Expert View
DON’T LOSE SIGHT OF THE LEASE
by Olivia Hepworth Commercial property solicitor, Farleys
As a business owner, on exiting your business you may have property that’s leased by your business which needs to pass onto the buyer.
Subject to being permitted by your lease, you’ll need to “assign” (transfer) the remainder of the term of your lease to the buyer by signing a transfer deed in their favour. This may also require consent from your landlord, which would be dealt with through a licence to assign.
Your lease will usually stipulate conditions to the assignment; however, the most common is a requirement for the outgoing tenant to sign an authorised guarantee agreement guaranteeing the payment of rent and performance of obligations under the lease by the incoming tenant.
It is also vital to assess the impact on your lifetime allowance (LTA). This is the maximum amount you build up in all your pension savings - workplace or personal - without incurring a tax charge. The limit is currently £1,073,100.
Getting the exit right is not all about the money. Stephen Gregson, corporate finance director at MHA Moore and Smalley, says: “When the owners of a family business plan to exit, it can sometimes bring buried tensions to the surface regarding who across the family has contributed most to its success and should therefore be rewarded.
“There is no magic bullet to prevent these tensions, but a way to minimise the risk is that families should constantly have succession and exit on their agenda. In particular, they should have a clear, collective understanding of how value would be distributed across the family.
“It is not just about the money. There needs to be clarity regarding the role of the exiting generation once the formal exit has completed. Will they remain involved in the business on a part-time basis? Will they continue to be involved with key business decisions?
“If the family has a shared vision of what exit looks like, then the leaders can plan for this and, crucially, understand the extent to which the next generation have the necessary skillset to effectively manage the company in future.
“If the business is being passed on within a family and there is a skills or experience gap, an element of the solution may be the need to bring in non-family senior personnel. Again, early and constantly evolving honest communication is key here to avoid potentially difficult conversations later.”
Michael Barker, partner at Preston based accountants and business advisors WNJ, says: “In some family businesses, the actual legal ownership is almost irrelevant as the current
If assignment isn’t an option, you would need to arrange to surrender your lease and for the landlord to grant a new lease to the buyer.
If you don’t have a business to sell and you’re simply a tenant looking for ways to exit your lease there could be more options available to you.
Your lease, for example, may permit you to sub-let to a new tenant, though landlord consent is likely required and there may be conditions; or a tenant break clause in your lease would permit you to terminate your lease early, subject to giving the correct amount of notice to your landlord (stipulated in your lease). Break notices need to be served in accordance with the notice requirements in the lease and a solicitor can serve the break notice on your behalf.
legal owners almost see themselves as merely the current custodians of a family business that has been passed through the generations and the future owners understand that they are the likely heirs to the legacy.
“However, there will be other cases where the current owners need to exploit the full value of their business to maximise their own retirement position.
“Typically, it is a combination of the two, where parents want to bolster their retirement savings to a satisfactory point but also give their children a good start in running the business without being overburdened financially from the start.”
So far so good, but Michael adds: “There are a number of problems that can arise because of misunderstandings that develop over a number of years.
“A typical case would be when the second or even third or further generations have worked in the business for years and, in their mind, they have earned the right to inherit the business, or at least acquire it on favourable terms.
“If this is not appreciated by the current owners, or something changes such that expectations of the two generations are out of sync, then there may be conflict, difficult negotiations, and potential family fall out.
“The key is clearly communication, and my advice is the sooner and more open the better.”
He adds: “It is very important to get an early understanding of the position and preferences of all involved to plan an approach which minimises the tax to a family both at the time of the transfer and in the future.
“So, it’s also important to discuss with professional advisers at an early point to get the appropriate structure in place.”
LANCASHIREBUSINESSVIEW.CO.UK
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LEGAL VIEW
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