Considering Pub Ownership - Should You Buy or Lease?

3 December 2014
 Categories: , Blog

Pubs have played a prominent role in Australia's culture from the earliest times. Beautiful heritage hotels adorn almost every country town, and the history is apparent on city corners throughout the nation. If you want to buy a pub in Australia, there is a lot to consider. Your first and foremost concern is to choose the type of pub ownership model you are seeking. You need to decide between the options of leasing or having the outright ownership of the hotel.

Take a good look at this overview before jumping in and choosing to buy a pub. You need to make a well informed decision.

As with any important life decision it comes down to weighing the advantages against the downsides of each of the models.

Leasing A Pub

When you lease a pub, you sign a long term agreement with the owner that allows you to occupy the premises. Frequently the owner will be a major hotel company or franchise.

Reasons For Leasing

Most new entrants to the industry will opt to lease. The major reasons being

  • Cost - leasing will require much less money than the huge loan commitment needed for buying outright. The deposit required will also be much smaller.
  • Fixed payments - unvarying rental payments make budgeting predictable and easier to manage
  • Tax advantages - rental payment costs may be offset against tax liability
  • No resale problems - it is not your problem to deal with at the end of the lease

Reasons Not To Lease

You are obliged to operate the business according to the owner's conditions. These will be clearly stated in your agreement. Additionally:

  • You have no real asset value in the pub.
  • Any improvements you make will benefit the owner. The resulting increase in profit may also contribute to an increase in your rent.

Advantages Of Owning A Pub Outright

Much like buying a house, you are at liberty to do as you wish.

  • It's completely yours. You have the freedom to benefit from every improvement that you make in turnover. The profits are yours alone.
  • You will benefit from the growth in the value of your asset as you make continued improvements.

The Downside Of Outright Ownership

The main drawback is the heavy price you need to pay for outright ownership. The purchase price for a freehold pub is usually two or three times the annual turnover figure. Raising the large amount needed to finance the deal and pay the deposit could be difficult.

Now that you have clearer a picture of how you can resolve the ownership question, you can go ahead and make some inquiries. Pubs have evolved a long way from the early days of simply serving alcohol. When you buy a pub you will be part of an energetic industry providing a wide range of services to the community.