How to Buy or Sell a Restaurant – Top Considerations for the Hospitality Industry
When buying or selling a business in the hospitality industry, there are some unique aspects to take into consideration. While you still have the typical elements of a business sale to consider, there are some hospitality industry-specific requirements that are vital to the business transfer.
Transferring a liquor licence
If a restaurant sells alcohol, they need to have a liquor licence. When selling the business, this needs to be transferred to the new owner, or the new owner will need to apply for a new licence. This will often be listed as a pre-condition of settlement in the business contract, meaning the sale will unlikely proceed if, for some reason, the transfer of the liquor licence is declined. Confirmation of the final transfer can take around 60 days.
Retail leases versus commercial leases
When considering transferring or entering into a lease, it is important to understand what type of lease will be required. Each state has different rules and regulations when it comes to leases, so it is important you consult your lawyer. Your lease type may be determined by factors such as the term of the lease, type of business and location. For example, in NSW, a lease of more than 5 years for a restaurant will be subject to the rules and regulations of the Retail Leases Act 1994. Retail leases in NSW are beneficial to tenants as they generally provide a wider variety of rights.
Transfer of social media accounts
It is not unusual for restaurants to have an active social media presence. It is important this is acknowledged in the sale of business contract and the rights and access to this are handed over. Even if the new owner is intending to completely change the restaurant, name, and brand, access to previous social media accounts can be important for accessing marketing campaigns, troubleshooting problems or maintaining business reviews. As social media becomes more essential to service industry businesses, it is important to acknowledge the value of online platforms and reviews and have access transferred in the sale contract.
If the restaurant is a part of a franchise, it is important the new owner is aware of their commitments under this separate agreement. Franchise agreements have a cooling off period before settlement which is different from a normal sale of business contract. This agreement will be between the franchisor and the new franchisee and will be separate to the sale of business contract.
If the restaurant has leased equipment, it is important to acknowledge this both in original negotiations and the sale contract. If the equipment is vital to the everyday running of the business, for example, a coffee machine, the new owner may want to have the lease transferred to them, find a new company to lease through or purchase their own machine for the business. It is important the purchaser is under no false illusions when it comes to what is included in the business sale and what is part of a leasing arrangement.
A thorough stocktake may be required depending on the nature of the business and the cost of remaining products. If stock is of relatively low value and with a high turnover (e.g. coffee beans and perishable food), the new owner might not need a stocktake. This is something the parties can negotiate during the contract arrangement.
Buying and selling a restaurant may invoke some unique contract elements, so it is vital you consult a lawyer when entering this process. A lawyer can help you draft a contract that includes all commercial terms, and help you with the exchange and settlement process.