A purchaser of a company sometimes perceives an acquisition of a company that leases premises as less worthy of full property due diligence than an acquisition of a company that owns its own land and buildings. This is often because of the short-term interest the company has in the property. Quite frequently a buyer intends to vacate on expiry of a lease but it can not expect to walk away without difficulties arising.
One issue in particular can be compliance with the repairing covenants in a lease. Often premises will be let on ‘full repair and insuring’ terms meaning that the tenant is responsible for putting and keeping premises in good condition irrespective of their condition at the start of the lease.
Even if a repairing covenant is limited, perhaps by reference to a schedule of condition, it is important that a prospective purchaser carries out a survey. The survey will determine the extent to which the seller has allowed the property to deteriorate during it’s the term of its lease and check if anything was missed from any schedule of condition which might lead to liability to the landlord.
Most leases contain a right for a landlord to enter premises to inspect and give notice of any wants of repair during the term of the lease. A landlord also usually has the right to appoint a surveyor to prepare a schedule of dilapidations (and charge the tenant for the surveyor’s costs) during and following expiry of the lease which will list all items of disrepair and the cost required to remedy it.
Purchasing a company with a liability to make good wants of repair in a property can be an expensive mistake so it is essential that the repairing covenants in a lease are reviewed, a survey carried out and any liabilities identified addressed though repairs to be carried out by the seller before completion, or through a reduction in the price.
As it will take time to have a survey done, report received and results considered, it is essential that this work is done right at the start of the share purchase process to avoid the issue causing a delay or being incapable of being properly addressed in the purchase.
When looking to purchase a company, it is vital you seek specialist legal advice at the earliest opportunity to identify any legal issues that need addressing. Farleys’ Commercial Property and Corporate teams have extensive experience assisting with the buying and selling of businesses and property. Get in touch with the team today on 0845 287 0939 or contact us by email.