Buying a leasehold business

[Tony Angelino]

Good morning, we are in the early stages of considering making an offer on business, sold on a leasehold business. The existing business owner is also the property owner and would be our landlord if we went through with it. Now the business itself is in a very good location and this along and appears to have a lot of good will and a good reputation due to the current owner who runs it. He has given his reasons for selling the business and it all checks out (we know of him as we live locally) so we are happy on this side of things but have a couple of questions.

The length of the lease is key for us. If at the end of the lease term the current owner decides he wants to run a business from his property, I understand this is one of only a couple of reasons he can chose to not renew the lease without our agreement, leaving us needing new premises and also leaving the potential threat of him starting up a similar business again in the current location that would really make things hard for us.

I understand if the lease is over 7 years this makes a difference. What options are available to potentially guard against this?

Non-competition clause?
Can a contract be drawn up that means the lease is automatically renewed even if the landlord does want to run a business from it?

Obviously we will get a commercial lawyer on the case to do all of this for us if and when we were to make an offer, but at this early stage I am just asking to see if there is any guidance from any of the community for me please.

(Not sure if this would be better in the legal forum?)

[Notreallymeeither]

You are talking about the landlord and tenant act 1954 and a tenant’s statutory right to “security of tenure“ (ie the ability to get a new lease and remain in the property when the current lease expires).

Most Leases exclude this “Security of tenure” so that the tenant does not have this automatic right to apply to the court for a new lease - meaning that they would have to negotiate with their landlord for a new lease upon expiry of the existing lease.

However, it seems that you are saying that your security of tenure will NOT be excluded from the Lease and therefore you will have a right to renew the lease upon expiry?

As you correctly mention, IF security of tenure is not excluded, there are several grounds where a landlord could seek to object to a new lease – “own occupation” and “redevelopment” being to the 2 usual ones.

Your property lawyer will be able to advise you, but one suggestion is that you could have an option to renew the lease for a further X years when the current lease expires. If this option to renew is expressly written into your lease then the landlord will not be able to resist you exercising it (unlike if you tried to renew under the landlord and tenant act 1954 and the landlord resisted you having a new lease, due to their own occupation or redevelopment.)

The 7 year comment is irrelevant.

Edited by Notreallymeeither on Friday 14th August 08:55

[Stay in Bed Instead]

Would the current owner agree an option to purchase at the end of the initial lease term?

[Tony Angelino]

Potentially. This was something we were considering, it’s mixed use though with a flat upstairs so it would need a lot more finance and we’re not sure we want to get involved with the renting of it etc. Perhaps in a few years time though it might be more of an option particularly if the business is a success.

[Notreallymeeither]

Tony Angelino said:

Potentially. This was something we were considering, it’s mixed use though with a flat upstairs so it would need a lot more finance and we’re not sure we want to get involved with the renting of it etc. Perhaps in a few years time though it might be more of an option particularly if the business is a success.

The option doesn’t have to be to purchase the whole building - you can have an option to purchase a long lease (say 999 years) of the downstairs business premises, and the landlord keeps the upstairs residential part and the freehold.

[Tony Angelino]

Notreallymeeither said:

The option doesn’t have to be to purchase the whole building - you can have an option to purchase a long lease (say 999 years) of the downstairs business premises, and the landlord keeps the upstairs residential part and the freehold.

Ah, got you thanks. I think either this or the option to renew combined with a restriction on the current owner opening up a similar business within a few miles should cover both. I will let the lawyer know what we want to acheive and make sure it's all belt and braces obviously but it has helped me understand a bit.

thanks for the input.