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hi all, any help or advice offered will be greatfully appreciated.
my girlfriend who has managed quite a few restaurants, has been given the opportunity to lease for 10 years a restaurant she has managed for 10 years, she loves tyhe restaurant and is convinced she can make a go of it.
it comes with a large luxury flat.
she is booked to see a solicitor to seek advice and to be in a good position when and if she takes the offer, the people selling the lease are friends of hers and want to retire to Spain.
she has asked me to look over the lease and give her my thoughts and concerns.
the lease is 45 pages long and i am lost.
is there anything special she should look at extra carefully or any omissions she needs to look out for, any questions that arent obvious that she should ask.
thanks you to anyone who has any input, it will be more than welcome
Whatever so does, don't give a personal guarantee.
And rather than seeing a (general) Solicitor I'd be engaging someone expert in lease contracts and the leisure industry.
Certainly worth a bit of professional advice - not only in relation to the terms of the lease itself but also the terms of the handover.
Often leases have a maintenance element - if the existing lease is being passed on to her rather than a new lease being started by her then she might be taking on liabilities that she's unaware of. Any dilapidation or outstanding repairs (or alterations made that have to be reversed on hand-back) that have accumulated under the last lease-holder might be stuff that she becomes responsible for putting right.
You might be wanting to talk to a surveyor as much as a solicitor.
The lease is a liability, ie a contractual commitment signed by the current owners
The Restaurant name / loyal clientel is an asset as are the fixtures and fittings, kitchen etc
Effectively the current owners are trying to sell the business (understandable) and have your GF take over the lease.
Now the current owners are now running the business without having paid for it (assuming setup costs paid off years ago), your GF will be having to pay a loan / pay off the purchase price before she makes any money.
A good reading of the lease is important in particular the obligations/responsibilities for rennovations at the end
It also depends on the price of course
Definitely seek advice & support from a solicitor that specialises in commercial property, I can say this from experience of being involved in literally hundreds of acquisitions. Would normally also use a third party to do the initial negotiations (eg. property agent) makes thrashing out the heads of terms much easier
10 year lease isn't necessarily a negative, but I'd definitely be looking for a break clause in there, how that is worked out definitely needs the correct legal help (see point 1)
And as tough as it is, you must separate friendship from business, for both parties sake
Often leases have a maintenance element - if the existing lease is being passed on to her rather than a new lease being started by her then she might be taking on liabilities that she's unaware of. Any dilapidation or outstanding repairs (or alterations made that have to be reversed on hand-back) that have accumulated under the last lease-holder might be stuff that she becomes responsible for putting right.You might be wanting to talk to a surveyor as much as a solicitor.
This.
From my brief experience of the catering trade, most premises will be on a repairs lease, making the lesee responsible for upkeep of the premises. Which can be complicated by the condition/care of neighbouring buildings. Roofs may not have been cared for, common access to service areas may need to be maintained etc. It may well be simple and straightforward, but best to check it out fully - its a big commitment.
Good Luck!
thanks to everyone who has already replied, they are exactly the replies i wand, thanks, keep them coming:-)
The only things I'd warn of with a lease on commercial property are obvious but i'll state them anyway.
be aware it's probably a full repairing lease so factor in the cost of maintenance when deciding if its a fair rate. You wouldn't be the first person to be shocked to discover the roof which came off is your problem as the lease holder.
Check your rateable value (post April 17) Bear in mind you may also be able to get preferential rates/assistance as a "new" business.
Check who owns the liability & be aware what obligations you have to the brand* under the lease (especially in the case that your o/h doesn't manage to make a go of it for the full 10years) as i assume it's being leased as a going concern not just on the property it's self.
Oh but more than anything else, if you/she have never done a live-in job before don't be fooled by how luxurious the flat is, it is work and you do not get away from it whilst you're "home" and if you also live there you will end up being defacto management when your other half is not.
