Many pubs all over the UK are suffering – even before COVID many were facing a perennial battle to boost revenues and stay in business. While this may be tough on the landlords and breweries it can present the perfect opportunity for investors to acquire stock.
The COVID impact on breweries has exacerbated the situation by accelerated the decline of non-performing establishments. This is causing some to sell off stock quickly and cheaply to reduce their own debt burden. Deals are there to be had from the savvy developer.
Beer tax hikes, the smoking ban, cheap supermarket booze a cultural shift towards eating out means so many of these disused pubs are occupying prime locations with great transport links, extra outbuildings and spacious gardens ideal for a range of conversions from luxury flats to HMO’s.
The big advantage for bringing these derelict units back to life is they can help regenerate an area rather than see them left unloved and a sore sight for the locals. Buying a closed pub has its advantages as you gain considerably more floor space for your money compared with residential meaning more saleable space.
Many of these units are sold freehold with vacant possession while others may have a short ‘fag-end’ lease where the freehold can be eventually purchased. These are typical known as ‘cold investments’ where there is a potential for redevelopment at a later date.
Change Of Use Planning Permission
Councils are very wary about leaving pubs empty for a long time because they can become rundown and have squatters move in. Although pubs have flexible A4 planning investors could apply for planning to convert the building into residential property.
Planning would typically take 2-3 months for consent and for a complete change of use but raising a conventional mortgage would not be possible. You would have to look at development finance, bridging or other forms of private finance. Speak to your commercial finance broker about options.
Typically, unless it’s a village pub, planners can be more sympathetic to alternative uses. Check that there is no local pub protection policy, if the area is run down planners may want to keep the commercial element to boost local employment. A planning consultant will help to complete a planning pre application to check the councils view on this.
Some pubs may have a statutory listing, often grade 2, this shouldn’t necessarily deter you (although it will add complication and will require planning as well as listed building applications) from purchasing this type of building. You can still achieve an interesting internal refurbishment by working closely with the local conservation officer.
Higher Yields & Tax Breaks
Not only does investing in public houses mean higher yields – there are some great incentives and tax breaks available when converting commercial into residential. Conversion and refurbishment costs only attract 5% VAT instead of the usual 20%.
Finding Unused Pubs
There are numerous places where you can source pubs and other commercial property premises (care homes, offices, shops, hospitals, police stations, Bingo halls) ripe for development if you know how to find them.
Your first port of call might be visiting local commercial agents. You should also scour the local papers and get to know the area really well by simply walking around and keeping your eyes open. You never know what wreck, overgrown front garden, or other signs of boarded-up windows/signs of neglect you can find which is not on the market.
Specialist websites which are free to use are always worth a try. Bear in mind most will have a search by area rather than simply showing a closed down unit, so you’ll have to trawl through many listings to find the empty unit ripe for development.
If renovating a historic building there will be several organisations which publish catalogues of ‘buildings at risk’ which you may have to pay for. The term is of course interesting as it may mean beyond repair or simply the architectural features which are in danger of being lost. However, there still maybe a small catch: although the building itself may be neglected, the vendor may not necessarily want to sell.
Freedom of Information Act of 2000
Another useful route is to contact local authorities who keep a list of empty properties belonging to businesses – Under the Freedom of Information Act of 2000 you can make a request and in theory you should receive a long list, but you will probably get a ‘no’ the first time. Speak to the empty homes officer and quote this act. If you phrase it correctly and are persistent you will eventually get an answer which works for you.
You can sometimes find derelict pubs on land advertised as a building plot as sometimes the pub in question maybe suitable for conversion rather than pulling down and rebuilding. Some of these wrecks might no be good for anything other than demolishing- you will be surprised how many recycle pub projects you can find this way.
Tips for property investors buying empty public houses
- Think beyond the empty shell of the building. Many pubs have land, car parks, or central locations within a given area which all propose an attractive development opportunity for conversion.
- Before buying the property get advice from local planners on the likelihood of obtaining permission for residential development. Don’t buy on the assumption that ‘change of use’ will be given unless serious research has gone into your due diligence. If there is much competition you can secure the unit subject to planning permission thereby negating and reducing your risk. If the vendor will only sell to you on an ‘unconditional’ basis whether consent is in place or not, it is advisable to walk away
- Ensure you or have someone in your team who knows the practicalities of building regulations and architectural possibilities of your conversion. You will need a good quantity surveyor, an architect to design the scheme and help with planning consent/project management, and an engineer to ensure you have a safe and structural solution for the build.
- Beware of big pub chains selling off their poor or non-performing pubs as they will usually be ‘overage’ or ‘uplift’ clauses which basically mean if you put in an application for change of use, you could be liable to give the seller a percentage of the increase in value of the property.