Leases
Demolition and Relocation Clause Can Kill Business Value
The tenure provided to a leasehold business is a critical factor in the value and saleability of a leasehold business. Many look no further into lease clauses for limitations on the lease tenure. Two critical clauses are relocation and demolition provisions contained in some leases.
Example of a demolition clause: “If the Lessor wants to demolish the building or part of it, and the result requires vacant possession of the premises, the Lessor may terminate this lease by giving the lessee at least six months notice of termination”. The tenant business’ tenure is effectively 6 months.
Example of a relocation clause: “The lessor must give the Lessee at least 3 months notice of relocation” Further if the relocation “cannot be carried out practically without vacant possession of the premises” …”the Lessee must vacate the premises” The tenant’s business’ tenure is effectively 3 months.
The risks to the future profit levels, hence business value and salability, is obvious.
Granted, there are Retail Shop Leases Acts in most States that deal with these clauses and compensation provisions in such leses. But, the ‘power of the parties’ should always be considered in such matters in my view.
Business owners should be well aware of the implications on the value and saleability of their businesses before enter into such lease arrangements.
Need more information, talk to me.
Graham Long
Kevin Lovewell
M: 0401 308 385
E: Click here to contact Kevin Lovewell
Member & Registered Business Valuer
Australian Institute of Business Brokers
Graham Long
M: 0428 649 791
E: Click here to contact Graham Long
Member & Registered Business Valuer
Australian Institute of Business Brokers