As above, leases are always drafted in the landlords favour, and so you need to get somebody who will look after your interests, as you've already done. The solicitor will spot a lot more than you and so it's almost pointless you, or anybody else commenting on it, [b]until [/b] you have their professional comments, then dive right in 😉
As already stated, the things to look for are numerous, and include (but not limited to) delepedations, contractual responsibilities for equipment maintenance, repairs/renewals, re-instatement obligations at the end of the lease, rent renewal conditions, whether you have security of tenure, whether there are restrictions on operating times should you want to change... Absolutely get a Schedule of Condition and support it with lots of photos and even videos.
The list goes on and none of this is stuff you need to point out to a solicitor, they'll give you a full breakdown of what they think is unfair, onerous or an obligation which might be ill-advised, and then they'll push back on your request to reach agreement for you.
I'd be pushing really hard for a [u]tennant only[/u] break clause at 24 months in case the commercial side of running it is too much; it would would be pretty generous of the landlord to agree had she not worked hard there the past 10 years... It's up to you what break you're comfortable with and the solicitors job to argue for you.
I don't know how old you are but I would also want security of tenure and wouldn't agree to opt of out the Landlord and Tennant Act; if it's flying after 10 years and they want to retake the lease, how would you feel about it? Opting out gives you very little protection, but they might want you to.
Good luck!
Check your rateable value
And check it with the people you actually pay the rates to. A couple of friends of mine have been stung believing rates information supplied by owners or agents then got a big surprise once in the lease.
I'd be wanting to have a look at the accounts/books as well. You need to know how viable the business is.
Disregard my post, Christ, I can't even spell tenant...
Also if she's taking over the business as a whole she needs to consider the following in addition to specialist legal and valuation advice on the lease....
Forecasts and financial plan including any debt she needs to service and an income for her
What legal vehicle will hold the lease/buy the business - tax and commercial advice needed eg will it be her personally a company or a partnership...
Due diligence checking the info and current state and profitabilty of the business
Who is she buying from the individuals or a company they own
She will likely inherit staff liabilities under TUPE (Google it)
Who will do the books and taxes
What of the equipment in there is on finance (kitchen for example) and can those agreements be transferred
Liquor licensing
That's the tip of the iceberg I'm sad to say - there is so much to do if it's going to be done properly.
On the value/price of the lease do you understand the interaction between rents and premium on grant/assignment? A valuer can help with this.
the people selling the lease are friends of hers and want to retire to Spain.
tell her to walk away, but if she wants to run just get tuped over, no expence to her then.
Please go and get some advice from an RICS qualified surveyor and a solicitor specializing in real estate advice, (not the family solicitor who did Aunt Ethel's will).
RICS surveyors can be found at their website easily and most solicitors have contacts in commercial property or know a reputable firm that does. The advice will cost money, but getting it wrong can cost a lot more.
I'd be wanting to have a look at the accounts/books as well. You need to know how viable the business is.
I'd be doing this first, before even thinking about the lease.
Thanks everyone, some great sounding advice , I'll keep you updated, we are meeting the owners tomorrow evening for informal discussion
She is in a strong negotiating position as nobody else is going to be interested in that lease.
Ten year lease is the norm, any less is a risk it gets pulled from under you.
There's probably a renegotiation of rent after five- it's normal, but be aware rent can go up at this time. Biggest danger here is if the area suddenly becomes very desirable.
If the rent is reasonable, it's a good opportunity as she already knows the business.
Can the flat be rented out separately?
As said, delapidations are the biggee, And is everything compliant- fire regs, air con etc.
Try for a rent free period to help with start up costs.
Just to reiterate my point ( 😉 ) the proce she is being asked for is for the business, so that will depend on takings and expenses (wages etc) and the lease costs including the rennovations the leaseholder is responsible for.
If the owner just closed the business down and sold off the contents/kitchen equipment they would still be liable for 10 years of the lease payments - so in that case the restaurant has a large negative value.
