Transfer of commercial lease (Local Authority)

[Mpg]

Hi

I've been offered the chance to take over the lease for a bar/restaurant the current leaseholder needs to get out due to health reasons.

He has a few LTD companies and one of them owns the Lease and he is winding that one up.

We have agreed a price

As he wants out as fast as he can due to failing health (I know him personally) The plan is for me to take over the Lease (providing the local auth permit) with a new Ltd. We will then clear any arrears/outstanding liabilities direct and he will walk away leaving fixtures fittings and stock etc And anything left over will be his.

He has seen an IP who has said as he is the only crediter to the business he would be fine winding up after we have cleared and debts (not owed to him)

Has anyone done anything similar in the past and have any horror stories etc. I have previously ran a pub/restaurant for a large chain so I don't need any of those horror stories..

Cheers

 

[Clinton]

If the lease is to be transfered to a new company then you're buying the assets, not the shares, and you don't need to clear any liabilities.

There's a ton of stuff to know before buying a business and a million pitfalls waiting for you. If you're doing this without expert assistance (yikes!) you should start by getting familiar with asset vs share purchase.

The way you've worded your post really concerns me as it suggests a serious lack of understanding in other areas as well which means you could end up badly burnt.

 

[Mpg]

If the lease is to be transfered to a new company then you're buying the assets, not the shares, and you don't need to clear any liabilities.

There's a ton of stuff to know before buying a business and a million pitfalls waiting for you. If you're doing this without expert assistance (yikes!) you should start by getting familiar with asset vs share purchase.

The way you've worded your post really concerns me as it suggests a serious lack of understanding in other areas as well which means you could end up badly burnt.

Thanks Clinton

The LA have to agree to the transfer of the lease before we go any further. I have had a brief chat with our lawyer who advised the first step is to get Auth from the LA. We wont be doing this without Professional help but I wanted to know of any major pitfalls or warning flags before we got too far down the road.

 

[deniser]

I assume when you talk about the local authority that they are the superior landlord and freeholder?

Rather than take over the existing lease, you would be in a much better position if you agreed a three way deal with the tenant and the landlord for the existing tenant to surrender his lease and for you to simultaneously take a new lease. That way the tenant can get out without repercussions further down the line (if he transfers his lease to you then he will have to guarantee your performance leaving him on the hook for a while) and your solicitor can make sure the lease is sound and has the clauses in it that you need (including break clauses, security of tenure, appropriate rent and term, the necessary clauses about condition etc.) rather than being stuck with something that may or may not have been properly negotiated by the previous tenant.

You also need to make sure that the fixtures, fittings and stock belong to the tenant outright and are properly transferred to you and that they are not the subject of any HP arrangements which could mean that someone comes along to repossess them. Make sure then that they are properly transferred to you separately.

 

[parkingandsecurity]

Why not just buy the shares of the Ltd Co? Saves any winding up or transfer?

 

[Clinton]

...I wanted to know of any major pitfalls or warning flags before we got too far down the road.

Yes, there are. But you find them only by engaging, for at least a few hours, someone sufficiently clued up to study all the facts of the case and advise you appropriately. Someone with deal experience buying / selling businesses. And, yes, it will cost you money.

I have had a brief chat with our lawyer who advised the first step is to get Auth from the LA. .

The first step has nothing to do with authorisation, it is to understand what you want to achieve, what you're buying, who're you buying it from, what price you are paying, where the risks lie ... and I don't believe you have a clear grasp on much of that.

AFAIK, LAs don't issue any "authorisation".

Why not just buy the shares of the Ltd Co? Saves any winding up or transfer?

That's a whole different can of worms as you'll be taking on all kinds of unseen liabilities. Due diligence is 10x more complicated (and expensive) when buying shares.

 

[Mpg]

@Clinton Thanks

Maybe I should have worded it a little different.

I'm looking at buying the lease on a commercial property that has a current tennant. The property is owned by the local Authority so would need their approval for the transfer of the lease.

If the transfer of the lease goes forward what are my liabilities with regards to the current tenant/business?

If that current tenant winds up his Ltd company and walks away is the lease holder burdened with any liabilities other than any liabilities under the lease

If the Ltd company that now holds the lease starts to trade from the premises that they now holds the lease for are they liable for previous companies liabilities?

 

[Clinton]

You're still not getting it! There is a lot more to this than meets the eye.

If you are buying the shares you don't need to transfer the lease. If you are buying the assets then you don't have to take on any liabilities.

But, and that's a big but, you really need to know what you're doing or you'll get yourself deep in sh*t.

Under an asset purchase even if you think you're taking on no liabilities there may be liabilities you're taking on (the liabilities under TUPE for example which can become an issue even if the company has no employees!).

Even when you think you're taking on an asset you may discover later that you don't own it because there's a lien on it or a fixed / floating charge on it or it's under a court order (not just a winding up petition type of order) or ... something else.

 

[Mpg]

Thanks again @Clinton but I'm not buying shares or assets I'm simply taking over the lease for a council owned property that has a current tenant.

The price we have agreed is as close to being the current liabilities (rent arrears with the LA)

He wants out asap but without leaving anyone unpaid.

So we will clear the outstanding rent arrears at the same time as completing the lease transfer

I may have muddied the waters earlier with future plans but I thought I cleared that up in the later post.

So to be clear were not paying anything for good will or assets or shares. We are simply taking over the lease.

