Leasehold

[Joanne Herd]

Hi,

Excuse my ignorance but if you buy a leasehold business, say for £100,000 for a 15 years lease, what happens at the end of that 15 year leasehold to your initial outlay of £100,000?

I understand that you have to re-negotiate the lease with the landlord but don't understand what the £100k is buying. When you make the initial payment of £100k are you then effectively saying goodbye to your £100k because you will never get it back, or does the landlord effectively have to buy the leasehold back off you at the end of the 15 years?

Thank you.

Joanne

[taxattack]

Hi,

Excuse my ignorance but if you buy a leasehold business, say for £100,000 for a 15 years lease, what happens at the end of that 15 year leasehold to your initial outlay of £100,000?

I understand that you have to re-negotiate the lease with the landlord but don't understand what the £100k is buying. When you make the initial payment of £100k are you then effectively saying goodbye to your £100k because you will never get it back, or does the landlord effectively have to buy the leasehold back off you at the end of the 15 years?

Thank you.

Joanne

This sounds like a premium to enter into the lease, in which case it is a one-off non-returnable payment (with special rules for its tax treatment). There will usually be periodic rent to pay as well.

Chris

[Joanne Herd]

Thank you.

[deniser]

What you are talking about is a premium for the business ie. the right to take over the running of that business from those premises - it will comprise different elements such as:

1. a premium for the assignment of the lease. For example, if the rent is low for some reason (eg. rent was last reviewed a long time ago when the rents were much lower) then there will be a premium to reflect the saving you are making.
2. goodwill - if the business has been trading succesfully then this will be the main component
3. fixtures, fittings and contents - this includes things like the till, computers, shop fittings
4. stock
5. compensation for improvements made by the outgoing tenant.
6. a premium for any trademark or other intellectual property - logos etc.

When you buy a business you will need to agree with the seller how the premium is apportioned between these different items as they all have a different tax treatment which will not necessarily suit both parties. This is something you will need to negotiate.

The relationship between you and the landlord is quite separate from the sale of the business.

If you are spending a lot of money, make sure that the lease is not contracted out of the security of tenure provisions of the Landlord & Tenant Act 1954 so that you have the rights to renew at the end of the term. Otherwise, as you say, you will be left with nothing except tangible items you can take away. The goodwill of the business may be something you can move to other premises but may not.

[Joanne Herd]

Thank you!