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A guide to buying your pub, bar, restaurant or hotel

Posted
October 11, 2008
Commercial Property

Buying your own business is one of the most important transactions you will ever undertake. By taking a structured approach to the purchase, you can take a great deal of the hassle out of the process, start running your business quicker and manage costs. Preparation is the key to a smooth transaction. Here are my top tips for making the process as painless as possible. 1. Initial research Do your homework about the business, its location and where the real value lies (eg. people, turnover, fit-out / layout, reputation, trading patterns / licensed hours, ambiance etc) and identify what you will do to maintain / improve on this - if you're buying your property through an agent, they are likely to have historical trading figures for other pubs in the area, even if they can't be specific, their local knowledge could prove to be vital. Make sure you understand the extent of any tie and the terms under which you can trade under the Premises Licence. Check how long the lease has to run - if it only has a few years there are serious legal implications and you should get immediate legal advice before committing to the deal. Prepare a business plan. Be realistic. Make the plan, and plan to make the plan a reality. Always obtain an accountant's advice as to the financial viability of the business and whether or not you should, for tax or other purposes, set up a limited company or operate as a sole trader / partnership and set the appropriate medium up. This decision can have huge implications, to the purchase of your business the security you have to provide, the legal documentation and, equally as important, your exit strategy, when you come to sell the business. Organise bank accounts and VAT registration early on. So many people leave this to the last minute and by doing so, run the risk of delaying the sale. Obtain your personal licence. Instruct surveyors/experts to advise on the condition of the property, plant and machinery, identify outstanding repairs, quantify the cost and factor these costs into your budget as early as possible. Obtain an independent valuation of the business. Remember, the agent acts for the seller and it's too easy to get carried away with the 'roses around the door' and miss glaring trading information. Instruct experienced solicitors to advise/deal with you throughout the process - they will identify practical issues and problems with a view to saving you avoidable expense and prevent you from making costly mistakes. In the same way you wouldn't expect to buy your business through a high street agent, in most cases you need to find a specialist solicitor. General practice solicitors are likely to look at pub leases for example and cringe, as such leases will be unlike anything else seen in other commercial sectors. The fact of the mater is, the licensed trade is unique and it needs experience to ensure the process of buying a business is smooth. All too often inexperienced people dabble in this industry and all that happens is the client incurs more costs as the service provider tries to find their way in this specialist sector.

2. The Process
The sellers' solicitors will prepare a suitable contract and disclose information regarding the property, title, the business, all licences benefiting the business, staff, contracts to be taken over and the equipment included in the sale. Your solicitor will consider and then advise on the information provided, where necessary commissioning searches etc. You will need to commission structural and other surveys, liaise with the seller regarding the staff, contracts, leased equipment and the application for Landlord's consent (providing an appropriate business plan and suitable referees and attend an interview with the Landlord to discuss their requirements). Once all issues are resolved, the contract is agreed, signed and the Landlord has confirmed they are happy to allow the sale to go ahead in principle, the parties will exchange contracts and agree a date for completion in the near future. Agreeing the contract is not easy. Your solicitor will want to protect your position and seek guarantees from the seller about both the viability of the business and the information provided. The seller meanwhile, will wish to limit their continuing liability. This takes care and effort, so have a practical and objective approach and be prepared to negotiate. Between exchange and completion solicitors will deal with all necessary documents, liaise with the Landlord's solicitors and organise the appropriate funds needed to complete the sale. You and the seller must deal with the physical handover of the property between you, check the inventory, deal with the transfer of staff, the stock take and arrange for the security of the property.
3. Funding / Security
You'll need to organise your finances and consider / organise any security that the bank requires. If the security is to be over your house or another property then you must inform your solicitors immediately as additional legal work will be required to deal with the bank's requirements. This will add to the cost and lengthen the time needed for completing the sale. You must also consider what assets you needs to operate the business and the best way of financing such assets (eg. leasing or hire purchase).
4. Landlord's Consent
Landlords will want to be satisfied that you have sufficient experience and resources to run the business and you understand the liabilities and obligations under which you can operate the lease. The Landlords will check that seller has complied with his/her obligations and instruct their own surveyor to identify any outstanding repairs. The seller will have to discharge any outstanding debts to the landlord and put right any outstanding breaches and either the seller or you will have to carry out outstanding repairs. This may not be an issue if you intend to refurbish the property and the price reflects the works you need to take. The seller will usually be required to provide an Authorised Guarantee Agreement to the Landlord to guarantee that the buyer (you) complies with the tenants liabilities under the lease. Get advice on the extent of the guarantee early.
5. Dilapidations
Perhaps the most contentious subject when buying or selling a property. It is vital from both the sellers and your perspective that any outstanding repairs are identified at an early stage. You as a buyer need to understand the full extent of your liabilities and make sure you have enough money to meet the cost. In some cases, you may need to enter into negotiations on the purchase price to allow for the liability. The Landlord will want to make sure the seller or you put the property into a proper state of repair and will, as a condition of allowing the sale to proceed, require outstanding repairs to be dealt with by the seller or you - whichever is agreed in the sale process. Sometimes the Landlord will require a dilapidations bond from you in case the works are not carried out. This could impact on your budget and make the sale untenable. The parties should address at a very early stage who will be responsible for what repairs and make sure that the purchase price reflects a fair balance between the parties' expectations.
6. Staff
Consider staff who currently 'live in' - you may not wish them to do so if you yourself plan to live at the property. Often buyers who intend to run the business themselves may not want managers even if they don't intend to live in personally. Whichever scenario, you need to address it ASAP. Often the buyer and the seller have no choice in the staffing as the TUPE regulations protect and preserve the employment of all staff engaged in the business. Attempts to dismiss or make any staff redundant to facilitate the sale may constitute an automatic unfair dismissal, exposing both the buyer and the seller to a claim for automatic unfair dismissal in respect of which an award of damages of up to £69,950 per employee may be payable. The TUPE regulations need to be taken seriously and any issues relating to staff which are / are not to transfer must be dealt with at a very early stage. Specialist employment advice should be taken by both parties as there may be ways to deal with staff issues lawfully, depending on your circumstances and those of the staff involved.
7. Timescale
On average, a transaction takes between 8 - 12 weeks to complete. Be realistic about the time frame. You must work hand in hand with your solicitor, accountant and the agent in providing all necessary information and dealing with issues sensibly. However, obtaining information from local authorities and third parties, satisfying the landlords and their solicitors' requirements and dealing with the requirements of any bank, are often matters outside your and your solicitors' control - so anticipate unavoidable delays. Do not commit to any borrowing, place orders for goods or services or removal services, sell or rent out the property, cease employment or take on employees until your solicitor confirms in writing that it is safe for you to do so. It is unlikely your solicitor will confirm the position until contracts are exchanged and he/she is satisfied that all conditions in the contract that need to be satisfied by completion can be met. Above all, make sure you approach the deal objectively. Make sure your expectations about the process, the issues you will have to confront and deal with, are realistic, and be prepared to negotiate fairly and sensibly. Finally, take on board the advice you get from your professionals. They have years of experience in buying and selling businesses for clients - they can point out pitfalls and save against costly mistakes. This article is provided for general information only. Please do not make any decision on the basis of this article alone without taking specific advice from us. stevensdrake will only be responsible for the advice we give which is specific to you.

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