Process & Cost Involved in Buying a Leasehold Restaurant
Thinking of purchasing a leasehold restaurant? A quick guide below gives you an idea about the process and the cost involved.
Before start searching a restaurant, you must consider the following aspects:
- Do I have enough capital or funding?
- Do I have enough survival fund for initial 6 months?
- Do I have a good bank or trade reference?
- Do I have a business plan? (Many landlords require business plan)
- Do I have a guarantor? (Many landlords require a guarantor before they approve any lease transfer.)
- Do I have a team or partner?
- Can I give 10-12 hrs every day?
The purchasing process:
Once you have shortlisted the restaurants, make sure you do thorough research about them before arranging a viewing. You can simply search on Google, Social Media, TripAdvisor etc to get more understanding of the location, business and customer segment.
Nowadays Google maps and other online portals provide a lot information about the location, competitions and surrounding areas. Also, visit the restaurant as a customer. Cost involved: Time
Following your online research, once you are satisfied with the information you have gathered, you can arrange a viewing with the agency or the leaseholder themselves. Cost involved: Time & travel expenses.
What to look for during a viewing:
- Location & competition
- Fixtures and fittings
- Possible extension
- Redecoration cost
- Kitchen space and its capability
- Kitchen equipment
- Lease Terms: Even though you will instruct your Solicitor or conveyancing firm, it is important that you conduct a basic due diligence. This is will save both time and money.
Make an Offer on Premium
After you are fully satisfied with the restaurant premises and have decided to move ahead, the next step is to make an offer on the premium the seller is asking for. After evaluating your budget, the cost of refurbishment, rent deposit, legal fees etc. put an offer that suits you the best. Negotiations will happen. Cost involved: Time & travel expenses.
Hire a Solicitor or Conveyancing Firm
Once the offer has been accepted, make sure you have a legal team to take the process ahead. Lease transfer or assignment requires in-depth legal research hence it is a must that you hire a solicitor to take your process further.
If an agency is involved, they will draft a Memorandum of Sale or Head of Terms and they will share it with all parties involved. You simply provide them with your solicitors’ details and they will coordinate with them. Cost involved: Time & Solicitor Fees. Legal fee depends on Solicitors (£1500-£2500). Note: The above fee is just for an example and generic. You must consult your own solicitor.
The seller (assignor) will instruct his solicitors that he wants to assign (sell or transfer) the lease. The buyer (assignee) will instruct his own solicitors that he wants to buy that lease. The Buyer’s solicitors will contact the landlord’s solicitors about the proposed assignment, asking the landlord’s consent for the transaction to take place. So, there will be three different solicitors involved. Cost involved: Time
Landlords Approval & Due Diligence
The Seller must have landlord’s approval before selling the lease. And also, the buyer must be able to assure the landlord with satisfactory references. These are usually bank and trade references confirming that the proposed assignee is solvent, has enough funding and capable of paying the rent on the lease.
Besides landlord’s check, your solicitor will also conduct due diligence on the lease terms from your end. Cost involved: Time & Landlord’s Solicitor Fees (£1500-£2500).
Note: The above fee is from our experience only. (It’s common practice that the Assignee (buyer) pays the landlord’s legal fees in addition to his own. However, buyer can always negotiate with the seller.
Legal Aspects & Transaction
Upon satisfactory receipt of references, the landlord’s solicitors will draft the following documents:
- Licence to assign
- Rent deposit deed
- Authorised guarantee agreement
These are legally binding contractual documents and need to be thoroughly perused before the parties put their signatures on them. Once all parties are agreed, the buyer transfers the fund to their solicitors and they pay to the seller’s solicitors. That’s the final transaction and the buyer gets the keys. The whole process could take anywhere between 6-10 weeks. Cost involved: Time & Premium (agreed sale price)
So, in a nutshell, let’s look at the total cost involved in buying a leasehold restaurant, assuming the premium is £60,000:
- Your Solicitor’s Fees: £1,500
- Landlord’s Solicitor Fees: £1,500
- Premium: £60,000
- 3 Months’ Rent Deposit: £6,250 (assuming annual rent of £25,000)
- Advance Rent: £6,250 (assuming annual rent of £25,000)
- Stock: £2500
Total: £78,000 (excluding refurbishment, marketing and other unexpected cost)
NOTE: The above figures are provided only as an example. Solicitors fees varies so as advance rent and deposit.