Buying a hotel – key property points to consider

3rd October 2024

Steve Jackson, Partner

Buying a hotel can be a complex undertaking incorporating many different, diverse challenges.  It is important that, at an initial stage, the property element of the deal is given sufficient attention as it is likely to represent the bulk of the value of what is being purchased.  Below are four key points for early consideration, in conjunction with your legal representative:

Local Authority Listing

Many older hotels will be listed.  There are three classification of listing, being:

Grade I – buildings of exceptional interest;

Grade II* – particularly important buildings of more than special interest; and

Grade II – buildings of special interest warranting preservation

If the building is listed it requires Listed Building Consent if works are to be carried out to it that affect its special interest. These works may be either internal or external works and can be minor in nature, as well wholesale redevelopment/renovation.

Note that it is a criminal offence to carry out works to the building that require Listed Buildings Consent, without obtaining that consent.

The cost of works, be they repair, renovation or improvement to a listed building is likely to be materially higher than for a non-listed building as the special interest will need to be preserved.  It is therefore imperative to find out whether the building is listed at an early stage so that you can obtain a realistic estimate of the cost of those works before committing to purchase the hotel.

Restrictive covenants

Your legal adviser should carry out a check, as soon as title documents are made available, as to whether there are any restrictions contained in the title to the hotel which might prevent it from being used in the way planned.  Examples can be a prohibition on using the building as a licenced establishment, it can be as wide a stopping it from being used for any commercial purpose or even a specific prohibition against using it as a hotel.  Your solicitor will be able to find this information quickly from the title to the hotel and advise accordingly.

If there any such restrictions in place, the Seller can be asked to modify them, or, if appropriate, a legal indemnity insurance policy could be obtained to insure against the legal repercussions of breaching such a provision.

SDLT

The majority of the purchase price is likely to be for the hotel building.  A calculation of the exposure to SDLT on completion should be made early in the transaction.  It is important to ensure that there is a proper apportionment of the purchase price between all elements of the transaction (including, but not limited to goodwill, stock and trade fixtures and fittings) to ensure that no more SDLT is payable on completion of the transaction than is absolutely necessary.  This should be agreed, with professional input, when agreeing the memorandum of sale.

Licensing

Most hotels will sell alcohol.  There may be an existing premises licence in place which will need to be transferred to the buyer on completion of the transaction.  The transfer of the premises licence will need to be signed by the seller (if an individual) or a director of the selling company (if a company) and it should be established quickly whether they are willing and able to sign such a transfer.

The existing licence may not be fit for purpose, the extent of the licensable area or another fundamental provision of the licence may need to be altered.  This may require a substantive application which would not be guaranteed to succeed.  The successful conclusion of such application is likely to be fundamental to a buyer.  The sale contract should be made conditional on this type of application being successful.

Kuits offer a wide range of legal services with an expertise in the leisure sector.  We are experienced in providing the holistic advice required in dealing with this type of transaction.  Contact us for any advice you need in buying or selling your hotel business.

 

 

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