Blogs

It doesn’t matter whether you rented an empty premise or a fitted out and fully equipped/furnished premise, you will need to ensure you have approval from the Landlord to sell the ‘business’ component you created or rented. Ordinarily, and to avoid any confusion, you should have this stated in the lease agreement – it is not a standard clause in most lease agreements.

Here is a case study to consider:

A recently vacated, but fully equipped and furnished pub is offered direct from the owner of the property for lease and a one-off payment upon taking up the lease. The payment is described as Key Money – it is not a Security Deposit and it is non-refundable. A Tenant negotiates taking up the lease, but without paying the Key Money. Although the Tenant is not purchasing any of the equipment or furnishings, the lease agreement requires him to maintain them to the condition that they were provided to him. The lease is signed and the Tenant moves in and starts trading.

The Tenant operates the business for four years (of the nine year lease) and decides he would like to move on. In his four years he claims to have improved the online rating of the pub, improved the menu, improved the pub’s reputation with the locals and maintained the furnishings and fittings as required by the lease agreement. He believes the pub is a viable business and he seeks to sell the ‘business component’ and provide the Landlord with a new Tenant.

Here are the issues.

• There is nothing in the lease agreement (or other document) that allows the Tenant to sell the business.
• The Tenant does not own the furnishings and equipment. .
• Upon taking up the lease, the Tenant did not purchase the business or any part of it.

The Tenant has no approval from the Landlord (in writing or verbally) to sell. Although, at the time the Tenant took up tenancy, the pub was closed, he leased a ‘ready to go’ business, and paid nothing for it. It was being offered by the Landlord for lease with Key Money and there is no reason to believe that if he were to vacate, the Landlord would not offer it under a similar arrangement.

In a normal sale offer, what is being sold typically includes some or all of the following:

• furnishings, plant and equipment.
• ownership of company and current contracts.
• licenses and permits.
• trademarks and use of brand.
• goodwill.
• suppliers and customers databases.
• online and social media accounts.
• stock/inventory.
• the right to obtain the lease.
• transition assistance.

So, in this case, the owner of this business (the Tenant) has only a few assets they could sell, namely: goodwill (the business is closed), suppliers and customers databases, online and social media accounts (there is no website – only a Facebook Page), stock (the business is closed), transition assistance and the right to obtain the lease. The pub requires food and alcohol licenses, but the licenses held are in the owner’s name and need to be applied for (obtained new) in a new Tenant’s name anyway.

If the Landlord agreed that the Tenant could sell the ‘business’, there are very few assets being offered so the value of the business is minimal, even though the Buyer would be obtaining quite a good package deal.

What is most likely in this case is that the Landlord, upon being advised that the Tenant wishes to vacate and sell, will not allow the sale. Instead, the Tenant will leave, as the previous one did, and the Landlord will then offer the property and business for lease with Key Money as he had done previously.

If you move into a lease-only business, if you intend to sell that business (even if it is only with the few assets that you have created/purchased), you must get this noted in the lease agreement.