What to consider when selling your commercial property and business

Selling a commercial property with a business may take the following forms:

  • The sale of a commercial freehold property with its contents.
  • Assigning (selling) a lease of a commercial property with its contents.

The sale of a commercial property and business is more complex than a residential property sale because the following components need to be considered:

  • The buyer may not be an individual but a company or enterprise.
  • The sale is likely to include fixtures and fittings.
  • The sale is likely to include the sale of the business’ goodwill.
  • The sale will involve more detailed searches as well as a search on the purchasing company or entity.

Subsequently, the sale of a commercial property and business is something that the seller should not do without proper consideration. Additionally, it may be sensible for the seller to seek advice from their accountant.

Checking the registered title

Checking the registered title is something that must be done to obtain the following information:

  • Who owns the title (there may be a landlord involved).
  • If the commercial property is subject to any leases or restrictions.
  • If the there is any charges registered against the property.

The Contract of sale

This is usually drafted by the seller’s solicitor and will include the description of the premises and the terms of the sale contract. It will also state the price of the premises, the fixtures and fittings and goodwill (this is usually a nominal value e.g. £1.00). There will usually be some negotiation and deliberation from both sides on the terms and some special conditions may be inserted. It is the role of the solicitors on both sides to advise their clients on the impact of a term and what burden or benefits can be derived from it.

Additionally, the contract will include a clause preventing the seller from starting up a new business of a similar nature or at all in a nearby location for a limited time period (a competition clause).

Fixtures and Fittings

This is usually classified as the movable contents of the business e.g. chairs, tables and computers. Thus, they are not permanently connected to the premises. In certain sales, a seller may obtain a valuation of the fixtures and fittings in order to present evidence of its current value. The fixtures and fittings will usually be attached to the back of the sale contract in a schedule.

Goodwill

This refers to the intangible value of a business that is beyond the tangible assets (fixtures and fittings and value of the premises). The goodwill will usually include the following:

  • The company’s reputation.
  • Any intellectual property held e.g. trade marks.
  • The consumer/customer base.
  • Trade secrets.
  • Supplier lists.

The above is a non-exhaustive list and there may be other intangible components that can be considered as adding to the business’ goodwill. In most transactions the goodwill of a company is given nominal value of £1.00. However, in the sale of high value commercial property and a large business, the goodwill may have a significant value. The sale of the goodwill is contained in a separate document called a deed of assignment of goodwill. 

Other considerations

Additional documents may need to be drafted in order to deal with the following:

  • Acquiring employees of the business.
  • A document to prevent the seller discussing the sale.
  • Licenses.
  • The transfer of shares.
  • Stamp Duty Land Tax.

The seller and buyer should also consider any tax reliefs available to them and seek the advice of their accountants.

Concluding thought

The sale of a commercial property and business has many components and it is up to the seller to be knowledgeable about their property and the relevant aspects of both before they decide to sell their property.

If you have any questions on the above, please feel free to contact Lawdit’s commercial and property department for an initial consultation.

 

 

 

 

 

 

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