If you are considering entering into a temporary pub tenancy agreement in England, Scotland and Wales, this factsheet is designed to help you to evaluate the agreement you are considering and help you to make notes on what to ask when talking to your pub company representative. If you are considering a longer term agreement, then the full Pre-Entry Awareness Training (PEAT) should be undertaken and this information does not replace PEAT.
In 2016, the government introduced the Statutory Pubs Code which applies to all pub companies in England, Scotland and Wales who own more than 500 tied pubs. The Code sets out a requirement for all prospective tenants to undertake pre-entry awareness training so that they fully understand the implications of pub agreements. The majority of pub owning companies with less than 500 tied pubs also subscribe to the England, Scotland & Wales Tenanted and Leased Codes of Practice and many companies have their own individual Company Codes of Practice which set out their particular processes and procedures of how they will act within the spirit of these codes. Some are displayed on company websites or you may ask at interview for a copy.
So what type of person do I need to be to run a pub, even on a temporary basis?
As well as being someone prepared to make the personal lifestyle commitment described above, running a pub is a profession and a serious business commitment. Your personality and character type is every bit as important as your business acumen and personal skills. Below is a list of personality traits and skills that are essential:
- Start date of the agreement (some may also specify length of term and notice period)
- Rent payable per week and payment terms
- Any rent deposit required
- Other rates, taxes, assessments, outgoings applicable
- Maintenance and repair obligations
- Responsibility for utility and safety certificates
- Fixtures and fittings and equipment responsibility
- Obligation to notify the pub company of any notices received at the property
- Requirement to vacate the property on receipt of notice from the company
- Obligation to adhere to opening times
- Extent of the drinks tie and payment terms
- Details of machine tie, approved suppliers and share terms
- Right of pub company representative to inspect premises at reasonable notice
- Right of pub company to serve notice at any time during the agreement
- Liability for any other fees, charges or penalties
Note: It is possible that the agreement will not give you any idea of likely length nor will it specify what the notice period might be. Remember a temporary tenancy can’t be in place for more than a year and it cannot be renewed for the same premises to the same person. So you should base your plans on that fact. You can, however, ask the pub company what their normal practice is in terms of dealing with terminations of temporary agreements.
The ‘tie’ basically places an obligation on the tenant to buy certain agreed products from the company (or its nominated supplier) at prices published and determined by the company. These purchasing obligations are contained in tied tenancy and lease agreements. There are three types of tie:-
So again it’s important that you understand the detail of what ties apply to the temporary agreement you will be considering as this will have an impact on the potential profitability of the pub and your profit and loss.
Price Lists & Discounts: The company must give you a full price list for all drinks products that you are tied for. They may offer discounts on certain products and these should also be explained. It is these prices you must use in your forecast profit and loss calculations and you should be aware these prices may differ to what may be available elsewhere, but that is what you are signing up to. An outline of trading terms (e.g. credit terms) should also be provided. Pricing and any changes to price lists should always be communicated to the tenant in a fair, timely and transparent way.
Flow Monitoring Equipment: Your agreement may also give the right for the pub company to install flow monitoring equipment within the premises. This equipment measures the flow of beer from the cellar to the point of dispense and reports will show how many pints of each particular product have been dispensed on each and every line. Companies use this to compare dispensed volumes to purchased volumes on tied products.
Flow monitoring equipment may or may not already be installed in the particular pub you are discussing and you should ask. The company is responsible for the installation costs, maintenance and calibration of the equipment, but responsibility for providing electricity is down to you as the tenant. The data collected in the form of reports should be shared with you and apart from its obvious role in ‘policing’ the drinks tie, it can actually be very useful for stock takers and in evaluating the success of certain brand promotions and quality checks. Many companies provide the facility for you to access these reports online or you will be able to request them from your company contact or area manager.
Breach of Drinks Tie: This is often referred to as ‘buying out’ i.e. the tenant breaks his obligation to purchase tied drink products from the company and buys from a third party supplier i.e. outside of the tie. Pub owning companies take the drinks tie very seriously and breaking this purchasing rule is considered a major ‘breach’ of the agreement and they are likely to serve notice on your temporary agreement and ask you to leave if you breach the tie.
You should ask for a copy of the Premises Licence and note any conditions that apply to it. Ask the pub company if there are any issues affecting the premises licence e.g. noise orders/restricted operating hours on beer gardens etc..
You should inspect the premises, ideally with the pub company surveyor or representative, and ensure it is in a reasonable condition to open to the public. Identify any works that need to be carried out by the company and agree the timescale for these. Ask for a schedule of condition and what your obligations are on repairs/maintenance are whilst you are a tenant at will. Normally such items as building/roof/cellar cooling/dispense equipment repairs etc will remain the responsibility of the pub owning company.
Note: Because this is only a temporary arrangement, you should NOT spend any significant amount of money on the premises, even on decorations, unless you have it in writing from the pub company that you will be reimbursed.
Whilst carrying out this inspection, don’t forget the domestic accommodation if there is any. It should be in a fit and proper living condition. Again agree any works that need to be done by the company before you move in.
It is unlikely that you will be asked to purchase the fixtures and fittings, but you will be asked to keep it in good order. Ask for a full list of fixtures and fittings and check it is actually in place and in good repair.
It might be a good idea to take a photographic record of trading areas and fixtures and fittings.
You should also fully understand what insurances the pub company pay for (e.g. buildings, fixtures and fittings) and what is your own responsibility to take out and pay for (public liability, contents, employers etc..)
Even though this may only be a temporary arrangement, you will need some form of capital behind you for a healthy cash flow and early expenses such as deposits, initial stock etc. You should talk to a licensed trade accountant who will be able to help you identify the finances needed and produce a cash flow forecast and a forecast profit and loss. He/she will also be able to help you with practical issues such as pricing, wage planning, registering for VAT etc. .
The pub company may have some historical trading and expenses data to help in this exercise. They should also tell you about any other expenses you are liable for.
You should also appoint a stock taker and have monthly stocks carried out initially.