Buying a Leasehold Business

[PinkPanther]

Just need a bit of clarification from someone in the know.

Looking at a business that is up for sale at Leasehold £x plus SAV (stand-alone-value), with premises currently held on a secure renewable annual leasehold basis. Ideally I'm looking for a freehold business but that's another thread entirely .

I understand Leasehold in terms of residential property but a bit confused as to how it relates to a business purchase. i.e for a business on a 5 year Leasehold, does that mean the lease reverts back to the leaseholder after 5 years and you have to pay to extend the Leasehold (subject to any rent reviews)? As for SAV, does this equate to just the fixtures and fittings? I'm assuming goodwill is a separate entity.

Any feedback appreciated!

A PP

P.S. If the business is up for sale at Leasehold £x and is held on a secure renewable annual leasehold basis, does this mean £x is payable every year?

Sorry for all the questions

Edited by PinkPanther on Monday 18th September 17:39

[The Londoner]

I would presume that you are buying a business based in a leasehold property. If you choose not to renew the lease at the end of 5 years, then the business is still yours but needs a new home. If you renew, you should be negotiating a new lease on open market terms, and unless it is a particularly rare property that is sought after by many, cannot see why you would have to pay any premium for the privilege. All imho of course given we don't know full circumstances.

[PinkPanther]

The Londoner said:

I would presume that you are buying a business based in a leasehold property. If you choose not to renew the lease at the end of 5 years, then the business is still yours but needs a new home. If you renew, you should be negotiating a new lease on open market terms, and unless it is a particularly rare property that is sought after by many, cannot see why you would have to pay any premium for the privilege. All imho of course given we don't know full circumstances.

Thanks Richard, that makes more sense

The business I'm actually looking at has an annual renewable lease which seems unusual.

The business in question is up for £35k Leasehold plus SAV but I'm not sure exactly what the £35k represents - is that an annual Leasehold payment which will have to be paid every year (which seems excessive)? Is the SAV just representative of fixture and fittings, or will that include goodwill? No guide price has been forthcoming as yet for the SAV.

Edited by PinkPanther on Monday 18th September 17:54

[jas xjr]

the 35k is for the goodwill. sav means as i understood it for the stock.take it to mean subject to valuation if you like.the 35k does not reflect the lease,just the valuation,theoretical,on the value of the business. not a professional but been buying and developing and selling businesses for a few years.hope this helps and that somebody more qualified turns up soon!

[piglet]

A secure lease means that you have the right under the Landlord and Tenant Act to a renewal of the lease on substantially the same terms as you have subject to modernisation. The landlord can't throw you out without proving various things. A one year renewable lease is a bit odd - I'm surprised a landlord is interested in doing that, it seems like a lot of faff and uncertaintly. The landlord might be happy to negotiate a longer lease come the next renewal if that's what you want.

As said above, seperate the concept of the business from its location unless for some reason there is no where else you can trade from.

There are two ways of paying for the lease - they might be charging you a premium - this might be the £35k but that would strike me as a lot of cash for a 1 year lease - this is the same concept as for leasehold resi - it's what you pay for the property. The difference in a commercial lease is that you are also paying rent to the landlord at whatever rate is already agreed so if they are charging you a £35k premium you will pay rent on top of that.

You need to get good advice on the lease purchase - you need to be clear what you are taking on in the way of repairing obligations, dilapidations issues etc. As with the business purchase there are lots of opportunities to get bitten in the bum!

[PinkPanther]

jas xjr said:

the 35k is for the goodwill. sav means as i understood it for the stock.take it to mean subject to valuation if you like.the 35k does not reflect the lease,just the valuation,theoretical,on the value of the business. not a professional but been buying and developing and selling businesses for a few years.hope this helps and that somebody more qualified turns up soon!

Again that makes sense, thanks Jas. I was reading it as the £35k being tied in someway to the Leasehold, duh!

So basically £35k for goodwill, and SAV for all fixtures, fittings and stock (if any) which is yet to be valued. The annual Lease is then covered by the rent. Got it! I think?

Sorry guys, been one of those days!

Edited by PinkPanther on Monday 18th September 18:26

[Smartie]

The £35K will usually be Goodwill and F&F, generally split by negotiation as the seller wants more goodwill, less F&F and the buyer vice versa! The SAV is Stock at valuation, valued on the day the business transfers.

