
Property
This is often overlooked when succession is being considered until it is almost too late and becomes a problem for the potential vendor and the acquirer.
Naturally, the property could be leased or owned. If it is leased, the remaining lease term is important. An acquirer does not want to be bound into an onerous lease, either in terms of length of the term, rent payable or other conditions: but on the flip side, the retiring party might consider that there is significant value in a long-term lease or one with unusually advantageous terms, such as a rent payable below current market rents. The retiring party will be the tenant and must make it sufficiently attractive to their successor to want to take over the lease. Otherwise, they will be stuck with the lease or may not be able to transfer the business at all. The expiry of the lease may itself be the trigger for retirement. The potential retiree must be aware of the lease issue and be ready to deal with this as part of the negotiations.
This situation is even more complicated if the premises are owned freehold by the retiring party(ies). They may well expect that the acquiring party will want to take over the premises. However, what if the firm has been using the premises rent-free? The retiring party, unless they are willing to sell the premises or are very generous, will expect to earn a rent. That will damage the profitability of the business and make it less attractive to any acquirer. In any event, the capital cost of acquiring the premises, alongside the value of the files, could well be prohibitive. And, in any event, in this age of open-plan and agile working, would the acquirer want those premises? They may be a millstone around the firm’s neck and preventing the firm from being as efficient as the best in the area. If the premises are to be sold, then the acquirer may ask for a discount on the capital cost of taking on the business, to reflect the increased rent that is likely to be payable once new premises have been found. All of this dents the potential pay-out to the retiring parties.
Once again, the main lesson is to plan ahead and have options available.