LEASEHOLD BUSINESS PURCHASES

A leasehold purchase refers to the acquisition of a leasehold business, where the buyer obtains the rights to operate a business for a specified period of time. 

Here are some key points to this kind of finance. 

A leasehold business involves entering into a lease agreement for a specific duration. The buyer typically purchases the business from the current owner or manager, who may also own the premises where the business operates. 

The purchase of a leasehold business does not include ownership of the property itself. Instead, it encompasses the acquisition of goodwill, fixtures and fittings, and existing stock of the business. 

Separate Property Lease 

In many cases, a separate lease agreement is established between the parties involved, specifically for the property where the business operates. 

This property lease usually aligns with the duration of the freehold period, providing security and continuity for the business. 

Lender Requirements 

Lenders commonly require a client deposit of 50% of the purchase price for leasehold businesses. This can be increased to up to 70% subject to meeting criteria. 

Some lenders may also request additional security for the loan amount, such as a second charge on the buyer's primary residence, a buy-to-let property, or other business property. 

The lender's decision on providing funding may consider the strength of the buyer's existing business and the financial performance of the business being acquired. 

Case Study 

• In this example, a client is interested in purchasing a supermarket franchise as a leasehold business for 20 years, with a purchase price of £210,000.

• The property associated with the business is leased separately at an annual rent of £20,000 for the same 20-year period. 

• The lender requires a deposit of £105,000 from the client, who funds the remaining balance as an unsecured term business loan over five years.

• This decision is likely influenced by the client's established business and the positive financial status of the supermarket franchise they are investing in.