Lease is mutually beneficial to all

Free-of-tie (FOT) leases are predominantly created on behalf of pragmatic private freehold owners or investors, who are often retiring from running the business. 

These owners have usually paid off most or all of their mortgage/bank loans, and rather than sell the freehold, they prefer to find a suitable lessee, to enable them to obtain a realistic and sustainable long-term annual rental.  

We advise on creating these new FOT leases and link the rental to a percentage — commensurate with actual profits achieved as per the verified accounts.

This obviously makes great sense for the freeholder, who receives an ‘up-front’ substantial payment (premium) for the business/lease, plus an attractive annual rental return on property capital investment (often about 10%), while still retaining the appreciating freehold property.

This is much more favourable than the meagre interest rates payable from banks and far safer than risking capital on the volatile money/stock market.

Should they ever decide to sell the freehold element at a later date then it can be arranged for the lessee to be given first option to purchase — this is to the benefit of both owner and lessee.

The new lessee gains the benefit of a profitable business, a long ‘landlord and tenant protected’ fully assignable FOT lease on pragmatic/favourable terms and at a realistic rent.

Crucially, there is the obvious benefit of being free trade and the lessee is able to obtain massive barrelage discounts, sometimes paying circa 50% less than a tied lessee for draught beers/lagers.

This is advantageous and fair to both parties, since a profitable lessee, usually equates to a ‘contented’ publican, able to reap the financial profits, commensurate to their requisite hard work and commitment. This helps to maintain the longevity of the arrangement and of the lease.

These highly profitable FOT leases are ex-tremely desirable for the savvy and discerning operator, and we are seeing real demand within this sector — which is 35% higher compared with the corresponding third quarter of last year.

Stephen Taylor is managing director of licensed property agent Guy Simmonds​​