SELLING YOUR BUSINESS? DON’T FORGET THE PROPERTY
By Charlotte Mackenzie, Associate Solicitor
The prospect of selling your business is an exciting time and you are likely to have discussed financial and tax matters with your accountant and thought about what will happen to your employees and the goodwill of the business, as well as the key terms of the deal. But quite often the detailed property aspects can be overlooked when the sale is initially being contemplated and agreed, and before your legal representative has been instructed.
As a commercial property solicitor working closely with my corporate colleagues on various transactions, I find that often there can be additional property matters that ‘crop up’ during the investigative due diligence process, which should be dealt with early on to mitigate any potential delays. This note aims to offer assistance on items you may wish to consider at an early stage from a property perspective to ensure the smooth progression of the deal.
Many businesses hold their trading or practice premises by way of a lease that has been granted to the business by a third party landlord. For instances where there is to be an assignment of a lease to the purchaser, in an asset sale, it may be that the landlord’s consent will be required to the assignment.
This should be applied for in good time as, while it is usual for modern leases to provide that a landlord is not permitted to unreasonably withhold or delay giving its consent, the lease may allow for the consent to be given subject to one or a number of conditions that will need to be satisfied before completion. These conditions could, for example, include a form of guarantee to be given or a rent deposit, both of which will require formal legal documentation. This is likely to be in addition to a formal licence to assign, which will document the landlord’s consent.
If your property falls into this category, I recommend that you consult your legal representative as early as possible so that the precise assignment terms of the lease may be reviewed and any requirements identified.
Where a business owns the freehold to its premises, as part of the deal it may be that the property is to be extracted from the business’s ownership pre-completion and continued to be used by the business post-completion by way of a lease-back. If so, transfer papers will be required to be drafted and usually approved by the purchaser of the business before being completed and an application made to Land Registry to register the change in ownership.
The form of lease to be granted on completion will need to be settled and it would be prudent to agree key terms in advance, such as rent, term length, any security of tenure protection, rent reviews or rights for the tenant to break early. It may be that a professional valuation conducted by a surveyor is required to be commissioned, in order to determine what the rental figure should be.
Other aspects that require early attention include collating various papers to assist with responses to the formal property due diligence exercise, which is carried out separately but simultaneously with the legal due diligence for the transaction. In particular, due to regulations that came into force in April 2018 relating to minimum energy efficiency regulations, a purchaser will expect to see a valid energy performance certificate (EPC) for the property showing a certain asset rating.
Again, such a certificate may need to be commissioned to comply with this statutory requirement, which is required subject only to limited exceptions. Your legal representative will otherwise assist with taking you through the enquiry forms that need to be completed and any other paperwork requiring disclosure.
If you are contemplating selling your business, or indeed purchasing one, and wish to have an initial discussion about any of the issues mentioned above or otherwise, you can contact Charlotte on 01892 515022 or clm@cooperburnett.com
