Leases
Tenure Impacts Value and Saleability
The value of a business is driven by its future profits. The tenure of a lease defines the period that future profits can be produced. There is an absolute date when the profit of the business will end. An option in a lease does not ‘add’ to the period profits can be produced. An option is a right to request a new period (or tenure) and is usually conditional upon the tenant meeting prescribed criteria.
The value and saleability of a leasehold business reduces as it approaches the end of its current lease.
Once a business move inside the last 2 years of a lease tenure, the prospects for its sale become largely dependent on the lease being assigned with sufficient options in place, or a new lease being made available to the business buyer. If there is no prospect of adequate options being available, or a new lease being made available, the value and saleability of a leasehold business become severely limited.
There is a view by some small business owners operating leasehold businesses that there are no risks to the value and saleability of their businesses in their lease. Nothing can be further from the truth. The lease is the most important ‘asset’ a small business has. It is its right to be in the premises. Its clauses govern the terms and conditions under which it occupies those premises.
Small business owners would be well advised to be very familiar with their lease, particularly in respect to its tenure provisions and their implications on business value and salability.
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
