The Costs of Buying a Leasehold Business

Build your completion cash budget

Build a completion budget around the agreed price for the business, then separate your acquisition deposit from the rent deposit, advance rent, professional fees, stock and working capital. This article focuses on cash timing and costs, rather than the lease assessment and funding overview.

For the ownership, valuation and finance overview, start with Buying a Leasehold Business.

The costs of buying

The price you agree with the seller is called the lease premium — sometimes 'key money', since you're paying for the established business and the keys. On top of it, budget for:

• —Acquisition deposit towards the premium — ranging from 5% to 30%, the rest can be financed
• —Stock — valued independently at handover and paid on top
• —Rent deposit — landlords commonly ask for three months' rent as security
• —Advance rent — most leases want the first quarter (or month) up front
• —Solicitor — roughly £1,500–£2,500 for the purchase agreement and the lease assignment
• —Landlord's fees — often £1,000–£1,500 for consenting to the transfer; negotiable who pays
• —Accountant — around £1,000 for the numbers review and company setup
• —Stamp Duty (SDLT) — often nothing at all on smaller lease premiums (nothing is due under £150,000), but your solicitor should confirm

A worked example

Say you're buying a takeaway for a £90,000 lease premium, paying £1,500 a month in rent. An illustrative budget using a 25% acquisition deposit, not a quoted lending offer:

• —Deposit at 25%: £22,500
• —Stock at valuation: perhaps £4,000
• —Rent deposit (three months): £4,500
• —First quarter's rent in advance: £4,500
• —Solicitor, landlord's fees and accountant: about £4,000
• —Stamp Duty: £0 (under the £150,000 threshold)
• —Working capital and setup: around £12,000
• —Total to complete: roughly £51,000 — and £27,000 of that (the rent deposit and advance rent) is timing, not lost money

The costs of taking over

Just like a freehold purchase, the first month is the danger zone: until takings land in your account, you need cash for wages and suppliers. Two to three months of running costs is a sensible reserve.

• —Business insurance — public liability, employers' liability, contents and stock (the landlord usually insures the building and recharges you through the service charge, so check what's due at completion)
• —Utilities — some providers ask new owners for a deposit
• —Tills and systems — card machines, EPOS, broadband and software may need transferring or replacing
• —Licences — alcohol, food registration and others may need transferring before you can legally trade

The costs during the lease

Two leasehold costs catch buyers out. First, repairs: your lease sets out what you must maintain — a 'full repairing' (FRI) lease makes you responsible for everything, even the roof, while an 'internal repairing' (IRI) lease is much lighter. Read it before you offer.

Second, dilapidations: the bill for putting the premises right. If the landlord has a list of disrepair, ideally the outgoing tenant settles it before you take over — and a Schedule of Condition (a photographic record of the premises when you start) stops you inheriting blame for damage you didn't cause.

So how much do you need?

There's no single figure — it depends on the premium, the rent, the stock and the lease itself. The discipline is the same as any purchase: list every cost before you commit, keep the working capital reserve sacred, and remember that the rent deposit and advance rent come back or work for you — they're timing, not loss.

Weighing up a leasehold purchase? Talk to us — we'll tell you plainly what a lender would make of it.

For a sector-specific view of how this works in practice, see our page on Cafés & Coffee Shops acquisition finance and loans, including how lenders assess these deals and the areas we cover.