If the next day the current tenant shuts shop and moves to spain would the leaseholder be liable for his tenants liabilities?

 

[Clinton]

You can't "take over the lease" except by buying the shares of the current leaseholder (though you may want to read what the lease small print says about assigning. Be aware that councils are no end of grief when it comes to assigning leases especially in the circumstances you describe above).

If he's giving up the lease and you're applying to the council for a new lease, that's a different story. In that case you will inherit no liabilities from the old company simply from the fact that you're occupying the premises.

 

[deniser]

Are you saying that the Council is the freeholder, the person wanting to assign the lease to you is the intermediate leaseholder and that intermediate lease is subject to an underlease under which someone is trading as a cafe?

Or that the Council is the freeholder and the cafe operator is their direct tenant and the direct tenant is the person wanting to dispose of their lease to you by way of assignment?

 

[Mpg]

Are you saying that the Council is the freeholder, the person wanting to assign the lease to you is the intermediate leaseholder and that intermediate lease is subject to an underlease under which someone is trading as a cafe?

Or that the Council is the freeholder and the cafe operator is their direct tenant and the direct tenant is the person wanting to dispose of their lease to you by way of assignment?

I may not be correct with the terms but yes to your 2nd example (not sure what you mean by assignment)

The property is owned by the LA and the current Lease is between the LA and the tenants Ltd company.

When I say take over the lease I mean a like for like transfer. Same conditions etc as current. Hence why the LA have to authorise the transfer request. The lease is for 125 years with 112 left.

Rather than risk the current leaseholder winding up the Ltd and the LA end up with nothing they are amenable to a transfer of lease from his LTD to my LTD. Provided any rent arrears are cleared.

 

[deniser]

I may not be correct with the terms but yes to your 2nd example (not sure what you mean by assignment)

The property is owned by the LA and the current Lease is between the LA and the tenants Ltd company.

When I say take over the lease I mean a like for like transfer. Same conditions etc as current. Hence why the LA have to authorise the transfer request. The lease is for 125 years with 112 left.

Rather than risk the current leaseholder winding up the Ltd and the LA end up with nothing they are amenable to a transfer of lease from his LTD to my LTD. Provided any rent arrears are cleared.

"Assignment" is the legal term for a transfer of a lease.
This is a long lease which is unusual. A long lease is normally bought for a premium (ie. a lump sum, like when you are buying a flat) rather than subject to a market rent. Are we talking a nominal sum for the rent that he owes or a substantial amount? It should be nominal.. He probably also has a mortgage registered against the property?

 

[Clinton]

The lease is for 125 years with 112 left.

125 years? I wish you had said that earlier, it would have saved a lot of wasted posts!

 

[Mpg]

Sorry guys.. Some info I didn't think would make a difference to the answers.

The building was converted by the current leaseholder from public toilets (that the LA had closed) it had been empty for a while and cost a considerable amount to convert.

No mortgage and no outstanding finance. ( Checks will obviously be made ) The rent is almost 3 Quarters in arrears. Again this is because the Leaseholder has some serious health issues. My son has been managing the business for the last few months (I know the busy summer months) but the current team has started to turn the business around. But the Leaseholder doesn't have the time nor inclination especially after promising his wife he would step away from running the business to concentrate "on the things that matter".

 

[deniser]

None of this is making sense. If it's a long lease you buy it for a lump sum. There should be no rent. Why are there rent arrears?

 

[Mpg]

Thats why I said earlier about taking over the lease.

The property is owned by the LA. Current leaseholder pays rent on the property
Rather than the current leaseholder winding up his Ltd without paying the arrears and the property laying empty whilst the LA pull their finger out it seemed much easier to apply for a transfer of the lease.

The LA will consent to a transfer of lease to a new Ltd company. (only the names will change)

The old Ltd is in arrears with the rent to the LA.

So I'm essentially buying the lease from the current leaseholder but using the funds to clear the arrears. Keeping the LA happy and allowing the current leaseholder to exit the lease.

The current Ltd company will then be wound up only owing the current director/shareholders (husband and wife)

 

[Clinton]

There should be no rent. Why are there rent arrears?

Possibly ground rent? But, still, it was unnecessarily confusing here.

I'm out of this thread. This really is a case best suited to getting all the facts together and going for some paid advice.

 

[deniser]

I am also out as I don't understand the facts.

 

[Mpg]

The facts are.

Leaseholder wants to sell his 125 yr lease with 112 years remaining.

Leaseholder is a ltd that also trades in another sector entirely. That other side (department) is losing money and he wants to sell the leasehold to the bar/restaurant, to clear the arrears to the LA meaning he can wind the LTD company up with only debts owed to the shareholders. (him and his wife)

Without muddying the waters further I'm sure thats the jist of it..

 

[deniser]

The facts are.

Leaseholder wants to sell his 125 yr lease with 112 years remaining.

Leaseholder is a ltd that also trades in another sector entirely. That other side (department) is losing money and he wants to sell the leasehold to the bar/restaurant, to clear the arrears to the LA meaning he can wind the LTD company up with only debts owed to the shareholders. (him and his wife)

Without muddying the waters further I'm sure thats the jist of it..

So the rent is owed on a separate property altogether?

 

[Mpg]

So the rent is owed on a separate property altogether?

No its owed on the property that the lease is for.

There is a lease on the property for 125 years. with 112 left. In that lease it states that the leaseholder will pay rent of £xxx per Q.