Considering tenure when buying a business with property
When buying a business with property, it’s essential to understand the tenure type, as this determines how you own the property and your rights over it.
Property tenure directly feeds into the value of a business, so by educating yourself on different tenure types and the pros and cons of property tenure, you can choose the right tenure for you.
What is tenure?
Tenure refers to the conditions under which a property is occupied, including any limitations. From owning property to gaining temporary access, there are multiple tenure types that provide different levels of commitment. When searching for a business, you may refine your criteria based on tenure type to ensure that all your commercial property needs are met.
What are the different property tenure types?
When buying a business with commercial property, check the tenure type to understand how the property is owned or accessed by the business. Property tenure shapes the price of a business and its operational structure.
The different property tenure types include:
Freehold – If you buy a business with freehold property, you own the property and the land that it resides on for an unlimited period.
As the owner of the property, you have full rights over it and, therefore, the freedom and flexibility to use and modify the property as you wish. Freehold property offers complete ownership, albeit at a higher financial cost. Freehold property can appreciate over time and be used as loan security.
Leasehold – If you buy a business with leasehold property, you are bound by a lease agreement, which provides access to the property throughout the duration of the lease. When buying a business with leasehold property, you usually inherit the lease, unless negotiated otherwise.
Leasehold property provides a flexible and low-commitment option to businesses seeking property for a designated period. This can present an affordable alternative to businesses, with management and maintenance of the property overseen by the landlord.
If the leaseholder requires any improvements or adjustments to the property, they must seek permission, as restrictions may apply.
Ground lease – A ground lease or land lease is when you lease land from a landlord, build upon it as you wish, and improve it as you see fit. During the ground lease, you own any improvements, including property erected on the leased land.
After the ground lease ends, which are usually long-term, the landlord reclaims ownership of the land and any improvements.
A ground lease can provide access to high-value sites that are not usually up for sale. Financing a ground lease may be challenging; however, possible with support from specialist finance experts.
While it’s possible to lease or sell property constructed on the land, lease restrictions must be considered, and landlord approval must be sought.
- Previous sales and acquisitions experience
- Sector specialisms and average success rate
- Sales value expectations and growth potential
Rental – If you buy a business that rents property for commercial use, the contract will typically be reassigned as part of the business sale, unless an alternative agreement is reached. This must be approved by the landlord.
The term ‘rent’ is often referred to as ‘lease’ in a commercial context.
Mobile/relocatable – A business that operates out of mobile commercial property can be relocated, which offers a high degree of geographical flexibility.
A business that’s relocatable can operate from any site, as financial performance is not contingent on location. A relocatable business can attract a large pool of potential buyers as it is not fixed to a location.
Relocatable business premises are usually low-cost and highly adaptable, which can be beneficial for businesses that wish to remain agile and keep overheads low.
What property tenure is right for me?
When buying a business, while you may have an idea of your property needs, choosing the right property tenure may require careful thought. Understand the rights and restrictions of each property type to make an informed decision, including the attached financial overheads.
A perfect pairing can help a business strive on the path of success.
How can we help?
If you’re looking for a business for sale, use our online businesses for sale database and filter by tenure type. Our highly skilled business transfer agents can support you throughout your journey, backed by over 60 years of experience and a wealth of industry insights.
