A number of FAQ’s for people thinking about buying a Pub or Restaurant.
Q. Where can I get information about the things I need to know to buy and run a pub or restaurant, without spending a fortune?
A. Go to www.smashwords.com and look up “The Common Sense Guide to Buying a Pub” and the “Common Sense Guide to Buying a Restaurant”, they come in ebook form and cost $5.99, UK equivalent £3.78, they are both aimed at the UK Leisure Industry, but a lot of the information is common business sense worldwide, you can also read part of these ebooks free, before buying.
Q. Where do I find details of businesses for sale?
A. The Internet first of all under Pubs for Sale, Restaurants for Sale, Commercial Business Agents, the Morning Advertiser (Pubs), Caterer and Hotelkeeper (Restaurants and Hotels), when you have looked at those, specify your areas to narrow down your search, be very careful with major pub leasing companies and taking a new lease, without serious professional advice. If you are still struggling email us at firstname.lastname@example.org and we will give you some details of Commercial/Business agents.
Q. Which Qualifications do I need?
A. The NCPLH has now been renamed Level 2 Award for Personal Licence Holders, this is now known as ALPH. The APLH will continue to be delivered as a one-day course with a 40 question multiple-choice exam at the end of it. – See more at: http://www.cpltraining.co.uk/blog/post/The-National-Certificate-for-Personal-Licence-Holders-will-be-renamed!.aspx. This sadly is all that is required to hold a licence, provided that you do not have a criminal conviction.
Q. Do I need to do any other courses before I take over the business?
A. Yes, you need to do the EHO, (Environmental Health Organisation) Food and Hygiene course, assuming that any part of your business will involve supplying food etc. to the public, everyone involved with handling food should also do this course, this can be done at most secondary colleges that run catering courses, shop around the prices can vary substantially. You also need to ensure that you are registered with the EHO in the area where your business is.
Q. I have a minor conviction, will this affect my application?
A. Yes, you need to check with Police Licensing Officer and your Local Authority Licensing Officer before you invest any further, they will check Criminal Records.
Q. Where can I apply for a Licence (APLH)?
A. You must apply to the Local Authority where you live after you have passed the ALPH, unfortunately if you are buying a business elsewhere you will have to register a change of address when you buy your business and the cost is almost as much as the original licence, if you do not register a change fairly quickly, they can stop you trading until the change has been re registered.
Q. Where can I do the ALPH?
A. CPL have training facilities all over the country and can normally accommodate a courses at short notice. You can also do the APLH at most catering Colleges, though they tend to wait until they have sufficient numbers, the BII (British Institute of Innkeeping) likewise.
Q. Will it help if I do some further qualifications?
A. It will, but you need to do them before you buy a business, when you buy a business you will find you are too busy to do any other courses, other than single day courses, you cannot afford the time for a weeks course.
Q. Do BII qualifications count?
A. Sadly very little, they should, but because the industry only requires a one day course to hold a licence, the majority of companies, pay little respect to them, if industry standards required levels of professionalism to be recognised, we may not have the failure rate that exists in the industry. Identifying the right course for your business is vital and you need guidance, don’t do courses for courses sake, do the ones that broaden your knowledge in relation to your proposed business.
Q. Can I use a Property Conveyancer to buy my new business?
A. You can, but I would advise against it, use a Commercial Lawyer, buying licensed property can be a mine field and buying a lease more so, taking a tenancy also. The trading conditions imposed by the Landlord or the Brewer can be draconian and you need an experienced lawyer who deals in commercial licensed leases and tenancies.
Q. Why do I need a Full Survey?
A. Catering and Licensed premises are invariably old properties that have had years of use and only cosmetic repairs, consequently many require a substantial amount of remedial work, most not visible. With Freeholds it is down to you, but with leases the Landlord can put a massive dilapidations bill on you, generated by years of neglect with your predecessors, unless you have an agreed independent survey when you took possession, the landlord knows that you have not agreed a survey with him and many will take advantage of it, if you are assigning the lease.
