Its not as simple as you think and you stand to lose out if you fail to instruct specialist solicitors like Tariq Phillips at TP Legal Ltd.
In the recent case of Luffeorm Ltd v Kitsons LLP  EWHC B10 (QB) (2 July 2015) it was held that the solicitor acting for the buyers had been negligent in failing to properly advise the buyers of a pub lease that without restrictive covenants against the sellers trading in competition nearby they could lose out on trade. However the buyers failed on causation (no compensation) because the judge held that even if they had the legal advice they would still have purchased the pub. This case demonstrates that you should always choose your solicitor carefully.
Selling or buying restaurants, pubs, bars & clubs
The sale of a well established licensed premises includes the sale and transfer of:-
- remaining years left on the commercial lease (the property);
- reputation (the goodwill),any website and trademark rights;
- business accounts current debts and profits and advance bookings;
- existing supplier contracts and credit hire agreements;
- staff, employees and workers;
- fittings and fixtures (cookers, bars, tables for example);
- licences (to sell alcohol, play live/recorded music, or serve hot food for example); and
1. Sale of assets only in licensed premises
In most cases where a licensed premises is being sold it is the assets (the lease, the employees and stock etc) which are being sold. The buyer pays for the assets and liabilities together with the business. Usually the employees automatically transfer to the buyer but generally speaking the licensed premises are carried on by a new entity, owned either by a new person or by a new company. In this kind of business sale existing business contracts including the business lease will need to be transferred into the buyer's name, and supply contracts with breweries, etc.
Sale of shares in the company that owns the licensed premises
An alternative method of buying the licensed premises is only available where the seller is a company. Where the business is owned by a company then the licensed premises can be purchased with all its assets and liabilities through sale/transfer of the company's shares.This way the names on all the contracts and the business lease do not change (stays in the company name) and therefore less third party consents such as the landlords consent, and suppliers consents are required. This method requires an entirely different form of contract for sale and has different tax implications for both seller and buyer.
If correctly structured the tax advantages for the seller or buyer can outweigh the additional legal fees incurred to implement the correct contract. Therefore it is wise for the seller and buyer to seek a qualified accountant's advice to ascertain the most tax advantaged sale method prior to instructing legal representatives.
2. The commercial property aspects
Commercial lease of licensed premises
The seller usually owns a commercial lease of the premises from which the licensed premises is trading. It is important to recognised at the very outset the obligations in the commercial lease. The rent, rent deposit, service charges, buildings insurance contributions, rent reviews, permitted use of the licensed premises, ability to carry out alterations to the premises, the repair and decoration obligations, and restrictions on opening times must all be considered.
Landlord's permission to sell the lease
Where the legal ownership of a commercial lease is changing hands, the seller will need to apply for the landlord's consent to the sale of the commercial lease (called a licence to assign). The commercial lease usually contains the landlord's right to require the seller to pay his legal and surveyors costs up front and whether or not the sale takes place. The landlord will usually be entitled to make his consent to the sale of the lease conditional upon the payment of any outstanding rents and/or repairs to the licensed premises. The landlord also usually has rights contained in the commercial lease to refuse the sale to the buyer if the buyer does not present a convincing case that he will be able to run the licensed premises profitably and pay the rent on time. References will be required, including bank references to confirm that the buyer can afford to meet the rent payments on time, and previous trading references to show the requisite experience in running a successful business. If the buyer is a newly formed company the landlord will require the company's directors to guarantee the payment of the rents, and may require a larger rent deposit or other security to guarantee the performance of the obligations contained in the commercial lease. Additionally, sometimes the landlord of the licensed premises is a brewery or restaurant franchisor and the lease will contain additional legal obligations (a) to buy a minimum quantity of drink/food from the landlord and (b) to only purchase drinks/food that you intend to sell from the licensed premises from that brewery/restaurant franchisor at set prices.
Local authority searches
The buyer will want to know that the licensed premises has planning permission and buildings regulation approval, and whether there are any outstanding breaches of obligations to the local authority where the premises are situate. The Town and Country Planning (Use Classes) Order 1987 (as amended) puts uses of land and buildings into various categories known as 'Use Classes' The current use categories are A3 Restaurants and cafÃ©s - For the sale of food and drink for consumption on the premises - restaurants, snack bars and cafes;
A4 Drinking establishments - Public houses, wine bars or other drinking establishments (but not night clubs); and Suis Generis- clubs, nightclubs
It is always recommended to instruct your legal advisers to purchase "searches" which are responses from public authorities to industry recognised questions. The cost of these searches vary from one council to another, one water authority to another and, depending on the size and location of the licensed premises the environmental bodies who can provide this information.
3. The employees
If you are purchasing an established licensed premises, it is probable that there will be existing employees. Employees' rights are protected by the Transfer of Undertakings (Protection of Employment) Regulations 2006 as amended by the Collective Redundancies and Transfer of Undertakings (Protection of Employment)(Amendment) Regulations 2014 (TUPE).
The TUPE rules apply to organisations of all sizes and protect employees' rights when the organisation or service they work for transfers to a new employee. The TUPE regulations apply if a business or part of a business moves to a new owner or merges with another business to make a brand new employer.
Additionally, there is a legal obligation on the seller to provide the buyer with certain information about current and former staff (called employee liability information) at least 28 days before the transfer of the employees (and therefore usually the business) completes. Otherwise the seller risks contractual and statutory claims for non-disclosure in the event an employee brings an employment claim against the buyer. Employees' contracts of employment will therefore need to reviewed by the seller and checked with due diligence by the buyer's legal representatives as early as possible.
4. The licences
Premises licence and personal licence for the sale of alcohol
The licensed premises will need both a premises licence and at least one personal licence for the sale of alcohol. You must be, or appoint, a designated premises supervisor who must have a personal licence. Without these the business will not be allowed to operate. The seller's paperwork will be checked to ensure the appropriate licences are in place, and that the incoming buyer will be able to comply with any conditions. All necessary licences will be checked to ensure the buyer's needs are matched.
Playing of recorded and live music in public places
If you play recorded music or music videos in public, you be legally required to have a PPL licence. Licensed premises playing recorded music in public (whether live or via CDs, radio/TV broadcasts, background music systems or other sources) will usually need to obtain a licence from both PPL and PRS for Music. PPL collects and distributes licence fees for the use of recorded music on behalf of record companies and performers, while PRS for Music collects and distributes for the use of musical compositions and lyrics on behalf of songwriters, composers and publishers. The range of live music performances that can take place without a licence under the Licensing Act 2003 was extended by the Live Music Act 2012.
Licence to site gaming machines
The alcohol licence gives restricted permission to operate fruit machines, slot machines. However, anybody applying for a new premises alcohol licence will need to notify the licensing authority of their intention to make gaming machines available for use, and pay the fee again. The buyer might have to register to pay