Hammer time! What do operators need to know before buying or selling a pub at an auction?

16-Jan-2019 - Last updated on 16-Jan-2019 at 11:53 GMT

Going, going, gone: those looking to buy a pub at auction will have the benefit of certainty in their bid

If you can avoid sneezing, waving or any other everyday movements that might be interpreted as bidding, property auctions can yield a great opportunity to purchase a pub. However, there’s a lot of legwork that needs to take place before placing a bid.

Savills head of licensed leisure Kevin Marsh explains: “Pubs sold in auction have often been vacant for a long period of time, with the process usually being the last port of call in the sales process.

“Those looking to buy a property at auction will have the advantage of certainty in the bid. At the end of the auction, you have either been successful or not.

“Pubs up for sale in the auction room will rarely have a business attached to them due to the sheer amount of due diligence that would be involved beforehand.

“If you are looking to buy the physical pub asset then this might be a more appealing route and, by knowing what everyone’s bids are, there is a sense of more transparency in the competitive bidding process.”

With Fleurets’ 2018 Survey of Pub Prices revealing an increase in quality of pub disposals in the past 12 months – with the fair maintainable trade of disposed sites increasing to £315,000 from £274,000 – the coming year could offer a great chance for would-be publicans or multiple operators to pick up a bargain.

Buying a pub at auction

Neil Morgan, managing director for the pubs and restaurants sectors at specialist adviser Christie & Co, highlights that anyone looking to buy a pub at auction needs to check the title of the property via Land Registry and “be aware of any onerous covenants or restrictions as these will ultimately effect the value”.

Moreover, Morgan states it’s important to do your own research on a property before bidding.

“Have sight of a recent, full structural survey, or undertake your own if unavailable, along with gas and electric safety certificates and asbestos reports,” he says.

“Check to see if there are any pending temporary or permanent road closures in the area because these may have a detrimental effect on future trade.”

An investment deal

Morgan adds: “If it is an investment, the bidder will need to be satisfied that the tenant or lessee is financially stable and, therefore, the rental obligation for the agreed lease term is stable and the long-term income is relatively secure.

“Fully reading the current lease agreement is essential to determine the expiry date of the lease, rent review periods and mechanism of the review.

“Also, find out if the lease is within or out of the Landlord and Tenant 1954 Act – to cover the lessee’s right to renew.”

Morgan adds that there are a number of questions to ask when reviewing a site’s current lease agreement:

Are there any break clauses, for landlord or tenant, or both?
Is the lease internal repairing only or a full repairing lease?
Any dilapidation notices served (i.e., does the property look in disrepair or in good condition)? If in good condition then the tenant should be trading well and meeting all of his/her legal obligations. Conversely, if the property appears to be in poor condition it would suggest the tenant may be financially struggling and has little or no spare capital.
Any history of rent reductions or missed payments?
If the tenant is a company, have personal guarantees been provided?
A final credit check on the company and or individual is also recommended to ensure that the bidder has the full picture when entering into an investment.

If you are the seller...

Alternatively, if you’re looking to sell a pub at auction, SDL Auctions valuer Chris Theocharides suggests, you first “need to make it clear to the auctioneers whether or not the pub is still trading and let to a tenant or if it is vacant.

“If the pub is still trading and being let, the property could appeal more to investors and they would need to know the current rental income and how long the let has been agreed for.

“On most occasions, pubs are usually sold with vacant possession and an auction is a good place to sell because it opens up the potential market, to developers as well as investors.”

Theocharides adds that having a pub’s paperwork in order will increase bidder confidence on the day in your property and is likely to boost the chance of a sale.

“Generally, when selling a pub via auction, it is ideal to ensure all legal documents are in place well before the auction takes place,” he says.

“This allows potential purchasers to have all the relevant information required so they can decide on what they propose to do with the pub and, most importantly, estimate their conversion costs.

“If the prospective purchaser can be confident of what the cost of conversion will be to them, then they will feel happier about bidding on auction day.”

To find out more about pubs for sale, lease and tenancy visit our property site.