Value of a Lease

[herstonbell]

Hi everyone

We're nearing the end of our negotiations (hoorah!) and our solicitor has suggested that we break our offer down into 4 distinct areas:

Goodwill, fixtures and fittings, lease and stock at valuation

We can 3 but my query is around the value of a lease - how does one work that out?

It's a FR&I lease with 4 years left to run on it. Current annual rent is around £10,500 and the building definitely needs work.

So any ideas on what one would think the lease is worth as part of the price we pay for the business?

Cheers
Emma

[Editor]

The lease will have a value - premium - if there is sufficient demand for such a business and a willing buyer is willing to pay such a premium.
This needs to be off-set against any liabilities you are taking on with a FRI lease. If the existing tenant has fallen behind with repair obligations then you as assignee will inherit them, unless it is agreed otherwise.
Might be well worthwhile to consult a good local commercial property surveyor who should be able to advise you as to the current market situation in the locality regarding lease value, and also to do a condition survey to give you a benchmark as to condition on assignment. A few hundred spent now on this could save you thousands in the future.
It may also be worthwhile testing the landlord's attitude on repairs and lease renewal at this stage.

[yeahbutno]

Value of the lease? Tricky one. If its in an area of high demand, it's worth plenty. If it is in an area with plenty of "to let" boards scattered around, its negligable.

And as Ed says, you are agreeing to take on a liability as well, regards the repairs. I suggest you don't even make an offer until you've clarified exactly what the landlord's position is, and get his written agreement that he will not chase you for the £59,000-worth of remedial work. If this isn't forthcoming, you're "lease" figure could be a negative number - possibly as high as £59 grand!

[herstonbell]

Hi

Thanks for comments. We had a builder go through the property with us this week and work that needs immediate attention comes to around £10,000. He thinks the rest is largely cosmetic which we can tackle over the next couple of years. As per most surveyor's reports they have been ultra cautious - they've assumed that the all the roof timbers need treating - which they don't etc. etc.

Essentially the current lessee has let the place go and there are areas of immediate need which he either does before exchange or we reduce our offer.

Should we use the surveyor's report as the Schedule of Condition for the lease or would be shooting ourselves in the foot?

[propman2]

you should negotiate a deduction from the price you are paying the assignor equivalent to the value of works required to comply with your repairing obligations under the lease, its as simple as that.

you should check what the present rental value of the premises is and match this against what rent is due under the lease until rent review or lease end whichever comes first. So if the present rental value of the premises is £15,000 pa you are effectively saving £5,000 per annum. You will save this amount until review or lease end so if say 3 yrs left to lease end thats a saving of £15,000, howvere you would not pay the assignor this but pay a lesser figure than this due to the time value of money.

no doubt your solicitor will have advised you whether the lease is under the landlord and tenant 1954 act or is contracted out?