How To Sell A Business If You Own The Commercial Property

It is often quipped that the biggest earner in any business is the landlord. Accordingly, many business owners strive to own the premises they conduct business from. If you manage this, you are set. However, inheriting a lease from the previous business owner can be just as beneficial. It certainly makes it much easier than buying a business only to have to secure a new premises. Conversely, if you are selling the business and own the land, there are a number of different options for you. These options will vary depending on certain factors. It may seem simple, but unfortunately, nothing involving proprietary interests is ever that simple. Knowing the way to sell a business if you own the property will give you the commercial upper hand. This article provides some important considerations to think about when making your business sale transaction.

Who owns the business?

A person can register a business name, but companies also can. Companies, as legal entities can do much of the same thing as legal persons. If a business is owned by you personally as a sole trader, the protocol for its sale will vary to that of a company. It is very important you establish whether you own the business and its assets, or if your company does.

Who owns the property?

This might seem like a strange question to ask, but determining what entity owns the property is important. If you, as a sole trading individual legal person own the property, then it is separate and distinct and separate from the business. However, if the business operates under a company trading as that business name, it can be different. A company, as being its own legal entity, much like a person, can own property too. It may vary from case to case. However, if the business operating under a company uses the premises owned by that company, the question then becomes whether the two are attached.

Is the property a business asset?

It is then important to ask whether the value of the business you are selling relies on the property it is registered to as being integral to that business. For example, it might be a warehouse which is perfectly fitted with the fixtures used for the production required in your manufacturing business. In this case, the argument would be that yes it is an important and valuable asset of the business. Even things like good will can coincide with where a property is given that clients are familiar with its location. Understanding the relationship the business has to the property will determine how best to approach the situation.

Options

Once you have established who exactly owns the property, and whether it is a valuable business asset, you then need to assess options. These can vary depending on your situation, and there is really no right or wrong answer. However, the legal requirements change in accordance with your choices.

Option 1

If you personally own the property and the property is not a valuable asset of the business. In this case, you could choose to either lease or sell the property as separate transactions to the business.

Option 2

If you personally own the property and the property is a valuable asset of the business. In this case, you could include the assignment of a lease that the new business owner would inherit as part of the business assets. The lease agreement would continue with you personally as the landlord.

Option 3

If a company owns the property and the property is not a valuable asset of the business. Let us assume that you are the majority shareholder in the company. You have control over company decisions, but are still nonetheless separate entities. In this case, the company could choose to either lease or sell the property as separate transactions to the sale of the business.

Option 4

If a company owns the property and the property is a valuable asset of the business. In this case, you could include the assignment of a lease that the new business owner would inherit as part of the business assets. The lease agreement would continue with the company as the landlord.

Tax implications

Selling a property as a commercial premises can impact your tax situation. Therefore, it is sensible to familiarise yourself with tax guidelines to work out how best to abide by any legal constraints. It is also in your interest to make decisions that are most likely to benefit you financially.

Whilst it might seem straight forward, the outcome can vary significantly depending on the foregoing factors. In any event, with commercial transactions involving large amounts of money, it always best to speak to a property lawyer for advice.

Don’t know where to start? Contact us on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest lawyer marketplace.

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