If you own the building your nursery trades from, you have probably been told that the sensible move is to sell the business and keep the freehold. Draw a rent from the new operator. Let the building be the pension.
It is advice that is widely given, rarely challenged, and increasingly followed. Christie & Co reported that 73% of day nursery transactions in 2025 were leasehold, attributing a significant part of that to owners choosing to retain their freeholds on exit. Their figures put the leasehold share of first-half sales at 78% in 2024, against 67% the year before.
So anyone considering this is not doing something unusual. They are doing what most of their peers now do.
The case for it is straightforward and mostly sound. You take a lump sum for the business. You keep the building and draw a rent from it. Christie & Co’s own guidance makes the comparison that most owners find persuasive — that rental income on a commercial property is likely to beat what the same money would earn sitting in a savings account. Freehold gives you an inflation-linked income, an appreciating asset, and something to leave behind.
None of that is wrong.
But it describes the plan. It does not describe what the plan becomes, and those are different things.
The part nobody controls
The structural problem with keeping the freehold and renting it out is this: the quality of the outcome is determined almost entirely by who buys your business, and you do not choose that person from a position of strength.
Once you have decided to retain the building, your retirement income is no longer a property decision. It is a bet on one operator’s ability to run a nursery you no longer control, in a building you are still liable for, in a market where you have stopped trading.
That produces three quite different outcomes. Most of the advice in this area treats them as one.
Outcome one — the premium bundle
Your setting is strong enough that a scaled operator wants it, and wants it enough to pay for the building as well as the business.
This is the best version, and it is real. Large groups dominate the transacting end of the market: operators with 21 or more settings accounted for 62% of Christie & Co’s completed deals in 2025. It is worth noting that this is their own deal flow rather than a market-wide count, and their brokerage skews toward larger transactions — but the direction is clear enough.
There is a complication, though. The buyers with the capital to take your bundle are precisely the buyers who least want to own property. Savills’ analysis of the thirty largest UK groups found 71% of their settings operate on a leasehold basis. The scaled operator is trying to keep capital in the business, not lock it into brickwork.
So what often happens is that the group buys the whole thing and separates it afterwards — sometimes immediately, sometimes during the transaction itself, placing the freehold with a property investor while retaining a long lease. Just Childcare did this at scale, selling 23 freeholds to LXi REIT for £34m off-market and staying in occupation on thirty-year leases.
So in this outcome the building does get sold, and it does get priced properly. Just not by you, and not to you. Somebody else captures the difference between what your building is worth attached to a trading business and what it is worth attached to a lease.
To reach this outcome at all, you need to be a genuine target for a scaled buyer. Most settings are not.
Outcome two — the mismatch
Your bundle is priced out of one buyer group and not good enough for the other.
This is the outcome that gets discussed least and happens most, and Christie & Co have described the mechanism plainly. They use the example of a freehold nursery marketed at £2m, with capacity for 35 children and annual profit of £70,000, and observe that transactions of that shape can look unbalanced and prove difficult to fund.
The arithmetic behind it is worth understanding. Brokers have long cited earnings multiples in the region of 1.25 to 2.5 times for leasehold nurseries against roughly 4.5 to 6.25 times where the premises are freehold. Attaching a freehold does not simply add the building’s value to the business’s value — it moves the entire asset into a different price bracket.
And that bracket has fewer people standing in it. An independent buyer, funding a purchase on a mortgage, may not be able to reach the number. A corporate buyer, screening for earnings quality, may look at the profit and pass. Lenders will advance up to around 75% against freehold nursery premises but often less than half against leasehold — so the finance available is shaped by the structure at least as much as by the business.
The result is a building that is worth a great deal in theory and difficult to transact in practice.
Outcome three — the independent buyer
Your business sells to a first-time buyer or a small operator, who takes a lease from you.
Christie & Co’s 2026 review estimates around 15,090 nurseries operating across the UK, providing more than 870,000 places, with private-equity-backed operators accounting for roughly 6.8% of the market. The sector is still overwhelmingly independent and owner-operated. Statistically, this is where most owners will end up.
It is also where every risk in the plan becomes live at once.
Your income is one operator’s occupancy figures. Not a diversified portfolio, not a covenant with a balance sheet behind it. One business, in one catchment, run by someone who has just spent everything they had buying it from you.
The covenant is whoever turned up. You optimised the sale of the business for price. The buyer’s financial strength as a tenant is a separate question, and it is the question your retirement now depends on.
You hold the building’s liabilities. On full repairing and insuring terms, the roof, the plant and the compliance are yours in your seventies. Anyone who has run a setting knows how quickly a building consumes money once it stops being new.
The asset is illiquid. A single nursery let to an independent operator is a specialist investment with a narrow market. If you need the capital at seventy-five, the buyer pool is thin and the yield applied will reflect that.
And your heirs inherit a job. Not a pension — a landlord’s responsibilities, a tenant relationship, and an asset most families are not equipped to manage.
The point most advisers miss
There is one more mechanism worth knowing, because it links the two decisions people think are separate.
The lease you grant determines the value of the business you have just sold. Lenders generally want to see fifteen years or more remaining to fund a leasehold nursery purchase; around ten years is where most stop; below about five, the buyer is restricted to cash.
So a short lease — which feels prudent, which preserves your flexibility — narrows the pool of people who can buy your business and depresses what they will pay. A long lease supports the sale price but commits you for a generation.
You cannot optimise both. And the term that suits you as a landlord is often the term that traps your buyer, which produces a weaker tenant, which is your problem, not theirs.
So: how does your freehold actually stack up?
The question is not whether retaining freeholds is a good idea in general. It is which of the three outcomes your specific building is heading for. That is knowable in advance, and it turns on a handful of things.
Capacity, honestly counted. Christie & Co put the average UK setting at 57.6 places. Registered places above roughly sixty attract a premium from buyers and their funders; brokers have observed values softening at the smaller end for years. Savills noted that nursery valuation has shifted from a price per square metre toward a price per child space — which means your building is now measured in children, not square feet, and two buildings of identical size can be worth materially different amounts.
Earnings relative to the asking price. Take the price your bundle would need to achieve and set it against your adjusted profit. If the resulting multiple sits far outside the ranges brokers quote, you are in outcome two, and no amount of marketing will fix it.
Which buyer that puts you in front of. Work out, specifically, who could fund your bundle. If the answer is a scaled group, you may be in outcome one — with the caveat that they will probably separate the building from the business anyway. If the answer is a local independent, you are in outcome three, and you should plan for it rather than discover it.
Your appetite for another fifteen years of it. This is not a financial question and it is the one that decides most cases. Retaining the freehold is not retiring. It is changing jobs — from running a nursery to being a commercial landlord with a single tenant.
Keeping the freehold is not wrong. For a strong building, in a good catchment, with a credible operator taking a long lease, it can be an excellent outcome and the numbers will bear it out.
But it is usually adopted as a default rather than chosen as a strategy, and the difference between the best version and the worst is not a matter of luck. It comes down to which building you own, and who is realistically going to want it.
Work that out first. The rest follows.