what excatly is a leasehold
how does a leasehold on a business work, I know you pay a lump sum up front and a weekly/monthly rent, but do you get the up front money back on sale of or end of lease
edukes Tue 27/05/08 20:25
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If you set up a new lease with a landowner, you agree a lease amount per period (monthly, annually whatever), for a period of time. Within that time there is usually a clause to allow review/reassessment of the lease amount every few years. Under those circumstances there would not normally be an upfront sum, although some large lease values are subject to Stamp Duty Land Tax payment to HMRC by the purchaser.
If you buy the remainder of an existing lease from a leaseholder, you agree to purchase the remaining lease for a negotiated sum (the upfront sum you refer to). You may also have to pay SDLT again to HMRC, and you agree to pay the owner acording to terms of the original lease.
If you sell that lease on before the end of its term, you may be able to get some 'upfront' money back again, but there is no guarantee - it is not like a deposit, if that's what you mean. At the end of a lease, any money paid upfront has no worth.
This isn't my area of expertise, but in the absence of any other answer, I trust that helps.
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Question Author
what I mean is that if I paid £90,000 for a 10 year lease on a business, say a restaurant or coffee shop and £500 a week rent, do I get any of my £90,000 back, especially if I spend money refurbishing the property, and renewing worn-out & broken items.
I know it depends on what is in a contract, but I mean generally
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There are different sorts of leases but most require the leaseholder to maintain the asset / property being leased.
As I said towards the end of my first post, at the end of the lease any cost you paid for it upfront is worth nothing. Nobody is owned any money.
However you can renew the lease (and on a business lease the landlord cannot deny you this), and at some time later when you no longer wish to run the business, you sell the lease on to someone else. But you cannot assume it would be worth £90k or any other sum - it depends what you have done with the business to develop it.
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As Buildersmate has stated, when you pay an amount of money for a lease, you are not paying for the remaining term of the lease itself as such, but more for the value of the business that you are buying. The premim that you pay for the business could also be buying the some or all of the equipment within the shop as well as the goodwill of the business. I would certainly think long and hard about agreeing to pay a 90K premium on a business that I would have to spend a lot to refurbish or buy equipment for, unless the shop was in a prime area and likely to have a high footfall. As Buildersmate states, the premium that you pay is to the outgoing tenants not the landlord and you will not be entitled to any of this back at the end of the lease. If you look to sell the business before the end of the lease, you may be able to set your own premium for the worth of your business. Hope this has helped, like Buildersmate I have not got any particular expertise in this field, but I do lease shop units for my own businesses.
Cheers Sue
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Question Author
Thanks guys, all is clear now.
thanks for taking to time to answer.
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