By the sound of this it's some kind of retail shop/newsagent/off licence?

[PinkPanther]

Smartie said:

The £35K will usually be Goodwill and F&F, generally split by negotiation as the seller wants more goodwill, less F&F and the buyer vice versa! The SAV is Stock at valuation, valued on the day the business transfers.

By the sound of this it's some kind of retail shop/newsagent/off licence?

And it all becomes clear . Yup, it is a local retail outlet that's been on the market for a while (can't go into too much detail on a public forum). Looking to invest in a few business ventures over the next year or two - so the Sagaris is up at Hexham waiting to be united with it's next lucky owner

piglet said:

You need to get good advice on the lease purchase - you need to be clear what you are taking on in the way of repairing obligations, dilapidations issues etc. As with the business purchase there are lots of opportunities to get bitten in the bum!

Got my accountant and solicitor lined up in anticipation

Thanks a lot guys! Ain't Pistonheads great?

Edited by PinkPanther on Monday 18th September 18:55

[chrisgr31]

PinkPanther said:

piglet said:

You need to get good advice on the lease purchase - you need to be clear what you are taking on in the way of repairing obligations, dilapidations issues etc. As with the business purchase there are lots of opportunities to get bitten in the bum!

Got my accountant and solicitor lined up in anticipation

Thanks a lot guys! Ain't Pistonheads great?

Edited by PinkPanther on Monday 18th September 18:55

If buying or renting a property you need a surveyor too! They wil confirm whether the rent is right, too high , too low etc. What options are regarding longer term etc.

I have recently deferred one clients lease reneal by 2 years, and others rent review by 2 years due to errors by the Landlord. In one case the lawyer disagreed with me until they investigated further.

A one year annual lease which is renewable does seem a pain, and remarkable easy to foul up and lose protection! I ad one on a community hall I ran but wouldn;t expect it on a commercial property. Even if protected the protection isn;t total especially if Landlord decides to redevelop!

[Wacky Racer]

SAV = Stock at valuation....

If you are planning to stay around a few years, it is always preferable to try and buy the freehold, (if possible) even if this means taking out a mortgage, I was paying £20 a week in 1987 to Whitbreads for one of my properties, and I was given the option to purchase for £18500, which I did, it is now worth in excess of £400,000....

Always remember rent is dead money.........

Edited by Wacky Racer on Tuesday 19th September 09:57

[randlemarcus]

Wacky Racer said:

I was paying £20 a week in 1887 to Whitbreads for one of my properties,

Jeez, isnt it time you retired?

[Flat in Fifth]

I was always told a good principle to follow is that if you are investing in a business and if you have limited funds it is better to put money into the business than bricks and mortar. The explanation was that a lot of businesses fail because of lack of working capital and that capital in bricks isn't much use unless you borrow against it which creates a whole new set of problems. We were talking small retail businesses btw.

tbh I'm not sure how valid that is today, especially if the site would have some value to another business if yours folds or moves on to other premises if you see what I mean.

Not sure if that helps you decide in your particular case.

[Wacky Racer]

randlemarcus said:

Wacky Racer said:

I was paying £20 a week in 1887 to Whitbreads for one of my properties,

Jeez, isnt it time you retired?

Lol! I might be getting on a bit but I'm not THAT old.......

Of course I meant 1987.....

[PinkPanther]

Flat in Fifth said:

I was always told a good principle to follow is that if you are investing in a business and if you have limited funds it is better to put money into the business than bricks and mortar. The explanation was that a lot of businesses fail because of lack of working capital and that capital in bricks isn't much use unless you borrow against it which creates a whole new set of problems. We were talking small retail businesses btw.

tbh I'm not sure how valid that is today, especially if the site would have some value to another business if yours folds or moves on to other premises if you see what I mean.

Not sure if that helps you decide in your particular case.

Having just seen the business and spoken to the owner this morning (it is a small retail business btw) the above makes good sense. I am a bit wary about tying up capital in commercial property and would rather concentrate on investing any available funds into the actual business - which can be relocated anyway . Like you say working capital in the business rather than bricks and mortar in this sense could be advantageous.