As part of the planning phase, we’re going to talk in this video about what you need to discuss with your solicitor. Setting up an appointment with your solicitor early on is one of the most important things to do because you’re going to be reviewing the lease with them. If there is an issue with the lease or something which needs changing, it can be quite time consuming, so good idea to kick this meeting off first.
As soon as you start thinking about selling or planning the sell of the business, set up an appointment with your solicitor and start going through some of the things in the lease that could potentially affect the sale. If you’re anything like me, you probably haven’t looked at the lease since you bought the business.
I tended just to deal with the solicitor at the point of purchase and then didn’t give it a second thought. Maybe you might have looked at it when the rent went up if there was a review, but normally, you kind of forget about it, so a great time to dust it off and revisit some of the important clauses in there, which could affect the saleability and the price of the business.
When you get to sit down with your solicitor, some of the really most important things to look at
Looking at how much time there is left on the lease, do you think that that is going to represent good value to the person that’s looking to buy the business? With what you’re expecting or what you’d like to achieve for the sale price, is the value in line with what’s left on the lease?
You have to ask yourself whether the return on the investment for what you’re expecting is going to be viable. That’s a really important thing. Chances are you might well know that off the top of your head but get your solicitor to review that with you and make sure there’s nothing in there that you’re not aware of. In general the longer that there is left on the lease the better.
When and how much are the rent increases?
Secondly, you want to look at rent increases. Chances are, again, you may well know that off the top of your head. How often are the rent increases and how much does the rent increase by? This is something that I get asked a lot in the early stages, so I try and proactively deal with that with the advertising and the marketing. We’ll actually put that out there early on so people know what that is.
Generally speaking, it’s going to be an annual increase. Usually it will be either by CPI or it will be a set percentage. Make sure you understand what that is and let’s use that in the marketing, just to save people asking questions early on. It cuts down the amount of initial inquiries you get.
What does the lease say about assignment?
Now assignment is basically the transfer of the lease from you over to the person buying the business and all leases are going to have something in there about the assignment process. By reading through this and revisiting this clause, you’re going to get a good indication of how much information the landlord or the managing agent are likely to need.
The lease will also state who is responsible for the legal fees. Now nearly always, it will say that you, as the lessee are responsible for paying the legal fees of the landlord. In some cases, there might even be an additional fee for them processing the application, so make sure you’re all over that and you understand who is responsible for paying.
Chances are as I said, it’s going to be you but what you can do at this stage is get your solicitor to make sure when they draw the contract of sale out, that they only put 50% to you and 50% to the buyer. Nine times out of ten, when you do this, the solicitor acting for the purchaser very rarely picks up on it and it normally doesn’t get questioned.
This is a great way just to save a little bit of money or to save 50% of the landlord’s legal fees just by making sure you get that in at the start. You have to give your solicitor instructions to do that because sometimes, they miss it and the contract will just go out. Once that has gone out, it’s very hard to then go back and try to get it changed.
Just make a note of that. It’s a really important think just to try and save yourself 50% of those fees. It’s definitely worth mentioning early on.
How Much Will They Charge You?
Finally, you ought to be asking how much they’re going to charge you. You may have been with them for a long time, but this may be the first time you’ve used them for something like this. Make sure you understand what that cost is going to be to you because when you sit down and start working all of your numbers out, like what you’re actually going to be left with at the end of the sale price, that’s an important figure. The legal fees are a big chunk of the fees coming out of the sale, so make sure you know what your solicitor is going to charge you.
If you feel it’s too much, don’t be afraid to question it. For this kind of thing, if it’s a straightforward transaction, it shouldn’t really be any more than two and a half, maybe push three and a half thousand dollars. If it’s towards the top end of that, then you can probably shop around and get a better deal.
You don’t have to go with the solicitor that you’ve got history with for this kind of thing. It’s really just about making sure you’re comfortable who you’re working with and then they’re not going to be charging you too much.
Well that has covered some of the key points that you should be discussing with your solicitor and in the next video, we’ll be looking at what you need to do with the financials, setting up with your bookkeeper and then going from there down to having a conversation with your accountant.
Well, that’s it for now, I’ll see you in the next video.