It is always important to consider your lease well in advance of any plans to sell your pharmacy. With a lease in place that suits the needs of the purchaser you can expect to maximise the price that is achievable for your pharmacy.
There are several main points to consider in regards to your lease;
- The amount of tenure remaining?
- When is the current term coming to an end?
- When is the next market review?
- What is the current guarantee (will this be the same for a new tenant)?
- Do you (or your solicitor) have an original copy of the lease?
- What are the requirements of the landlord in relation to approving a new tenant?
All of the above have been causes for delays in settlements, and worse, the reason why a sale has been terminated when there are unfavourable impositions on a new owner.
The amount of tenure remaining is the most commonly recurring issue to do with a lease during a transaction. It is a rough rule of thumb that seven years remaining on your lease will provide a purchaser with enough tenure so that their lending institution does not hit them with a penalty of increased interest – this of course is a rough guide.
If you have a market review pending (even as far away as two years) it is very difficult for a purchaser to be able to make an offer as there is a great unknown to come and you will need assistance with this issue.
In a recent transaction, the landlord wanted to increase the bank guarantee from 1 months rent to 6 months rent. This was a significant amount of money and delayed the sale for many weeks while it was negotiated, the parties eventually agreeing to 3 months. It is always best to make the purchaser aware of what the landlord’s expectations are if known.
If your pharmacy has the potential to relocate you should give consideration to when the current term is coming to an end. If there is only a small amount of lease liability then the business will attract a much greater price.
There are many issues to consider and thinking about these well in advance of a potential sale increases the likelihood of a smooth transaction. If you have any queries about your current lease situation I would be only too pleased to assist.
Peter Marshall
Managing Director of Pharmacy Solutions Australia