Q. What is a Freehouse?
A. A Freehouse is normally a freehold pub with no trading ties to a brewer, you can deal with any brewer and get excellent discounts. There are leased Freehouses and a number of Pub.Co’s call their pubs Freehouses, they so supply an array of different products, but you are totally tied in most cases on beers, wines soft drinks and anything else that they can tie up in the lease, with minimal discount.
Q. What is a Tied Lease.
A. A lease is for a specific period e.g. 5, 10, 15, 20 years, you normally cannot sell your lease within two years, without incurring serious penalties, a lease needs serious legal advice along with the Tied conditions. You are also normally responsible for all the repairs, a survey is vital and must be agreed formally with the Landlord (Buyer Beware).
Q. What is a Tenancy?
A. Tenancies are short term leases from Brewers, normally 1-3 years, you sell all their products at minimal discount and have no structural responsibility for the building, normally painting and decorating, but you need to check the Tenancy Agreement.
Q. Do I need to register for VAT>
A. Normally yes, if your turnover is going to exceed the VAT minimum, check the VAT web site. Some small catering establishments aim to keep their turnover below the minimum for ease of paperwork.
Q. Do I need to register with the Inland Revenue?
A. Yes, your Accountant will register your business, but if you have any staff, part time or full time, they have to be registered and declared, do not pay any staff in cash and not recorded for Inland Revenue purposes. Ensure all staff sign the relevant Inland Revenue Forms,
Q. Do I need an Accountant, I have always done my own accountants?
A. Unless you have an intimate knowledge of Tax accounting, both Inland Revenue and VAT, always use an accountant. Your time is too short to spend doing reams of paperwork, you have to records everything, purchases, sales etc., which takes enough of your valuable time.
Q. Do I need a Stock Taker?
A. Yes, for Changeover Day a Stocktaker is essential, unless you have in depth experience on stock control, valuation and profitability regular checks by a Stocktaker are also essential. If you have several staff, they can be invaluable if you are suffering stock shortages and you need up to date information and there is nothing like an experienced eye. Very small businesses do not necessarily need regular stocktakes, but medium to large trading operations will benefit from good stocktaking control. Brulines and Vianet will not give you this level of information.
Q. How can I check all the things that I need to put in place before I take the business over.
A. Have a look at “Changeover Day Check List”, we have tried to cover almost every eventuality that you might need, it will certainly be a useful guide, it is totally free on www.buyingapub.com, it is there to help people, trying to remember every thing that you need to put in place or do when buying a business is a nightmare.
Q. How do I know which Insurance Policy I should take out?
A. This again is a minefield, every Insurance Company claims that there policy is foolproof, they are until you make a claim, and you find as I did that the replacement value for myself or any key staff in the event of an accident, was £10.00 per week, a convenient slip on the part of the Underwriters. The company that we refer people to, because we have had no complaints, are Batemans their Business Policy is extremely popular for a quote or information email: http://email@example.com, their web site is www.thebatemangroup.co.uk.
Q. Why should I need a Licensing Specialist?
A. If you are buying a licensed property that does not have an a complex Operating Schedule, most commercial lawyers can deal with it, but if you have one with a number of trading conditions attached, it is worth talking to a specialist licensing solicitor, we recommend John Gaunt and Partners email firstname.lastname@example.org, call 0114 266 8664 they operate nationally and specialise in all aspects of licensing.
Q. When can the Landlord serve Notice on me for my new rent?
A. Anytime between 12 months and 6 months before the Rent Review date.
Q. Is the Rent Review Notice a final non-negotiable document?
A. No – you can state your opinion and always negotiate.
Q. Is the rent quoted negotiable?
A. Yes – it’s a two way process of negotiation however much you may be bullied into “sign here – standing up against us would be expensive”.
Q. Can the negotiations go past the Rent Review date?
A. Yes. No modern lease contains a clause that insists that “time is of the essence”. If it does, then you must have matters settled by the Rent Review date. However, this is very rare.
