What happens to your premises when you sell

When owners think about selling, they think about the team, the customers and the price. The building the business works from often comes much later, sometimes only when a buyer's lawyer starts asking questions. Yet premises can affect the timetable, the structure of the deal and, for owners who hold the property personally, what they keep after completion.

There is no single right answer, and the detail depends on the lease, the property and the type of sale. But the main situations are fairly predictable. Here is how we usually think about them with owners.

If the business rents its premises

Most owner-managed businesses lease at least some of the space they use, whether that is an office, a workshop, a unit on an industrial estate or a few sites across a region. In a sale, the lease matters because the buyer needs to know the business can keep operating from the same place, on terms that make sense.

In a share sale, where the buyer acquires the company itself, the lease usually stays with the company and nothing has to be assigned. Even so, many leases contain a change of control clause, which means the landlord's consent may still be needed when the shareholders change. In an asset sale, the lease normally has to be assigned to the buyer, which almost always needs the landlord's agreement.

Either way, it is worth reading the lease well before any buyer does. The points that tend to matter most are:

• How long is left on the term, and whether there is a break clause either side can use.
• Whether landlord consent is needed for a change of control or an assignment, and what conditions the landlord can attach.
• When the next rent review falls, and how it is calculated.
• Who is responsible for repairs and dilapidations at the end of the lease.
• Whether you or anyone else has given a personal guarantee for the rent.

Landlord consent and the timetable

Landlord consent is one of the most common reasons a completion date slips. Landlords are not party to the deal and are under no pressure to move quickly. Some will want references or accounts for the buyer, a rent deposit or a new guarantee before they agree.

The practical answer is to raise it early. Once a buyer is chosen and the main terms are agreed, your lawyer can approach the landlord, explain what is happening and find out what they will need. A short, early conversation is far better than a formal request in the final week, when there is little room to negotiate.

Personal guarantees on the lease

Many owners signed a personal guarantee when the business first took its lease, and then forgot about it. If you are selling and stepping back, you will usually want that guarantee released, so you are not left responsible for rent on a building you no longer control.

A buyer can often offer a replacement, such as its own guarantee or a deposit, but the landlord has to agree to swap one for the other. This is worth putting on the list for the sale agreement and the completion checklist, rather than assuming it will happen automatically. The same applies to guarantees on other business debts.

If you own the property yourself

In many family and founder-owned businesses, the owner holds the building personally or through a separate company or pension arrangement, and the business pays rent. In others, the property sits inside the trading company. Each arrangement leads to a different conversation.

Where you own the property outside the business, you broadly have three choices:

• Sell the property to the buyer alongside the business, usually as a separate but linked transaction.
• Keep the property and grant the business a new lease at a fair market rent, so you receive a steady income after the sale.
• Keep the property for now and agree a shorter lease, giving the business time to relocate if the buyer has other plans.

Where the property is inside the trading company, a buyer in a share sale will acquire it with everything else unless something is agreed in advance. Some owners prefer to move the property out before the sale so they can keep it. That can be done, but the tax and legal steps need careful advice, and it is best planned well ahead of any sale rather than squeezed in during negotiations.

Getting the rent right

If you will be the landlord after the sale, the rent and the lease terms affect both sides. A rent that is well above market makes the business look less profitable and may reduce what a buyer will pay. A rent well below market may help the price, but leaves you with less income and a lease a buyer may later want to rely on.

The fairest approach is usually a lease on normal commercial terms at a rent supported by an independent view. It removes a point of argument from the deal and gives both of you a clear basis for the relationship that follows. Your accountant and a local surveyor can help you check where the current rent sits before you start.

Condition, compliance and dilapidations

Buyers will ask about the condition of the premises and whether the business meets its obligations there. That might include health and safety, fire safety, environmental permits for some industrial sites, and repairs the lease requires. Unknown problems found late tend to turn into price reductions or extra protections in the sale agreement.

You do not need to fix everything before a sale. But knowing the position, and having the relevant certificates, inspections and correspondence in one place, lets you explain it calmly and keeps it in proportion.

What to do before you start

A little preparation goes a long way:

• Find the current lease, any variations and any licences, and read them with your lawyer.
• List every personal guarantee you have given and decide which you want released.
• If you own the property, decide early whether you would rather sell it, keep it and rent it, or keep your options open.
• Take advice on tax before moving property in or out of the business.
• Keep a short note of any known repairs, disputes or compliance issues, with what has been done about them.

How we approach premises

As a long-term buyer, we want the business to keep working from a place that suits it, and we are open to different arrangements, whether the property comes with the company or you keep the building and become the landlord. What matters to us is that the terms are clear and fair, and that the people who work there are not disrupted.

If you are thinking about selling and would like a private conversation about how your premises might fit into a sale, a short call is a good place to start. There is no obligation either way.