If you are thinking of buying, or selling, a business, you could do worse than take your business owner’s hat off and put another one on for a while.
A large proportion of business sale transactions falter at the stage when property aspects are addressed, because they are addressed late – sometimes too late. Early agreement on terms, drawn up with the advice of a surveyor or property agent, to form part of the sale terms of the business itself, will ease the way forward.
You will note the benefit of that approach by its absence from the following story – a true one: the sellers of a ground and first floor dental practice owned the building, and agreed to grant the buyers a lease of those floors with the sale of the practice. The terms for the transaction were drawn up by the broker and contained concise and considered heads of agreement on goodwill, stock, equipment, fixtures and fittings – and there suspiciously at the bottom of the page was the word “lease”.
The buyers were presented with a 20-year lease, no provision to break any earlier, at an eye-watering rent, with upward-only rent reviews, and with an obligation to contribute towards building repair and maintenance costs. Not unreasonably, the buyers asked if this was “normal”. Now, the last 5 years have resulted in a re-basing of what is normal in commercial property terms, and there is no more accurate answer than “I don’t know anymore” – but a surveyor or property agent can certainly show you what else is on the market. And a surveyor was duly consulted, initially only to assess potential repair costs over the lease term, but he quickly pointed out that equivalent premises two doors down were available, and available on terms that included use of the words “flexible”, “rent free periods”, and “break options”.
At a stage when the business sale had all but completed, the parties began negotiations that should have been over before solicitors were even instructed on the deal. And that was too much, too late – the buyers went elsewhere.
Whether you sport the Landlord hat or the Tenant hat, do consider the property at an early stage: it is probably the most valuable asset for a Business owner/Landlord, and the biggest liability for a Business owner/Tenant. Here are 10 pointers:
- Is this time to transfer the property or your lease into a pension scheme?
- Do you need to tell the bank?
- Sale or lease?
- What is it worth? Price/Rent? What is available in the market place?
- How long should the lease be? Early break options? What happens at the end? Does the Landlord get the property back? What then?
- Rent Review? Index-link?
- Rent deposit?
- Should the Business owners be personally liable for rent and other breaches?
- Who insures and repairs the building? And who pays?
- Can you limit building repair costs?
For further information, please contact one of our Commercial Property team.
Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.