Prepare for the long haul when selling a restaurant, says Richard Negus of chartered surveyor Fleurets
Selling a restaurant can be a frustrating time for the restaurateur. Making the decision to sell is the easy part – the rest will depend on many different factors.
Selling a restaurant in its simplest form involves the same process as selling a house – appointing an agent, organising viewings, etc). But there are differences.
The majority of restaurants are leasehold and, consequently, landlord’s consent will be required to assign the lease. Also, borrowing money against a lease isn’t as easy as for freehold property.
Another difference is that selling a restaurant will usually represent a transfer of a going concern (TOGC), which raises obligations with staff, and many more matters surrounding the business like accounts, promotions, ownership of the inventory and licences.
Once a buyer is found, understanding how they propose to fund the purchase and obtaining proof of funding will be critical. Obtaining landlord’s consent for the lease to be assigned can often take two months from the provision of all information about the purchaser to the landlord’s solicitor, and the buyer will have to offer some form of security as to the purchaser’s ability to meet the obligations under the lease.
This will usually take the form of a personal guarantee and/or rent deposit, often for three or six months. Trade references and a business plan prepared by the buyer may help to speed the process.
It’s important to understand what the buyer intends to do with the restaurant since, if a change of use or structural alterations are proposed, planning permission may be required, resulting in substantial delays.
The purchaser will normally require a valuation for lending purposes, which can take one to two weeks for the bank to arrange. Only if the valuation stacks with the sale price will the bank authorise the borrowing.
The vendor can just as easily cause delays, particularly if the seller’s lease has only a couple of years remaining, or if a rent review is outstanding, both of which provide uncertainty for the buyer.
We usually advise the seller to prepare for six months and possibly longer, depending on the initial response to marketing.
All parties should prepare themselves for the long haul, with the seller remaining focused on the day-to-day running of the restaurant until contracts are exchanged.