Stephen Chown of Chown Commercial looks at how properties should be dealt with when a business is bought or sold to help you avoid problems down the line.
BUYING or selling a business is often complicated. Whatever the size of the business, there is so much to take into account, not least the property values concerned, especially where development value has to be considered.
Looking at this from the seller’s point of view: what can you offer the purchaser? If you are a tenant the business purchaser will need to take an assignment of your lease or, alternatively, you could sub-let to them. The former assumes your landlord is happy with the covenant on offer, the latter anticipates that you will continue to pay rent to the landlord and the new owner will pay you. For a small business transfer the latter will save any headaches with the landlord but if you’re selling your business to a household name the landlord will be only too happy to accept an assignment.
As with all leasehold transactions, agreeing all terms before instructing solicitors is vital and these should be laid out in ‘heads of terms’. Not doing so will add extra expense and waste time at a later stage. The heads of terms will always be ‘subject to contract’ (i.e. not yet binding on the parties) and will give you the chance to see all the terms on one sheet, rather than spread between several letters or emails. If you are not 100 per cent sure about everything take some advice.
From the business purchaser’s perspective there are a number of fundamental points to agree which are just as important as the rent. First: is the property in tip-top condition? If so, signing up to a full repairing lease is fine – as long as you keep up with the housekeeping throughout the lease all will be well. If the property is looking tired, consider whether the business seller had a schedule of condition and if not, consider the possibility of taking a sub-lease to protect yourself against the obligations of the seller that will be passed to you. Digital cameras make a photographic schedule easy to produce nowadays and for a few hundred pounds a surveyor will give you peace of mind that you won’t pay for someone else’s repairs at the end of your lease. Alternatively, vary the price of the business to take account any works that you will have to undertake.
A common myth is for tenants to assume that ‘it was like that when I took it on – so it’s okay’. If the defect was not documented in a schedule of condition then it will probably fall to the tenant to make good before handing the property back at the end of the lease. Whilst this may take tenants by surprise the business purchaser should ensure he isn’t the one who’s in for a shock.
You may find yourself responsible for taking down someone else’s partitions and making good if the premises were clearly open plan at the start of the lease. Before signing up it is important to know exactly what will be expected of you in two, three or five years time. This is information that a surveyor will offer you.
Commercial leases can often be more than 50 pages long and the short ones may have pitfalls created by what is left out. Before making progress the vendor or the purchaser will be expected to agree to pay the landlord’s solicitors’ fees, i.e. an undertaking. If this is agreed between the two parties then put your solicitor in funds as soon as possible as this is the single most common reason for early hold-ups. Nothing will happen until the cheque arrives and it is the quickest way to wind-up your new landlord. The next most common way is to be slow with references and to send a credit reference from someone to whom you actually pay cash on delivery
All of the above relate to the purchase of a business with a leasehold premises or if the vendor wishes to retain the freehold. This can be done to suit one or other party and will almost certainly reduce the net cost of the business to the purchaser. The former owner does then become an accidental landlord and that opens a whole new can of worms.
Stephen Chown is a qualified Chartered Surveyor and has over 30 years of professional experience in commercial property advice. Before committing your company to buying or selling a business with property attached a consultation with a Chartered Surveyor is a wise move. Knowing what to budget for and knowing it is at the right price will help the profitability of your business going forward as well as your peace of mind.
Chown Commercial can be contacted on 01604 604050 or via www.chowncommercial.co.uk