Now it's clearly worth something as a going concern but I would be very cautious about paying more for example than a few years expected profits for it.
Quite a few posts about getting sight of the current full financial performance of the business; not sure if those posters are inferring there is a value or charge expected in the lease (premium on grant/assignment as garage-dweller notes).
Personally, I would suggest any goodwill in that business quickly drops (and eventually disappears) from the moment that the two owners walk away, assuming they were visible operating the restaurant - despite her running it for them. I'd only want to pay a lease based on the market value for the property, a fair price for the stock you actually want and a fair price for the fixtures and fittings, allowing for the condition and age of them (again, assuming you want them). They'll almost certainly get no better offer than that elsewhere.
You're their golden ticket out of there, an easy move for them, and I think the only advantage to you taking on a lease there over starting a fresh business elsewhere, is the owners might grant you an early break clause, come to some agreement on the fixtures and fittings to help you start out and probably won't ask you for a personal guarantee to guarantee them the full amount of the lease for the full term granted (any other landlord almost certainly would).
It's a cosy transaction that works for both of you, but I definitely wouldn't put any value in the goodwill.
Good friends of mine did this, and were forever in the shadow of the mildly charismatic but omnipresent previous owners, and their customers constantly compared. They kept it going for 8 non-profitable years before getting out and opening a dining pub - they've never looked back. It's since been three different restaurants in the last 5 years...
I'd suggest pages 1-45 are the ones to be extra careful of and seek professional advice.
I'd be wanting to have a look at the accounts/books as well. You need to know how viable the business is.
+1
Wouldnt of engaged anyone without checking this.
Quite a few posts about getting sight of the current full financial performance of the business; not sure if those posters are inferring there is a value
There absolutely is value, if the restaurant can't make money the lease is obviously immediately less attractive.
I'd be looking into setting up a Limited Company to run it so might want the lease in that name. I agree re goodwill although presume your girlfriend had knowledge of the business and its clientele: I expect it to have some value but would want that reflected in the lead payments over the time or even back loaded so it's paid out of realised profits.
Lastly, do not underestimate how hard running a successful restaurant can be on one person and their family. It can be rewarding and profitable but it's akin to a vocation of sorts. Good luck.
There absolutely is value, if the restaurant can't make money the lease is obviously immediately less attractive.
You missed a few words off your paste which totally change what I was saying...
I'm not saying there's not value in seeing the numbers, I'm saying that I wouldn't pay a premium to take over a lease, or be granted a lease, above the value of a property. I think any goodwill in the business, especially in a family-run restaurant, is very fragile and I wouldn't pay for it.
Ahh, sorry. Got you, and agree with you, should learn to read.
I should learn to explain myself better 🙂
I work in commercial property and can only say there is some very sound advice above. I've seen people taking on fully repairing leases, having not really known what they are doing and at the end of the lease being completely Effed over by the LL.
Ensure you take on a surveyor who specialises in this field.
@ big john
"She is in a strong negotiating position as nobody else is going to be interested in that lease"
John please explain. thanks
the people selling the lease are friends of hers and want to retire to Spain.
Be careful about small business owners "retiring to Spain". My godmother's husband was caught a nasty one there after buying a going concern when after a year the bloke came back and took away the largest part of his regular business by contacting all his old regulars on the old mailing list he'd "forgotten" to cancel. You need to have some sort of non-compete clause in there so they don't start a new restaurant down the road 6 months later having got shut of that old, shitty lease.
@ big john"She is in a strong negotiating position as nobody else is going to be interested in that lease"
John please explain. thanks
Because on the face of it the owners are trying to sell a financial liability that lasts 10 years.
I am a residential ll but have looked at buying commercial. I would look at not just the rent liability if your gf abandons early but also liability for business rates. The 2 could clear you out so I would do it as a limited company with no personal guarantees.
My dad had a few commercial lets and always set them up independently as separate limited companies, if one went bad it did not affect the others.
Some v good advice above