Property Advice - Leasehold

Leasehold Property Advice

If your branch is leasehold, there are a few keys things to remember that will help you ensure you don’t run into costly problems.

Transaction Dates

All commercial property leases contain key transaction dates, the most important of which are the start and end of the term and the date of any rent reviews which will typically be every three or five years. Lease terms will vary from three years up to as long as 15 years in length. It is vital to keep a note in a diary somewhere as there are things that both landlord and tenant will need to do when the date of a rent review or the end of a lease is approaching. With a rent review a landlord has to advise his tenant in sufficient time whether he wants to increase the rent and it is worth noting that rent reviews can be back dated so ignoring the date of any review is not advisable. With regard to a lease renewal, normally the tenant has an automatic right of renewal within certain parameters but landlords can sometimes contest this so it is important to maintain a dialogue with them or their agent and seek professional advice where necessary.

Maintaining the Property

Leases commit tenants to maintaining certain parts of the property. This can be the internal parts of the building only plus the shop front or fully repairing which means the tenant is responsible for maintaining the whole of the property which might include the roof and any external spaces. It is important to stay on top of the repairing commitments contained within the lease and have any work required carried on a timely basis. At the end of a lease, the landlord can instruct a surveyor to carry out what is called a dilapidations survey that will detail what work that the landlord requires carrying out before a tenant can vacate or the current lease is renewed. If no maintenance has been carried out during the term then this can run into thousands of pounds so it really pays to know what your obligations are and to stay on top of things.

Rent Reviews

Rent reviews are normally every three or five years. They can be linked to the retail price index but most are decided by agreeing the open market value for a property in the local geographic area. Landlords cannot simply put the rent up because they feel it is too cheap and they do have to prove that the rent they are asking for does represent open market value. If a rental figure cannot be agreed by negotiation, there is an arbitration procedure that is clearly laid out but it is very expensive for both parties, so landlords and agents are normally happy to try and reach a compromise. If you are unsure as to what to do, or what your rights are, always contact a property professional for advice.

What to Do If You Want to Sell Your Business

Most leases allow for assignment which is where a third party takes over the remaining period of a lease in the process of buying a business. It is normal for the seller to still be liable if the purchaser defaults in the period covering the assignment and it is also normal for the seller/tenant to pay for the landlords reasonable legal costs in relation to the lease assignment only. Landlords have the right to carry out checks on the buyer but has to have genuine reasons to refuse the assignment going ahead. If a lease is near its end, it is often sensible for the buyer to try and negotiate a new lease direct with the landlord or their agent. Always seek professional advice before proceeding with the assignment of a lease.

Due Diligence Before Taking Over a Post Office

Deciding to run your own business is a big decision and there is a lot to think about before proceeding. Deciding upon the right branch in the right location with the right retail offering is just the start of what can be a long and quite involved process. Once the right branch has been located, the temptation is for buyer and seller to want to try and proceed as quickly as possible for different reasons. The seller will be keen to move on to pastures new and equally, the buyer will want to get started and develop the business to try and put their own mark on it. At this time, the buyer needs to take a deep breath and take time to consider all of the implications of signing on several dotted lines. At this time, it is vital for the buyer to take as much time as is needed to ensure everything to do with the business is in order and there are no surprises waiting to be found.

Property

If the branch is located in leasehold premises and there is time remaining on the lease, an assignment of the remaining period from the seller to the buyer will be organised and coordinated by the landlord’s solicitor. It is recommended that the buyer consults a commercial solicitor as this is probably the most important part of taking over a business. It is also recommended that the buyer carries out a building survey to check the condition of the building to make sure that it has been maintained to the standards required in the lease. If there are any outstanding repairing obligations for the existing owner to carry out, these must be completed prior to the assignment being completed. Although a landlord cannot unfairly withhold their permission for a an assignment, there are certain things such as rent arrears that might hold things up and this can be a warning sign that not everything is right with the business.

Goodwill

When a Post Office transfers, any money that changes hands will be for the goodwill and any stock in the shop on the day of completion. It is important to use a commercial solicitor to draw the sale contract up and there is no reason why it can’t be the same one as is dealing with the assignment of the lease. If finance is needed to fund this, it is perfectly normal to ask for three years account for the existing owners business as this will need to be provided as evidence to support an application. It is also worth asking to see bank statements and VAT returns to check that what is shown in the accounts is accurate. Be wary if a request for this information is refused for any reason as there may be a reason why the current owner doesn’t want to share this. Funders will also be suspicious if this information isn’t available.

Other Contracts

Most branches and retail stores will offer goods or services that require a contract with the supplying company. Much of this may be required by the new owner but if it is not, it is vital to check that any contracts can be terminated and the equipment removed without cost by the supplier. Make sure that all contracts are read and checked and if needs be, ask the outgoing subpostmaster to deal with the removal of any equipment that is not required and cover any costs. It is also vital to ensure that some of the larger equipment such as chillers and shop fittings are not the subject of any leasing or HP finance. If a store refit has been carried out more recently than five years ago, there is a chance that there might still be something outstanding. It is possible to transfer these agreements into the new owners name but it is far safer to make sure that the outgoing subpostmaster settles any outstanding finance and provides proof of this prior to completion.

Don’t Be Afraid to Pull Out

Anybody buying a business will go into the transaction with a genuine intention of completing the transaction. Once the whole process begins, both seller and buyer will begin incurring costs so there is a reason for everything to be done in an honest or open way but there are occasions when a buyer has to walk away from the deal. Quite often, things that are wrong within a transaction aren’t always obvious at the beginning and they tend to be discovered once the solicitors become involved. If some material information comes to light that puts doubt in the buyers mind then it is right to pull out of the transaction immediately to avoid further costs. It is much better to do this and proceed with the knowledge that something maybe wrong that manifests itself some way down the line.