Bargain hard in buyers' market

Given the current economic climate, what's happening out there in the world of pub letting? What should tough-minded new licensees be asking for in their leases?

The Brooker rent review case last year provided a general signpost. The judgement in the case suggested the average licensee should be making a cautious rental bid consistent with the hard economic circumstances, confident that the demand for pub property is on the low side compared to historic highs.

Furthermore, the Enterprise comparable lettings showed licensees being given strong incentives to take on property. The smart and talented licensee needs to be, above all else, aware that they are a rarer commodity — and have greater power than in living memory to agree more advantageous terms with their landlord.

I called half a dozen canny multi-site pub operators this week to ask what they're finding in the market place — and what they're pushing landlords to give them.

An operator with a number of sites owned by a large pubco reports that his new lettings have RPI rent increases written out of a number of the leases. He also says that he's inserted one-way notice periods of six months in the shorter substantive leases (three to five years) he's signed. Another multi-site operator reports he is ensuring absolute certainty on passing rent over the years in a new lease with a well-known pubco — no annual RPI increases and an increase by a small set amount at year five.

Another multiple indicates that a well-known family brewer has granted a one-year licence to occupy with rent paid as a percentage of turnover, but has granted an option to take on a three-year agreement at any point in the first year.

A longer lease with another company has a three-month rent-free period and regular break clauses.

Another operator reports that he picking up substantial reverse premiums on a series of commercial leases he taking on.

A well-known multiple tenant reports the greatest pubco flex on lease terms is, not surprisingly, at pubs that are proving harder to let. One operator reports that negotiating a free-of-tie option had been no problem at three pubs owned by a large pubco.

Generally, the operators I spoke to talked about their wariness of long leases without break clauses. The aversion to longer leases stemmed in a number of cases from the move by one big pubco to charge more to allow an assignment — and a general pubco determination to ensure anyone paying a premium to take on a lease has been through the hoops and has the "right stuff" generally, so making assignment harder.

Also, the bigger the pub building (and therefore the larger the maintenance costs), the greater the caution of the multi-site tenants I spoke to in relation to signing up for a long lease.

It's a buyer's market right now — make the most of it.