Our top 5 tips when selling your hotel business

By Helen Mather, Partner.

There will be many practical matters to be dealt with when getting ready to sell your hotel. You will be making sure the hotel looks its best and dealing with any repairs that could be major issues for a potential buyer and no doubt you will be making sure the online presence is as good as it can be.

Financial matters such as discussing the structure of the sale with your accountant from a tax point of view, getting a valuation and ensuring that you have the accounting information required to provide to potential buyers so a price can be agreed will also likely be at the forefront of your mind.

There are however various matters to deal with from a legal point of view to ensure that your sale process is smooth.

Our top 5 things to address from a legal point of view ahead of a sale of your hotel business are:-

1. Plan ahead: Whether you are selling via a share sale or a business and assets sale, it is never too early to start considering and planning for a sale. Getting your house (or hotel!) in order now ahead of pursuing any sale, allows you to sort out potential issues before they can become show stoppers. In any event now is an ideal time to review compliance and governance in light of the changes being brought in by the Economic Crime and Corporate Transparency Act 2023. Planning early and addressing any potential buyer concerns, often means that when you come to sell your business or company it will be a more attractive prospect to a potential buyer and that the sales process will be easier and less stressful.

2. Get ready for due diligence: Due diligence is the process by which potential buyers scrutinise a business to establish whether an acquisition is really worth pursuing and to ensure the price is right. Often a somewhat agonising process which can leave sellers frazzled and, if the sale ends up not proceeding, unexpectedly out of pocket. Working with your lawyers to review the key areas in advance of the buyer’s due diligence process starting can help significantly. How long has it been since you:

1. reviewed your corporate governance, and statutory books? When you sell shares in a company, a buyer will need to establish that you have good title to those shares, and there are no surprises lurking in the share history of the company. Are the company’s filings up to date? Do you have the company’s statutory books and registers? Have they been kept up to date? Does the share capital recorded at Companies House match the share capital detailed in the company’s statutory registers? Has there been any allotments, reductions, or buybacks? If so, have these all been dealt with in accordance with relevant legal procedure? Understandably hotel operators are focussed on operating the business day to day and these matters that are crucial in a sale process can easily be overlooked.
2. reviewed your systems and processes? Efficient and up to date systems can have a positive impact on your business and the ease with which you can sell it. You should consider things like, are you complying with GDPR requirements when it comes to your customer databases and employee data?
3. reviewed your contracts? Hotel businesses often operate utilising “standard contracts” but the key terms of these contracts will still be considered by any buyer. It is worth checking your contracts, including employment contracts, supplier terms and conditions (including with online booking sites) and any hotel operator agreements, for any anomalies or uncertainties which could be perceived as potential problems from a buyer’s perspective. Do they have change of control provisions which could lead to them being terminated on a share sale? Can they be assigned to the buyer on a business sale? Do your key employees have appropriate restrictive covenants/confidentiality obligation in their employment terms?
4. reviewed your assets, including intellectual property? A buyer will want to know that all of the assets (including equipment, vehicles and the hotel premises) are owned or validly occupied/used by the business or company being bought and will continue to be after a share purchase or can be transferred to the buyer on a business purchase. Where as is often the case, the hotel business uses trademarks, websites and domain names, a buyer will be keen to establish the intellectual property is registered in the name of the company or business being sold, or has been formally licenced to it. Have any third party consultants (including website designers) assigned ownership rights to the Company?

3. Licences: You will need to make sure that the premises licence is dealt with appropriately in the sale process. You may need to provide a written consent to the transfer to the buyer. You will also need to consider whether the designated premises supervisor needs to change at completion. If its you and you aren’t staying on then the buyer will need to name someone else in that role. You will want to ensure this is done at the time of completion or very soon afterwards.  The legal agreements entered into for the sale should include appropriate provisions dealing with these matters so you are protected. Marriage Act licences will also need to be considered and each local authority has its own grant, renewal and transfer procedure. You will need experienced legal advisers to assist you with this process.

4. Price adjustments: In conjunction with your accountants you will need to consider and agree with the buyer whether there will be adjustments to the purchase price to ensure that you receive a fair price and, if intended, the value and economic benefit in the business up to the point of completion. This can often be achieved through completion accounts in a share sale and/or adjustments to the price in a business sale for things like stock value and deposits or pre-payments paid for advance bookings and monies paid by the sellers in advance for utilities and other services to be provided following completion. Typically completion accounts in hotel transactions are based on the company’s net asset value at completion with an adjustment being made to the purchase price to the extent that the net asset value at completion as shown in the completion accounts is more or less than an agreed figure. Once the adjustment principles are agreed they will need to be reflected in the sale and purchase agreement and it is therefore recommended to agree them as early on in the process as possible.

5. Think about your future: Whatever your plans following the sale (for example, do you plan to retire following the sale or perhaps to stay on for a time?), you need to ensure this aligns with what the buyer has planned and that the legal documents you enter into as part the sale reflect this for example, you will need to ensure that you understand any restrictive covenants you are being asked to sign up as part of the sale (e.g. requirements that you will not compete or poach staff for a time after completion) and that any new service agreement or consultancy agreement entered into at completion reflect the terms on which you have agreed to stay on. If you wish to retire, then it will be important that you ensure that the business can operate without you ahead of the sale so that your lack of involvement following completion doesn’t put a buyer off.

We have specialist corporate, commercial, property, employment and licensing solicitors that are experienced in advising sellers on the sale of their hotel businesses and we can guide you through the legal aspects of the process of a hotel company or business sale. Please contact us on 0161 832 3434.