Financing a Pub: Freehold, Leasehold or Going Concern
Freehold, leasehold and going concern are not three options on one scale. They are two questions, and reading them wrong misreads the funding.
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Financing a Pub: Freehold, Leasehold or Going Concern
Open ten pub listings and you will meet three labels. They look like three choices on one ladder. They are not, and a buyer who collapses them into one will misread both the price and the funding.
Quick Answer
Freehold and leasehold describe what you own, and going concern describes what is included in the sale. They are two questions, not three choices on one ladder. Reading the sale label correctly before you read the price is what tells you which security a lender is actually taking, and how pub and hotel finance gets assembled around it.
Also called: pub finance, hotel finance, licensed venue finance.
What do the three labels on a pub listing actually mean?
The three labels on a pub listing are answering two different questions, not one. Freehold and leasehold answer the tenure question, which is what you own. Going concern answers the inclusion question, which is what is included in the sale. Those are the two axes, and every listing you open is a point on both of them at once, whether or not the agent has said so.
That is why "freehold going concern" is not a longer word for freehold. It is one answer on each axis, stacked. It tells you that you are buying the land and the building, and that the trading business is coming with it. Strip the second half away and you have a freehold sale of premises with no business attached, which is a completely different asset and a completely different loan.
What lenders actually do with the label is decide what they can take as security, and that decision happens before anyone looks at the numbers. Get the label wrong and you have brought the wrong deal to the wrong desk.
| Sale label | What you own | What is included in the sale | What secures the loan | Indicative gearing |
|---|---|---|---|---|
| Freehold, property only | The land and the building. Not the trading business. | The real property, commonly with a lease and a sitting operator already in place. | A mortgage over the real property, read as commercial real estate against the strength of the lease. | Read on commercial property terms and driven by the covenant and the remaining lease term, varying by lender. |
| Leasehold | The business and the leasehold interest. Never the land. | The trading business, the licence, the plant and equipment schedule and stock, with the site leased from a landlord. | The business and the leasehold interest, with the loan term capped by the remaining lease term. | Indicatively 40 to 50 per cent of the going-concern valuation, capped by remaining lease term, varying by lender. |
| Freehold going concern | The land, the building and the operating business, together as one. | Property plus business, in most cases walk-in walk-out with staff, stock and trade continuing through settlement. | The property and the business as a single trading whole. | Indicatively around 65 per cent of the going-concern valuation with gaming, and closer to approximately 50 per cent without it, varying by lender. |
| Leasehold going concern | The business and the lease, with the trade transferring intact. | The venue as a working operation rather than a set of assets, with the premises leased. | The going concern, still capped by the remaining lease term. | Indicatively 40 to 50 per cent of the going-concern valuation on the same lease-term cap, varying by lender. |
Is going concern a type of tenure?
Going concern is not a type of tenure. It is a statement about what is included in the sale, and it can sit on top of either tenure. A pub can be freehold and not a going concern, if the premises are sold with the business carved out. A pub can be a going concern with no freehold at all, if the operating business transfers and the site stays leased.
The reason this matters more here than in most property classes is that a licensed venue is worth something as a trade that it is not worth as a building. A going concern sale means the licence, the trading history, the staff and the stock come across as a working operation, rather than the buyer restarting from an empty room. That continuity is a large part of what a valuer is pricing and what a lender is lending against.
Where this commonly lands is a buyer who has decided between freehold and leasehold, believes the decision is made, and then meets a going concern listing and treats it as a third option to be weighed against the first two. It is not a third option. It is a second question they have not answered yet.
What changes about the funding when you own the freehold?
Owning the freehold changes the funding by putting real property into the security position, which lengthens the loan and widens the lender pool. Land and buildings can be mortgaged, valued on established methods and held for a long term, so the facility is no longer bounded by somebody else's lease. That is the structural advantage, and it is the reason freehold listings carry the prices they do.
It does not follow that a freehold deal is automatically the easier one. A freehold going concern is still sized on the venue as a trading whole, not on the bricks alone, so weak trading records will pull the number down even with strong property behind them. And the gearing bands are still indicative and still move with what the venue does. A venue with gaming entitlements in the mix reads differently from one without, because the income is differently regarded and differently transferable.
If you are weighing a freehold purchase and want to know which band your venue is likely to sit in before you make an offer, check eligibility first. It is a short conversation and it costs nothing.
What secures the loan on a leasehold pub?
On a leasehold pub, the loan is secured by the business and the leasehold interest, and there is no mortgage over land because the buyer never acquires it. The lender is taking security over the trade, the licence and the plant and equipment schedule, and it is reading the lease behind all of them. That is the whole difference, and everything else follows from it.
The remaining lease term is the constraint that surprises buyers most. A lender will not write a loan that outruns the asset securing it, so the remaining lease term caps the loan term, which in turn drives the repayment. A venue with a long lease and clean options behind it is a materially different funding proposition from an identical venue with a few years to run, even if the two trade the same. The landlord's position matters too, which is where a deed of consent and the assignment provisions become live issues rather than paperwork.
The indicative bands reflect this. Leasehold gearing sits materially below freehold, typically 40 to 50 per cent of the going-concern valuation and capped by the remaining lease term, varying by lender. Our breakdown of what changes without the bricks works through the tenure comparison in detail.
How does financing a pub purchase differ from a commercial property loan?
