Buying a Leasehold Business

What you are actually buying

A leasehold purchase buys you the goodwill of the business, its fixtures, fittings and equipment, usually its stock — and the right to trade from premises owned by someone else. That right is defined entirely by the lease.

The business may be excellent, but if the lease is weak, so is your purchase.

Read the lease before the books

The remaining term is the first number that matters: lenders generally want the lease to outlast the loan, and a lease under ten years narrows your options. Then look at rent review clauses, repairing obligations — a full repairing and insuring lease can hide thousands in future costs — and any restrictions on use or alterations.

The landlord's role

Almost every lease requires the landlord's consent to assign it to you. Expect references, possibly a rent deposit or personal guarantee, and a timetable you do not control. Build landlord consent into your completion plan from day one.

Financing a leasehold purchase

Without property as security, finance is usually structured as an unsecured term loan, asset finance against equipment, or a blend of both. Lenders consider deposits ranging from 5% to 30%, and loan terms are matched to the length of the lease.

Most leasehold business acquisitions are goodwill-heavy deals where the lease, fit-out, and trading reputation make up the majority of the purchase price. Lenders consider deposits ranging from 5% to 30%, with specialist lenders assessing the lease quality, trading history, and buyer experience rather than simply looking for property to lend against.

• —Strong, verifiable takings matter more than projections
• —Vendor deferral — paying part of the price over time — is common and negotiable

For completion-day fees and a worked cash budget, read Costs of buying a leasehold business.

Before committing to a purchase, work through the Leasehold business due diligence checklist.

Traps that kill deals

• —Short leases with no option to renew
• —Dilapidations liability from years of neglect
• —Use clauses that block your plans for the business
• —Personal guarantees that outlast your involvement

If you are ready to look at funding for a specific purchase, read more about Retail Shops acquisition finance and loans, including how lenders assess these deals and the areas we cover.