Essential property considerations for UK business owners selling their established business

When selling a business, the premises can be one of the most important assets involved in the transaction. Whether you own the freehold or lease your premises, navigating the complexities and understanding the legal issues can smooth the path to a successful sale. This guide outlines some of the key issues of which you need to be aware.

Freehold and leasehold: understanding your position

If you own the freehold of your commercial property, you own the building outright. This provides greater flexibility in selling, as you have full control over the property, subject to any restrictions on the title.

If your business operates from a leasehold property, you hold a lease from the landlord, giving you the right to use the property for a specified period.

When selling the shares in the company, there is no requirement to involve the landlord, but if the assets of the company are being sold, you will need to obtain the landlord’s consent to assign. This process can be time-consuming, so it is prudent to deal with this early and approach the landlord in good time for consent to assign. It should also be noted that the landlord will probably require the buyer to provide guarantors and/or a rent deposit as a condition of the assignment. Further, the landlord will almost certainly require you, as seller, to guarantee the buyer’s performance of the lease under an Authorised Guarantee Agreement.

Due diligence: preparing your property documentation

Potential buyers will conduct thorough due diligence on your property, whether you are selling the shares or assets of the company. Ensuring all documentation is in order is crucial. Key documents will need to include:

• Proof of ownership for freehold properties or lease documentation.
• Confirm that all necessary planning consents for the current use and the building itself are in place and any planning conditions have been satisfied.
• Ensure compliance with building regulations for any alterations or extensions.
• Details relating to fire alarms, fire risk assessments, electricity certificates, asbestos reports and surveys.
• Insurance documentation.
• Health and Safety file.
• Service charge statements from the landlord.
• Other useful info including utility bills and business rates.
• Energy Performance Certificate (EPC) if needed.

Property liabilities: managing risks

Identify and manage any liabilities associated with the property. These can include:

• Assess any potential contamination or environmental liabilities.
• Resolve any ongoing disputes with landlord, neighbours etc and any notices served.
• Ensure the property complies with any outstanding requirements, including health and safety regulations, fire safety standards and disability accessibility requirements.
• Consider any breaches of covenant, particularly in relation to the repair and condition of the property, which could lead to a claim for dilapidations.

Transaction structure: sale of shares vs. sale of assets

This is critical, and you need professional advice – legal and accountants, but simply:

In a share sale, the buyer acquires the company as a whole, including its property interests, assets, contracts, employees etc. This can simplify the process but will involve inheriting the liabilities of the business.

However, in an asset sale, the parties agree specific assets to sell and purchase. This will require more detailed investigations on the assets being sold.

Negotiation and legal advice

You will need to navigate the complexities of commercial property and commercial transactions and will need advice on:

• Negotiating Terms.
• Structure of the transaction.
• Drafting Asset Sale or Share Sale Agreements.
• Disclosures and/or Replies to Enquiries given to the buyer.
• Tax advice.

Selling a business with commercial property interests requires careful planning. By preparing in advance and seeking expert legal advice, you can navigate this complex process with confidence. Ensuring all legal considerations are addressed will not only facilitate a smoother transaction but also can maximize the value of your business sale.