MyShout

The pub lease has come a long way since its introduction almost 20 years ago, says Colin Wellstead

The pub lease, as we know it today, was introduced in the late 1980s, and many original 20-year assignable lease agreements are now coming up for renewal. It's interesting to look back on the last two decades to see how the pub lease has evolved — and how the quality of both pubs and operators has improved.

The 10 or 20-year assignable lease was initially greeted with considerable scepticism. The pub lease has not always been successful - up to the mid-'90s it saw many casualties. I remember feeling amazed by the quantity of lease failures, some of which probably resulted from high rents and inexperienced operators.

Often, when leases were originally granted, little consideration was given to the lessee's capabilities, and pubs were let to the highest bidder. Having committed to high rents, lessees struggled to succeed - particularly as the recession bit - and the early lease market was tarnished by a huge number of failures.

Today's approach is totally different, as pub companies carefully consider who will make a business work. In a recent lettings campaign we managed for Punch Taverns, rent and premium were important, but applicants' quality and capability were top priorities. Many clients now reject higher offers in favour of granting leases to the best people. While respecting licensees' independence, they want to support and advise, to help ensure that new businesses flourish.

The quality of pubs entering the lease market has also changed dramatically - licensees never imagined that the high-quality pubs offered for letting today would ever be available. The Spirit managed houses offered by Punch to the lease market were excellent, with an average turnover of between £450,000 and £500,000. That there's no shortage of capable lease applicants ready to take on such businesses is evidenced by the fact that we expect to complete the 600th letting in the next couple of weeks.

The market shortage of freehold pubs means demand considerably exceeds supply. Brewers and pubcos compete aggressively for most freehold acquisitions, adding fuel to pub-price inflation. Licensees and pub operators who used to chase freeholds are keen to pursue lease opportunities, creating a vibrant second-generation lease market.

Those sceptical about the Punch letting campaign will be surprised to learn that we recently assigned the first Punch lease. Personal circumstances unfortunately forced the original Punch lessee of the Grange, in Wallington, Surrey, to seek permission to sell after less than 12 months, within the two-year non-assignable period. As a dining pub of exceptional quality, it was one of the first Punch leases to be offered to the market by Christie+Co, in April 2006. It was acquired off an asking price of £113,000; the lessee undertook substantial refurbishments and established it as a destination gastropub with a strong wet trade. Christie+Co sought offers in excess of £400,000 and after numerous bids the lease was assigned.

The Grange sale is one of the highest prices achieved for a lease, confirming the strength of the second-generation lease market and encouraging the many licensees to whom new leases have been granted.

The lease market will continue to strengthen. Of course there will be failures, but today's lessees can generally expect to make good returns on investments.