Dumb Lease Questions

[AnnaLies]

The following is really basic stuff but i'll be boogered if i can find anything explaining leases that helps me.
Hypothetically, i want to buy/lease a cafe. The 5 year lease is currently for sale for let's say £100k. The rent, for ease, is let's say £1k/month.
I pay my 100k, i pay my rent regularly and i make a fantastic success of said business.
Now, this is where i need help....

1. if i want to sell up after say :
a)2 years, can i generally sell the lease on to somebody for whatever price i want?
b)4.5 yrs, will the lease be worth virtually nothing due to only having 6 months to run?
2. if i traded for the full 5 years and wanted to re-negotiate a new lease, will i be only re-negotiating the rent and the length of lease or will a bulk payment be needed again (100k)


I know the above is really dumb basic stuff so please forgive my naeivity. I always thought that a selling price for a business bought the business/goodwill/fixtures/fittings etc and the lease was just the rent..... in which case i'm presuming that i can re-sell at any time? I just can't find anything to confirm this.

Thanks for any help.

 

[deniser]

The following is really basic stuff but i'll be boogered if i can find anything explaining leases that helps me.
Hypothetically, i want to buy/lease a cafe. The 5 year lease is currently for sale for let's say £100k. The rent, for ease, is let's say £1k/month.
I pay my 100k, i pay my rent regularly and i make a fantastic success of said business.
Now, this is where i need help....

1. if i want to sell up after say :
a)2 years, can i generally sell the lease on to somebody for whatever price i want?
b)4.5 yrs, will the lease be worth virtually nothing due to only having 6 months to run?
2. if i traded for the full 5 years and wanted to re-negotiate a new lease, will i be only re-negotiating the rent and the length of lease or will a bulk payment be needed again (100k)


I know the above is really dumb basic stuff so please forgive my naeivity. I always thought that a selling price for a business bought the business/goodwill/fixtures/fittings etc and the lease was just the rent..... in which case i'm presuming that i can re-sell at any time? I just can't find anything to confirm this.

Thanks for any help.

I have a sense of deja vu - I'm sure I have answered this exact question before?

What you need to understand is that you are not paying £100K for the lease, but the £100K will be mainly for the goodwill of the business ie. the reputation of the business that has been trading there, plus some money for fixtures, fittings, contents, improvements that the previous owners have made.

Fundmental to the goodwill that you are paying so much money for is the location and therefore the lease which you need to make sure is as long as necessary for you to recoup your £100K investment. Otherwise if the lease ends and you have no right to renew, your £100K is gone. You may be able to salvage some of your goodwill by moving premises but often not because the location of the premises are are essential for the business.

In answer to your questions:
1a. No. You need to find someone to buy the business - the value is the amount someone is willing to pay for it plus take an assignment of the existing lease. The lease will have restrictions on whom it can be let to and for what purposes the premises may be used for so no, you can't just sell it to anyone - they will need to be approved by the landlord and the landlord's bank.

b. the lease may not have any value now - or may even have a negative value as a lease is more often a liability than an asset in times when rents are plummeting.

You need to check whether the lease is renewable - whether it is has been contracted out of the landlord and tenant act 1954 or not - but even then the landlord is entitled to resist renewal in certain circumstances.

If I were paying £100K for a business, I would want a long lease, at least 15 years (with break options).

2. the £100K will have been paid initially for the goodwill of the business to the seller. It has nothing to do with the landlord with whom you just negotiate the lease terms. So no, you don't pay that again.

 

[AnnaLies]

Yeah i think i've been merging the 2 costs in my head which has been confusing.
So basically, as long as the landlord is happy with the arangement and me as a tennant, i could go on paying rent and renewing leases indefinitely, and the 'business' would still be mine to sell whether that be in 3 years (middle of original lease) or in 15 years (in middle of a future lease agreement?)

What would happen then if after 5 years, the landlord decided he wanted to sell the property and we were booted out? I guess i would just be left with the wallpaper, carpets, cutlery and tables as well as whatever 'goodwill' i could take to a different premises if i so wished?

 

[deniser]

Yeah i think i've been merging the 2 costs in my head which has been confusing.
So basically, as long as the landlord is happy with the arangement and me as a tennant, i could go on paying rent and renewing leases indefinitely, and the 'business' would still be mine to sell whether that be in 3 years (middle of original lease) or in 15 years (in middle of a future lease agreement?)

What would happen then if after 5 years, the landlord decided he wanted to sell the property and we were booted out? I guess i would just be left with the wallpaper, carpets, cutlery and tables as well as whatever 'goodwill' i could take to a different premises if i so wished?

In answer, yes and yes, provided that:
1. your lease is not contracted out and
2. the landlord doesn't need the premises back for his own use or for redevelopment (in which case he could successfully challenge a renewal)