If you are taking over an existing pub business, you may also be able to take over the existing Punch agreement from the current landlord. We call this a business transfer.
This happens if one of our partners wants to move on or retire before the end of their agreement. Effectively, the new partner buys the goodwill that the outgoing partner has built up in the business, and whatever time remains on the Punch agreement. Generally, this will be less than 10 years.
For the incoming partner, the big advantage is that you are taking on a well-established business rather than starting from scratch in a vacant pub. A good transfer will have a lot of goodwill already within the business. This means it should be financially viable, with a strong credit rating and proven profitability. It should have a strong customer base and excellent prospects for growth.
For the outgoing partner, the ability to transfer the agreement means they can flex their business plans, for example, to retire earlier or adapt to family circumstances. It means they can get a return on their investment in the business, without having to wait for the end of their agreement term.
The up-front cost of taking on an existing agreement may be higher, because you will be paying a transfer premium to the outgoing partner. This premium goes directly to the previous partner and not into the business itself, so you need to negotiate the price carefully and always get your own independent valuation.
Most transferred agreements will have less than 10 years to run. This will suit some people, but not necessarily others, as you will have a shorter term to recoup your up-front costs.
A typical transfer premium could be anywhere between £10,000 and £200,000. The figure will be based on a calculation of profit and term remaining on the agreement. Bear in mind that the price is determined by the seller or seller’s agent, and it is your responsibility to ensure you get good value for the premium you'll pay. We recommend that you complete a full structural survey of the property. Our transfer checklist outlines other areas that you should be aware of.
Punch Taverns does not decide the cost of transferring a Punch agreement; this is set by the outgoing partner.
While the negotiations are between yourself and the outgoing partner, Punch Taverns will play a role in the process. If you are interested in taking on a transferred agreement, we will help you find a pub, opportunity and location that suits you. You’ll then be able to talk to the Partner Development Manager for that pub, who can tell you more about it.
Because we own the pub itself, we do have the right to refuse the transfer of an agreement to someone who is unsuitable – by which we mean someone we cannot accept as a partner. Existing partners need to let Punch Taverns know in good time if they intend to transfer their agreement, so that we can approve the process and assess the suitability of potential buyers and their business plans.
To take on a transfer, you will need a personal licence, a suitable Designated Premises Supervisor and sufficient funds. We reserve the right to refuse the transfer of an agreement to someone with excessive borrowing, a poor credit history or a criminal record. Other grounds for refusal include an unachievable business plan, failure to take professional advice and a lack of accredited training. Basically, for your own protection and ours, we need to know you have a reasonable chance of complying with the terms in the agreement, and succeeding in the pub business.
We also work with the outgoing partner to make sure they do their part by getting a professional valuation to establish the appropriate premium, and by settling all outstanding debts with Punch Taverns and other suppliers.
We will advise the seller to confirm which fixtures and fittings are included, to provide a full inventory, and to make sure that the business is transferred in a fit and proper condition, in line with the repair conditions in their agreement. We will also advise them to make certain legal checks with their solicitors and ensure that three years of business performance data is ready for any potential incoming partner to see.
Once the transfer is approved, solicitors are instructed to ensure a contract is drawn up which legally transfers the agreement. If the original agreement was granted after 1st January 1996, additional ‘privity of contract’ conditions may be imposed, which your solicitor should explain.
Remember: you should always seek independent professional advice, both legal and financial.
1. Business Performance
The transfer premium is partly based on the profitability of the business. You need to see:
- At least the past three years trading figures - turnover, cash flow, profitability
- Business rates and other fixed and variable overheads
- Business patterns – when does the pub take most cash? Is it seasonal?
- State of the property – is it going to need extra money spending on it?
As you are buying a going concern, the Transfer of Undertakings regulations mean that you take on responsibility for any staff who have transferred with the business. You need to know:
- Who does the pub business employ? Is there a chef? What will your role be?
- What are the contracted terms of employment of any existing staff?
- Is anyone leaving with the outgoing partner? Will you have to recruit a replacement?
- What about sick and holiday pay, maternity or paternity pay etc? Ensure you consult your solicitor to get a full understanding of your responsibilities.
The outgoing partner will have existing relationships with suppliers. You need to check:
- Who are the suppliers? Do they offer any special deals to the existing partner, and will they give you the same?
- How do you audit the existing suppliers to ensure you are getting full value?
- Are there any long-term supply contracts in place? They may be difficult to cancel.
- Have you seen copies of all supplier agreements?
You need to be aware of all the licensing regulations that apply. Make sure you know:
- Are there any special licensing conditions that apply to the pub?
- Whose name is on the licence? Make sure this is changed!
- Are there any planning restrictions, pending applications? These will all become your responsibility.
It’s important that you stay commercially-minded when negotiating a transfer. Ask yourself:
- Why exactly does the outgoing partner want to leave?
- Am I being emotional about this? What are the hard facts?
The outgoing partner may also have some questions for you, such as:
- What are your plans for this business?
- Do you have the funds to succeed? What is your credit rating?.
- What are your plans for the staff and how will you be treating them?
The outgoing partner will also need to remove their personal details from any supplier contracts or licences held in their name, and will need written assurances that they have no ongoing liabilities once the pub business is sold to you.
5. Financial assistance
Punch Taverns may, in some circumstances, be able to help you finance the cost of the transfer. This is something we will look at on an individual basis. Ask yourself:
- Where is your funding coming from? Can you afford it?
6. The Agreement
The Foundation Tenancy and Partnership Lease agreement have been introduced relatively recently. Be aware that the agreement you are taking over might not be the same as our new agreements. It might have been drawn up by Bass or Vanguard, prior to Punch taking them over. You need to know:
- What are the full terms and conditions of the agreement?
- What is the length of commitment, or tenure?
- If the agreement includes full repair, is the property in good condition? If not, make sure that all problems are put right before you become responsible for them.
7. Professional advice
It is your responsibility to make sure you get a fair deal. You should:
- Appoint a solicitor to look at the agreement in detail
- Get a full structural survey of the property
- Get an independent valuation of the business, including goodwill
- Ask an accountant to look at the financial records
Remember, you are acquiring a business: you need to know what you are buying.
8. Business Planning
You need to have your own business plan for the pub. You should decide:
- Are you going to change the way the pub is run, or keep it as is?
- How will any changes you have planned affect your finances?
- What was in the outgoing partner’s business plan? Ask to see it.