Giving their tenants

Despite having more than 270 properties in 28 of England's counties, Banbury-based licensed property retailer Mayfair Taverns prefers not to advertise nationally for tenants.

"People go to the larger breweries whose names they recognise. We have to shout louder to get heard, so we tend to advertise in the local press instead," says Nicola Wilkinson, marketing manager for Mayfair Taverns. "We get local people into local pubs, that way they bring customers with them."

Mayfair Taverns - created in April 1996 when Wilkinson's father, managing director Tony Wilkinson, bought out Ascot Holdings at a cost of more than £31m - attributes its success to the relationship between the company and its tenants. The relationship is promoted as a business partnership offering experience, guidance and training while giving tenants the freedom to run the business as they see fit.

"If the tenant or lessee wants to run a restaurant or do pub food, he can, and he keeps all the profit," says Wilkinson. "Mayfair will give advice, help with setting up and contacts if required, but we have no control. The tenant is solely responsible for the business and can run it as he wishes."

The company has a wide range of properties available to potential tenants, from town centre pubs to country inns. "We try to match the pub with the funds the tenant has available," says Wilkinson. "We start by building a picture of what they want and then send them to see two or three pubs we think might be suitable."

Mayfair supplies the prospective tenant with all the necessary figures, such as those relating to fruit machines (the profit from which is shared 60:40 in the tenant's favour), then requires them to do a business plan setting out proposals for running the pub. "It is a business and a way of life, and this makes them really think about it," says Wilkinson. "We need to make sure they are 100% committed."

Successful applicants are offered two types of agreement. Sixty per cent of the current licensees have opted for a fixed-rent, three-year tenancy designed for those who have little in the way of funds to invest or are not sure whether running a pub is right for them. This agreement requires a 28-day notice to quit and can be renewed at the end of the three-year term or be converted to the second type of agreement - a 20-year lease.

Rent, the amount of which is reviewed every five years, is still payable monthly and in advance under the 20-year lease, and the remainder of the lease can be sold at any time. The cost of a tenancy or lease does vary considerably - based on a number of factors such as current trade or goodwill and fixtures and fittings - but starts from about £6,000.

Under both agreements, Mayfair insures the building and charges the premium back to the tenant in the rent. The tenant is responsible for insuring the contents and the business in addition to paying business rates, council tax and legal fees to obtain a licence.

Mayfair meets the cost of all external decorating and signage costs, while the tenant pays for the interior decor. If a major refurbishment is necessary it will usually be a joint venture with the cost being shared between landlord and tenant.

In some instances Mayfair will contribute to the cost of other developments undertaken by a tenant, such as laying a patio at the premises. The improvements will be taken into account at the next rent review, when the rent will rise to reflect the increased value of the property. Rent is set by one of eight area managers each responsible for about 35 pubs, whose role is to help licensees build a profitable business.

In addition to making money from rent, Mayfair, whose annual turnover is £8.1m, benefits from the volume of beer sold to tenants. The company has trading agreements with brewers Carlsberg Tetley and Scottish Courage and requires tenants to buy their beer from a nominated supplier.

The volume of beer sold by tenants is subject to a minimum purchase agreement between themselves and Mayfair. If the tenant exceeds the target he is paid a bonus on every barrel over the target, but if there is a shortfall Mayfair is entitled to charge a penalty of about £85 per barrel.

Tenancies aren't restricted to those with experience of the pub business. Mayfair readily takes on novices who show enthusiasm and commitment. "People often come from other businesses, so they know about VAT returns and cashing up at the end of the day," says Wilkinson. "If someone has the right ideas, Mayfair will help them to develop a thriving business."

Training is available in the form of a five-day residential course costing £650 per person and leading to a British Institute of Innkeeping qualification. The course is designed for first-time licensees and covers such subjects as basic finance, cellar management, health and safety legislation, marketing, and staff training skills.

Also included in the programme is the National Licensees Certificate, which, since January 1998, Mayfair has insisted every new tenant holds, because of the increasing requirement to do so before being granted a licence by magistrates.

This part of the course, also available as a separate one-day course costing £130, involves licensing and employment law and social responsibilities. The certificate is considered so important by Mayfair that the company is offering to pay for an existing tenant from every pub in the estate to take the certificate.

"Many tenants don't want to do it, particularly if they have been in the business for a while," says Wilkinson. "They don't think there is anything else they can be taught. But they get a surprise on the day, when they learn things they never knew."