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tenancy & leasing


Pubco loosens ties with new lease deal


Punch aims to tap into cask opportunity with ‘buy one get one free’ ale option P


UNCH Taverns has responded to the fierce criticism pubcos received


in an MPs’ report last year by launching a new deal for prospective tenants. The firm, which leases almost 6000 pubs across the UK, is giving new tenants a range of flexible buying options under an agreement launched on February 14.


The package hands lessees the opportunity to buy beer from Punch at prices “competitive with the free of tie market”, in exchange for paying a higher level of fixed rent. Alternatively, tenants can peg their


rent at a lower level by agreeing to a smaller discount on the number of barrels their lease deal targets them to sell.


Partners who choose this option can also qualify for full discounts should they exceed their barrelage targets under a new rebate scheme. Punch moved to devise the flexible deals, which will initially be available to new tenants only, after MPs on the Business, Innovations and Skills Committee called for pubcos to provide more transparency in their leasing agreements following a long-


running enquiry (see page 20). Elaine Kennedy, the firm’s operations manager for Scotland, said the new package shows that the tie is still an effective model.


“As part of our new strategy and becoming more open, honest and the best value pub partnership in the UK, we have a new lease agreement,” she told SLTN. ‘It’s not just a new agreement, it’s a fundamental change of our whole approach, to really look again at the tie model and dispel any ambiguity about how things are calculated and how it works.


“What it will mean is that our tied beer will be available at full discount, [at] competitive free of tie [rates]. “Or they [tenants] can choose to keep the fixed rent lower, but pay slightly higher prices for their target number of tied barrels. “The great thing about it is that it incentivises growth as well, because over and above their target number of tied barrels, which is set out at the start of the lease, they will get more discount by way of a rebate scheme.” A key aim of the new package is to


Kennedy said cask had been identified by the pubco as a category which could give its pubs a “point of difference”.


“The new lease will enable the partners to have a free of tie option on cask ale on a ‘buy one get one free’ basis,” she said. “It’s absolutely brilliant because they


It’s not just a new agreement – it’s a fundamental change to our whole approach.


Kennedy: new lease deal offers incentives.


help Punch and its partners cash in on the growing demand for cask ale. The Punch Buying Club Agreement allows leaseholders to stock a cask ale of their choice for every one bought from Punch.


can use a local brewer or any brewer they choose, as long as that brewer receives Progressive Beer Duty [tax relief for small brewers]. “It will improve availability in our pubs and the local cask ale [sector].” The new leasing arrangements also


remove the traditional rent review element from Punch leases. Instead, rents will automatically fluctuate in line with inflation (the Consumer Price Index).


Funding gap slows lease market


THERE are signs that demand for leasehold pubs is beginning to pick up, but deals are continuing to flounder over a lack of bank lending.


Ken McGown, Scottish and Newcastle Pub Company’s operations and sales director for Scotland, said there’s been an “upsurge” in interest in leased properties on the market since the start of the year, with the firm receiving more enquiries from independent operators who previously hadn’t considered leasing. However, he said the stricter lending criteria banks have been pursuing post-recession means it’s harder to get deals done, especially when it comes to first- time buyers.


Stating that there are “fewer 18 - SLTN - February 17, 2011


funded bids around”, McGown told SLTN the situation is not unlike home buyers trying to get their foot on the first rung of the property ladder.


“Funding difficulties continue to hamper purchases, with many banks still not lending to the pub sector,” he said. “And where lending is available, this is restricted to a maximum of 60% of value. “This has held back the sale of units, particularly in the £200,000 to £400,000 price bracket, as buyers typically have to find £100K in cash to supplement any lending they can get.”


S&NPC itself is in no hurry to add to the estate of pubs it offers for lease. The firm’s most notable


part of a long-term strategy to churn its estate.


McGown: firm in no hurry to acquire.


transaction of recent months saw it offload the management responsibility of some 200 pubs in Scotland before Christmas,


But while McGown said it’s not actively looking to acquire, it could move if the right opportunity comes along. “Our current focus is on generating incremental value and additional revenue streams for our existing estate,” he said. “However, whilst we are not concentrating on major acquisitions, we are always interested in cherry picking individual sites that come on to the market which meet our criteria.”


Beyond the seven pubs it


currently has on the market, in addition to three now under offer, McGown said the firm has no current plans to dispose of more pubs.


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