Do your homework
Research and careful pre-planning are essential when it comes to buying a pub, says Minesh Patel, a licensed trade property solicitor at Stevensdrake
1. Initial investigation
Find out all about the pub, its location and where the real value lies - for example, layout, reputation, trading patterns, ambience and so forth. Identify what you will do to maintain and improve on this. If you're buying through an agent, they are likely to have historical trading figures for other pubs in the area, and even if they can't be specific, their local knowledge could prove to be vital.
l Make sure you understand the extent of any tie and the terms of the premises licence.
l Check how long the lease has to run - if it has only a few years, there are serious legal implications and you should get immediate legal advice before committing to the deal.
l Prepare a business plan. Be realistic. Make the plan, and plan to make the plan a reality.
l Always obtain an accountant's advice as to the financial viability of the business and whether or not you should, for tax or other purposes, set up a limited company or operate as a sole trader or partnership. This decision can have huge implications for the purchase of your business, the security you have to
provide, the legal documentation and, equally importantly, your exit strategy.
l Organise bank accounts and VAT registration early on. So many people leave this to the last minute and, by doing so, run the risk of delaying the sale.
l Obtain your personal licence.
l Instruct surveyors to advise on the condition of the property, plant and machinery, and identify outstanding repairs. Quantify the cost and factor these into the budget early.
l Obtain an independent valuation of the business. Remember, the agent acts for the seller and it's too easy to get carried away and miss glaring trading information.
2. Overall process
Instruct experienced solicitors to advise you throughout the process. You need to find a specialist solicitor - general practice solicitors are likely to look at pub leases and cringe. It needs experience to ensure the process of buying a business goes smoothly.
The vendors' solicitor will prepare a suitable contract and disclose information regarding the property, title, the business, all licences benefiting the business, staff, contracts to be taken over and the equipment included.
Your solicitor will consider and then advise on the information provided, where necessary commissioning searches.
Once all the issues are resolved, the contract is agreed, signed and landlord's consent
obtained. The parties will then exchange contracts and agree a date for completion.
Agreeing the contract is not easy. Your solicitor will want to protect your position and seek guarantees from the seller about both the viability of the business and the information provided. The seller, meanwhile, will wish to limit their continuing liability. This takes care and effort, so have a practical and objective approach and be prepared to negotiate.
Between exchange and completion, the
solicitors will deal with all necessary documents, liaise with the landlord's solicitors and organise the appropriate funds needed to complete the sale.
You and the seller must deal with the physical handover of the property between you, check the inventory, deal with the transfer of staff, carry out the stocktake and arrange for the security of the property.
3. Funding and security
You'll need to organise your finances and consider any security that the bank requires. If the security is to be your house or another property, you must inform your solicitor immediately, as additional legal work will be required to deal with the bank's requirements.
This will add to the cost and lengthen the time needed for completion. You must also consider what assets you need to operate the business and the best way of financing such assets (for example, leasing or hire purchase).
4. Landlord's consent
Landlords (in most cases, the pubco), will want to be satisfied that you have sufficient experience and resources to run the business and understand the liabilities and obligations under which you operate the lease.
The landlord will check that the seller has complied with his obligations and instruct their own surveyor to identify any outstanding repairs. The seller will have to discharge any outstanding debts to the landlord and put right any outstanding breaches, and either the seller or you will have to carry out outstanding repairs. This may not be an issue if you intend to refurbish the property and the price reflects the work you need to undertake.
The seller will normally be required to provide an authorised guarantee agreement to the landlord to guarantee that the buyer (you) complies with the tenant's liabilities under the lease. Take early advice on the extent of the
guarantee.
5. Dilapidations
This is perhaps the most contentious subject when buying or selling a property. It is vital from both the seller's and your perspective that any outstanding repairs are identified at an early stage in the process.
You, as a buyer, need to understand the full extent of your liabilities and make sure you have enough money to meet the cost. In some cases, you may need to enter into negotiations on the purchase price to allow for the liability.
The landlord will want to make sure that you or the seller put the property into a proper state of repair and will, as a condition of allowing the sale to proceed, require outstanding repairs to be dealt with by you or the seller - whichever is agreed in the sale process. Sometimes the landlord will require a dilapidations bond from you in case the works are not carried out. This could impact on your budget and make the sale untenable.
The parties should address at a very early stage who will be responsible for what repairs, and make sure that the purchase price reflects a fair balance between the parties' expectations.
6. Staff
Consider staff who currently live in - you may not wish them to do so if you plan to live at the property. Often, buyers who intend to run the business themselves may not want managers, even if they don't intend to live in personally. Whichever scenario, you need to address it as soon as possible.
Often, the buyer and seller have no choice in the staffing, as the Transfer of Undertakings Protection of Employment (TUPE) regulations protect and preserve the employment of all staff engaged in the business. Attempts to dismiss or make any staff redundant to facilitate the sale may constitute an automatic unfair dismissal, exposing both the buyer and the seller to a compensation claim - which could lead to an award of damages of up to £69,950 per employee.
The TUPE regulations need to be taken seriously and any issues relating to staff who are or are not to transfer must be dealt with at a very early stage. Specialist employment advice should be taken by both parties, as there may be ways to deal with staff issues lawfully, depending on your circumstances and those of the staff involved.
7. Timescale
On average, a transaction takes between eight and 12 weeks to complete.
You must work hand in hand with your solicitor, accountant and the agent in providing all necessary information and dealing with issues sensibly. However, obtaining information from local authorities and third parties, satisfying the landlords and their solicitors' requirements and dealing with the requirements of any bank, are often matters outside you and your solicitor's control - so anticipate unavoidable delays.
Do not commit to any borrowing, place orders for goods or services or removal services, sell or rent out the property, cease employment or take on employees until your solicitor confirms in writing that it is safe for you to do so.
Finally, tak
