If you are buying or selling a small shop, such as a newsagents, an off-licence or a coffee shop, then you should seek expert legal advice. This overview sets out a number of key points to consider when acquiring or disposing of a small shop.
Heads of Terms/Memorandum of Understanding
A property agent often helps negotiate the main deal terms (price etc.). This is then set out in a ‘subject to contract’ document known as Heads of Terms (or a Memorandum of Understanding). It is important to take advice before signing Heads of Terms as it may be difficult to renegotiate the terms at a later date.
This should set out whether the deal is a share sale or an asset sale. Small shop deals often take place by way of an asset sale as a going concern. The parties agree which assets and which liabilities (if any) the buyer acquires. The buyer often doesn’t take on historic liabilities.
The parties should consider how the shop’s stock is to be valued. This may involve using an independent valuer immediately before Completion but can depend on the size of the transaction and deal agreed.
Another aspect of an asset sale is the property transaction. Depending on whether the property is freehold or leasehold, this may involve the sale of the property, assignment of a lease or granting of a new lease.
If the property is leasehold then the landlord likely will require their costs (legal fees etc.) to be covered as part of the transaction. The buyer and seller should consider how this is to be split and look to get the landlord on board at an early stage.
The buyer will want to investigate the business that it is buying. This should be targeted and proportionate to the transaction. This may include obtaining replies to Commercial Property Standard Enquiries and information relating to the shop’s:
- Employees, as required under TUPE (see below).
- Website, social media accounts and review site pages.
- Where relevant, accounting information.
- Fixtures and fittings.
A buyer may want to consider hiring a surveyor to assess the equipment.
If a convenience store is part of a franchise, then the franchisor’s consent will likely be required to the transaction. The franchisor will want to vet the buyer and may require a new franchise agreement to be entered in to.
A Post Office sale will need to deal with the Post Office’s sub-postmaster approval. The application process can be particularly detailed for a new sub-postmaster; including requiring an interview, the submission of a business plan and training.
If the business sells alcohol then its Premises Licence will need to be transferred to the buyer. The buyer will need to be, or appoint, a Designated Premises Supervisor (DPS) in relation to the Premises Licence. A DPS must have a Personal Licence to sell alcohol.
The buyer will need to carefully review the terms and conditions attaching to the Premises Licence to make sure this fits with their planned use of the business. If not, then the buyer may need to make an application to vary it.
Transfer of Undertaking (Protection of Employment) Regulations 2006 (TUPE)
If a shop is being purchased by way of an asset sale as a going concern, then its employees have a right to transfer to the buyer on their existing terms under TUPE. Failure to transfer or making changes to the employees’ terms and conditions risks an unfair dismissal claim.
The seller needs to provide certain information on its employees to the buyer. The buyer and the seller have certain requirements to inform and consult with their own employees or appointed employee representatives in relation to the transfer.
Legal advice on buying or selling a small shop
BHW’s specialist Corporate and Commercial Property solicitors can help you with buying or selling a shop. Through our experience our advice is pragmatic and our aim is to keep costs and the deal paperwork proportionate to the transaction. This includes negotiating targeted deal protection such as warranties (contractual statements about the business, assets, employees etc.) and indemnities (enhanced protection for specific areas of risk).
For help and guidance, please contact Robert Flannagan on 0116 402 7245 or email email@example.com.