Q. Must my landlord explain his reasons for the new rent?
A. Yes. Almost all Pubcos and Breweries have a Code of Practice which requires transparency by way of detailed explanation.
Q. Do I have to reveal my private accounts?
A. Only if the lease requires that you should. Otherwise it is a matter for your discretion rather than your landlord insisting that he wants see them.
Q. If the rent comes down, do I get back overpaid rent?
A. Yes. The new rent applies from the date of the Rent Review whenever that was and overpaid rent should always be refunded from that date.
Q. Must a rent refund be automatically credited to my rent account?
A. No, not necessarily. It can be paid to you by cheque.
Q. Can I use evidence of events after the Rent Review date? A. Generally no as post Rent Review evidence is usually excluded.
Q. What happens if my Landlord says that I am under trading and bases his level of Fair Maintainable Trade at a higher level of trade?
A. Ask him to prove his case by detailed explanation. Never accept the catch all “we think you are not up to standard and no good”! They have to prove their case.
Q. Do I automatically need professional representation?
A. In the first instance, not necessarily, as you can hopefully negotiate a considerable number of items if your landlords retail field staff are being helpful and fully open and honest. However, external help can be very helpful to expose some of the dirty tricks and the bullying that can occur and also help you understand the technicalities of the rent review calculations.
Q. What happens if there is no Rent Review Notice served by the review date?
A. Don’t let this happen if at all possible. Write or email your landlord in advance of the rent review date, preferably about three months before the due date and insist that they open negotiations. If the date has passed, you can always force the issue, if there are still no negotiations by instigating Third Party Referral to determine your rent under the terms of your existing lease. PIRRS will not be contained in your current lease. This is a further option for dispute resolution and is to an Independent Expert only which has its limitations. However it is sold on the basis of a low cost option which needs detailed studying in advance of electing to take that route.
Q. Must my Landlord follow a Code of Practice?
A. Yes, if they have one in existence. However, the Code of Practice is not necessarily legally binding.
Q. Must I confirm the validity of my Landlord’s Code of Practice by countersigning the document?
A. There is nothing in your lease that says that you have to countersign the Code of Practice if you don’t want to. If in doubt, seek legal advice.
Q. Are the RICS Rent Review Guidance Notes relevant?
A. The RICS Guidance Notes are only mandatory on Chartered Surveyors. Your landlord’s retail field staff are not Chartered Surveyors and although they may pay lip-service to the RICS Guidance Notes, more often than not they are either not understood or incorrectly applied.
Q. What is the usefulness of Industry Benchmarking? A. The BBPA and AMLR both produce annual statistical reviews. They are averages and, although useful, can never be case specific. If your landlord refers to their existence, ask how they have been used in your case and how the Bench Marking has been accurately applied to the calculations.
Q. My lease says upward only rent reviews. Must this be followed?
A. All current Codes of Practice (except Wellington Pub Co), allow for upwards and downwards rent reviews which is essential in the furtherance of negotiations.
Q. I am told that my Rent review has been calculated using my current discounts.
A. If your lease confirms the level of minimum discounting then it is that level that should apply to the calculations. If there is no mention of any discounting structure in your lease, then such discounts as you currently have are discretionary. They can disappear completely if, for example, the freehold interest is sold to someone else. Never include the benefit of trade discounts in the calculations if they are discretionary.
Q. Must the private accommodation be separated from the rest of the pub for rent purposes?
A. No. It is the whole building that is being leased to you. How you decide to split the rent for your own tax/accountancy purposes is a matter for your own discretion. It is the whole property that counts.
Q. Must machine income be taken into account?
A. Only if there is no prior sharing agreement with your landlord. If there is a side letter or an “understanding” that a 50:50 share of net machine income goes to your landlord, what is left over to you should not then be included as income in the rent calculations.
We will continue to add other FAQ’s as they come in or readers feel they should be included. This FAQ’s are for help and guidance and do not replace legal advice from a specialist, they are designed to make you ask questions.
Always remember Buying a Business is like Marriage, “Marry in Haste and Repent at Leisure”.