Here are some legal pointers to help you succeed with your new business.
If you are buying an existing restaurant, cafe or pub, you should make sure that you structure the deal to your best advantage, and check out the assets you want to buy carefully. Failure to do so could result in your losing future business or paying out large sums of money unnecessarily.
1. Cherry picking your assets.
If you buy only the assets of the business that you need in order to carry on running the business, you can avoid taking over responsibility for liabilities of the previous owner. Buying shares in the trading company would mean that you are taking over responsibility for any past debts or liabilities of the company, as well as possible future liabilities including future taxation resulting from past trading activities.
The assets of the business will typically include the lease of the premises, goodwill, intellectual property rights, fixtures and fittings, equipment and stock.
The legal due diligence process would include checking that you will acquire good title to the assets of the business. Checks should also be carried out on key contracts with suppliers and customers, employment contracts, property title deeds and leases, and intellectual property rights.
It is usually a good idea to get the landlord of the premises involved at an early stage since a licence to assign the lease and rent deposit deed will frequently be required. A meeting can be helpful to demonstrate to the landlord the background and skills of the purchaser, which are likely to contribute to the successful running of the business in the future.
Look carefully at how to apportion the purchase price between the various assets of the business being acquired as a going concern. Tax advice should be taken at an early stage since by making suitable apportionments of the price, you should be able to make future tax savings, for example by claiming allowances.
2. Non-compete clauses
You are paying good money for the goodwill of an existing business. It is important that you impose restrictive covenants to prevent the seller from setting up a competing restaurant, cafe or pub within a close proximity to your premises, or filching your customers or staff, or using the name or brand of the restaurant for his new business.
No restrictive covenants are implied, so you will need to include express clauses in the purchase contract. Restrictive covenants will be enforced, but only to the extent that they are not an unreasonable restriction to trade, so care must be taken in drafting these covenants. The reasonableness of a restriction will be tested against the geographical area to which it applies. This is based on the geographical distribution of the business’s customers at the time of purchase, not what it is expected to be in the future. The period the restriction is to apply and the nature of the restricted activities are also taken into account when considering whether a restriction is reasonable or not.
3. Legal requirements for the premises.
You will most probably be taking over the tenant's responsibility for a full repairing and insuring lease. It is usually advisable to get a building survey carried out in order to ascertain the state and condition of the premises, and if substantial repairs may be needed, consider re-negotiating the price.
In particular, check whether an asbestos report has been carried out.
Under The Control of Asbestos Regulations 2006, there is a statutory obligation on those who own or occupy or have a repairing obligation for commercial premises to ensure that those premises have been properly surveyed for the presence of asbestos. A survey report should include a management plan for the premises. This is to ensure that employees and other persons using the premises are safeguarded from the risk of contamination and associated health risks from asbestos or asbestos containing materials.
Owners, employers and tenants of commercial premises have a general health and safety obligation to ensure that their premises are safe. With regard to fire safety, in particular, fire safety issues are now governed by the Regulatory Reform (Fire Safety) Order 2005. This Order places the emphasis upon employers, owners and occupiers to undertake appropriate risk assessment and to put in place appropriate precautions to prevent the fire occurring in the first place and if it does occur, to ensure that it is dealt with as safely as possible and that risk is minimised for occupiers of the property. Specific guidance is issued for different types of premises such as offices, shops, warehousing etc. It is important to ensure that an appropriate assessment and written record has been made of the fire risk relating to the premises and of the procedures put in place to deal with any such risk. A purchaser should ask to be supplied with a copy of the report in order to check whether appropriate precautions have been put in place.
It is important, in order to demonstrate compliance with the law, for a property owner to be able to produce a survey report prepared to comply with the provisions of the Regulations, and to be able to show details of any works undertaken in accordance with the recommendations of such report.
There are various rules about premises used as a restaurant, cafe or pub, which
apply to the whole premises, not just the areas used for preparing food. These include:- design and construction- the premises must be designed and built in a way that allows you to keep the place clean and to work hygienically; hand washing facilities and toilets; changing facilities for staff to change their clothes where necessary; waste including food waste and other types of rubbish to be stored and removed; water supply to include adequate supply of drinking water at your premises and other requirements including adequate ventilation, lighting and drainage.
4. Licenses required
You must register every premises where you carry out food operations, including your home, and mobile or temporary premises such as stalls and vans.
If you make, prepare or handle food that comes from animals, for example, meat or dairy products, other than for direct sale to the consumer, your premises may need to be approved by the council before you can undertake the activity.
You should register your premises with the environmental health service at your local authority at least 28 days before opening – registration is free.
If you wish to sell alcohol, you will need an alcohol licence. You cannot sell alcohol before obtaining a valid licence. Similarly, if you intend to let people bring alcohol onto the premises (BYO), you will need a licence. In addition to a premises licence, staff working in your restaurant may need to obtain a personal licence.
During the summer months, many owners of restaurants, cafes and pubs will be looking to increase seating by using outdoor tables and chairs. However, you cannot just put out tables and chairs on the pavement next to your premises. Usually, planning permission will be required, as well as highways consent, often known as a pavement cafe licence, tables and chairs licence or alfresco dining licence. Bear in mind that you may also require consent from your landlord under the terms of your lease. Both the Council and your landlord may try to extract a fee for granting you a licence, so enquiries about this should be made before you go ahead and purchase the business.
5. Joint venture or shareholders' agreement
Whatever legal entity you trade through, most frequently a private limited company, it is important to set out in detail in a written legal agreement your relationship with your business partners. Important matters to be covered in an agreement would include how much investment is needed by way of capital contribution from each shareholder/investor, how much work or what contribution each person must contribute to the business, how profits are to be divided and dividends paid, what happens if a shareholder wishes to leave the business in future, what rights do minority shareholders have, who is to be appointed as a director of the Board, and various other matters. Consideration should be given to writing service contracts for directors and contracts of employment for employees. Investors in the business may require legal protection by way of investment agreements or loan agreements being put in place, as well as additional security documents being drawn up.
We offer in most cases a fixed fee for advising clients on buying or selling a business, and other business advice.