scheme. The lease document even has the approval of the Plain English Campaign and is reputed to weigh a fifth of an average pub lease document.
Rent increases over the first five years are pegged to the retail price index and capped at a maximum of five per cent during those first five years. All its rents are put through an independent rent panel which is chaired by agent Colliers CRE.
Its Pathway tenancy agreement is usually for a three-year term that can be extended for a further three years at the end of each term.
Rents are based on the turnover and size of the pub with most pubs requiring a minimum deposit of £7,500 plus ingoings for fixtures and fittings.
The company also offers both Pathway and Open House in a "Plus" version.
These have different ratios of rent and buying discounts, for when the licensee and company feel that real growth in the business is possible and sustainable.
Standard agreement discounts are £50 per barrel for products purchased above an agreed level.
The company has also introduced a range of support for licensees. It now offers training to staff in dispense beer quality and food and has recently launched a new package to help licensees with licensing reform.
Although most UPC pubs are community based its estate is divided into four main segments: food pubs where over half of sales is dry led, wet-led pubs where over 90 per cent of sales are on drink, bar food where 10 to 50 per cent of sales are for food and young persons venues - these account for less than four per cent of the estate.
Agreement discounts per barrel for 'Plus' leases
- Mild: £40
- Standard Bitter: £50
- Premium Bitter: £75
- Standard Lager: £70
- Premium Lager: £70
- Packaged Ale: £60
- Packaged Lager: £110
- Stout: £40
- Draught Cider: £50
- Packaged Cider: £110
- Premium Packaged Spirits: £110
- Minerals: £7
- Wines: £10
- Spirits: £34
Expansion and refurbishments
With the lack of available freeholds on the market the company is holding on to its pubs and is looking at ways to improve its existing estate.
"We are in the business of running pubs. Currently we have only seven pubs closed - four are for sale for residential use, two are having six figure investments and one pub is to let. We do not want to sell but it's hard to buy pubs at the moment," said Chris Proctor-Smith, property director for Union Pub Company. "We are actively trying to buy pubs and we are taking on a new acquisitions manager."
The company is concentrating on one-site acquisitions to roll out across the estate and is focusing on pubs within a 30-mile radius of its existing sites.
"We are looking at individual site acquisitions but we will also look at sale and leaseback deals with companies," he added.
"It can be disappointing when we can't afford or are not prepared to pay the prices being paid so we want to make our existing estate work better.
"So our decision is not to sell but see what we can do to improve our existing estate."
The result is that the company is putting another 25 per cent into developing the business and making investments in its properties - in total that is £10m that has been earmarked for this purpose.
These investments can be anything up to a strategic input of £50,000, which can potentially alter the business. The company is making major investments in about 50 pubs a year while smaller tactical investments are being made in up to 100 pubs. The company has a fast-track investment - putting small amounts into the business for a quick return.
Mr Proctor-Smith said: "Less than £20,000 can address a consumer demand. It could be to upgrade the toilets or to introduce an outside drinking area, to get a food offering in the pub or to extend a games offering."
Stamp duty
The company believes that the industry can survive the impact of the government's stamp duty reform.
The government's plans to introduce a Stamp Duty Land Tax in December of this year will see licensees and other businesses charged duty based on the length of the lease rather than one year's average rent.
This could result in the cost of a lease going up by tens of thousands of pounds, forcing many licensees out of business and discouraging many new licensees from buying into their first pub.
Although the company is concerned, it believes that people will still want to run their own business even if costs are higher.
Chris Proctor-Smith, property director for Union Pub Company, said: "It's another barrier to entrance into the trade and another incoming cost. It will inevitably put some people off but it won't send the industry into freefall.
"I think people will still invest in a lease as they are investing in bricks and mortar."
UPC wants licensees to have the following skills:
- Business skills. To handle issues from VAT and tax, to preparing a business plan and calculating how you can make a profit.
- Management skills. Because you'll be in charge of staff and will want to get the best out of them.
- Commitment. The hours are long and the work hard.
- People skills. Your customers will be your greatest asset and you need to look after them, even the awkward ones.
Union advises licensees:
- Do not sell your home to pay for your business. If your plans do not work out, you still need the security of your home.
- Go on a training course before you start running a pub. If you decide not to run a pub after the course, it will still be money well spent and you will end up with recognised, professional qualifications.
- For a taste of the pub trade, try wo