Financing a pub purchase differs from a straight commercial property loan because the lender is underwriting an operating business, not a tenanted asset. A standard commercial property loan reads a lease, a covenant and a yield. A pub deal reads trading records, a licence, a staffing position and a set of income streams that behave differently from one another, and only then reads the property.
That changes what goes into the file and how long it takes. It also changes who lends. Major banks are more comfortable where the property is strong and the trade is well evidenced; non-bank lenders and specialist funders sit closer to the business risk and price accordingly. From the underwriter's side, a licensed venue is a trading credit with a property attached, and the file needs to be built that way round.
The capital stack itself, how the loan, the deposit, any equity release and any vendor contribution fit together, is set out on the pub and hotel finance page and worked through in the pub and hotel finance guide. This post stops at the label, because the label is what decides which stack you are assembling.
Which label suits which buyer?
Which label suits you starts with what is included in the sale, not with tenure. Decide first whether you want to run the venue or hold the asset, because that answer determines whether the business needs to be in the contract at all. Tenure is the second branch, not the first.
Select your scenario
Start with a leasehold going concern.
You want the trade, not the bricks, so the business has to be in the contract and the site can stay leased. Your entry cost is lower and your capital goes into the operation rather than the land. The two things to settle before anything else are the remaining lease term, which will cap your loan term, and consent to assignment from the landlord. Read the plant and equipment schedule closely, because on a leasehold sale it is a large part of what you are actually buying.
Leasehold going concernNone of the three is better than the others in the abstract. They suit different buyers with different capital positions and different intentions, and the mistake that costs money is choosing a label because it sounded more substantial rather than because it matched the plan. Our guide to buying a pub covers the operating side of that decision.
What should you check on the listing before you talk to a lender?
Before you talk to a lender, check that the listing states both axes clearly, because a listing that does not is a listing you cannot price. You want the tenure named, the inclusions named, the remaining lease term if there is a lease, and a plant and equipment schedule that is actually attached rather than referred to. The federal guidance on buying an existing business sets out the wider due diligence position, including several years of financials and tax returns, licensing compliance, lease transferability, supplier agreements and outstanding debts.
Where this commonly lands is that the strongest listings are not the ones with the best photography. They are the ones a broker can take straight to a funder without a fortnight of follow-up questions, because the label and the inclusions agree with each other and the paperwork behind them exists.
The listing works
- Tenure and inclusions both stated, and they agree
- Remaining lease term and options set out in writing
- Plant and equipment schedule attached, not just referenced
- Licence status and transferability confirmed
- Several years of trading records available on request
- Walk-in walk-out terms spelled out where claimed
The listing stalls
- "Going concern" used as though it settles tenure
- Lease term described as long with no expiry given
- Inclusions listed loosely with no schedule behind them
- Trading figures quoted for a period nobody will name
- Licence conditions or transfer status left unaddressed
- Price quoted without saying what the price covers
If the sale is a going concern, the settlement mechanics deserve their own read, because the trade has to keep running through the handover. The going concern sale and settlement guide covers what has to be in place on the day, and walk-in walk-out explains the term you will meet most often in the contract. The documents a lender expects to see, whichever label the listing carries, are listed in the accommodation acquisition lender document pack.
Freehold, leasehold and going concern are two questions wearing three labels. Tenure tells you what you own and the going concern description tells you what is included in the sale, and a lender reads them as a pair before it reads a single trading figure. Once the pair is settled, everything downstream follows: which security is available, whether the remaining lease term caps the loan, which gearing band is indicative, and how much of the price you need to bring yourself. More accommodation finance deals stall on a misread label than on a weak trading year.
Key takeaway: Read the sale label before you read the price, because the label decides the security and the security decides the loan.Frequently Asked Questions
The deposit needed for a commercial property loan is the gap between the purchase price and what the lender will advance against the security, which on a licensed venue is typically a larger share than buyers expect. Indicative gearing on a freehold going concern sits at approximately 65 per cent of the going concern valuation where gaming is present and closer to approximately 50 per cent without it, all varying by lender. The remainder is the buyer's contribution, and it can be met with cash, with equity in other property, or in part by a vendor arrangement.
Getting an acquisition loan on a pub is less about difficulty than about evidence, because the lender is funding a trading business rather than a static asset. What lenders want first is a clean set of trading records, a licence that transfers without conditions, and a sale label that matches what the contract actually conveys. A well-documented leasehold going concern with a long remaining lease term commonly clears more easily than a lightly documented freehold, because the file answers its own questions.
Financing a pub purchase works by first establishing what the sale label conveys, then sizing the loan against the security that label creates. A freehold sale is secured by real property, a leasehold sale is secured by the business and the leasehold interest with the loan term capped by the remaining lease, and a going concern sale is secured by the trading whole. Once that is settled, the deposit, the vendor contribution and any equity release are assembled around it, which is the work the pub and hotel finance page sets out.
A pub mortgage covers the real property, the land and the building, and it does not by itself cover the trading business standing inside it. Where the sale is a freehold going concern, the mortgage over the property is one part of a facility sized on the venue as a trading whole, with the licence, the goodwill and the plant and equipment schedule sitting alongside it. Where the sale is leasehold, there is no mortgage over land at all, because the buyer never acquires it.
A pub sold as a going concern is different to a freehold sale, because the two labels answer different questions rather than sitting on the same scale. Freehold tells you what tenure you acquire, and going concern tells you that the operating business transfers with it, usually on a walk-in walk-out basis with staff, stock and trading continuity intact. A pub can be freehold and not a going concern, and it can be a going concern without any freehold at all.
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