Buying a convenience store

Buying a convenience storeConvenience stores are lucrative businesses and although the market is dominated by the big boys like Co-Op, Tesco Express and Sainsburys Local, there are still plenty of independents operating under the Spar and Londis trade names.  So there are good opportunities for buying successful existing businesses in prime locations.

What should the buyer being looking for if buying a convenience store as a going concern for sale?

Buying a convenience store:

Property

This could be leasehold or freehold.  If leasehold, get a copy of the lease and check how long the term has got to run.  Are there rent reviews due?  Is there a possible dilapidations liability which needs to be flushed out before proceeding?   Is the lease contracted out of the security of tenure provisions of the Landlord and Tenant Act 1954 so that if you sink a load of money into the business, you can be kicked out at the end of the term without receiving any compensation for loss of goodwill. Will the Landlord want personal guarantees for the obligations in the lease or will he accept a rent deposit and if so how much?   3 months ? 6 months or sometimes even 12 months?  Is this reasonable?

If it is freehold, are you going to need a mortgage to purchase the freehold interest.  Is the freehold title mortgable or are there defects preventing this?  Are there restrictive covenants on the title which might limit future or current use like the sale of alcohol or sale of lottery tickets.

Stock

Is each party going to appoint his own valuer or will one value such as Venners act for both.   What happens if there is a dispute?  Who determines the dispute?  Is the stock valued at cost price or cost price less a discount.   Can the buyer refuse items beyond sell by date? What happens to damaged or soiled stock?   Should the Buyer pay a stock deposit and then square up when the actual figure is known shortly after completion?  How and when should the Buyer pay for the stock?  Is a cheque acceptable?

Employees

As a general rule all the contracts of all the employees transfer over to the new owner unless they resign (or opt out) under the Transfer of Undertaking (Protection of Employment) Regulations 2006.  Any dismissal connected with the transfer will be  regarded as automatically unfair.  So you want to see copies of all the employees’ statement and terms of employment including periods of continuous employment, dates of birth, details of bonuses and other perks etc.   There is an obligation on the Seller of a business to inform and consult with the employees before the transfer of assets.  Failure to do so can lead to a claim to the Employment Tribunal leading to compensation being payable to employees of up to 13 weeks pay.     The Buyer will want to have an indemnity in the Asset Purchase Agreement in respect of claims being brought by existing or previous employees against the business which relate to something the Seller has done prior to the sale of the business and vice versa from the Buyer. 

Litigation

As part of the initial process prior to contracts being signed, there will be a period of investigation and due diligence.   The Buyer will want to know there is no pending claims or possible litigation and this position can be covered by the Seller warranting the information with regards to this.

Transfer of contracts

There will be numerous contracts which the Buyer will want or need to have transferred over such as National Lottery, top up mobile cards and pre-pay gas and electricity accounts.  There may be vital newspaper supply contracts which need to be transferred over.  Some contracts provide that they can be freely assigned, some need the consent of the supplier and cannot be assigned but have to be made again or “novated”.   There can be deposits to pay so the Buyer should establish what contracts he wants and find out transfer terms from the suppliers before committing himself to the purchase.

Sale of alcohol

This can be a vital part of the business so get hold of a copy of the premises licence and see if there are any conditions or restrictions on the licence.  Who is the designated premises supervisor?  Is he a director of the Seller and not someone who is being transferred over with the business?  Do you need to get the co-operation of the Seller to the transfer of the premises licence?   Could the licensing authorities at the local authority or the police or local residents object to the transfer of the licence to the Buyer.   Has the Buyer been on the course and got the National Certificate for Personal Licence Holders?  Without this, you won’t get the licence transferred to you.

Conditional contracts

Should the purchase be made conditional on any matters eg. If there is a post office within the store, consent from Post Office Counters Ltd to the transfer of the authorisation and the appointment of a new sub-postmaster.   Or if there is a licence which is vital should the contract be conditional on obtaining that licence?  Should it be conditional on planning permission or building regulation approval where the new owner wants to carry out works or change the use?

This is only the briefest of whistle stop tours on the issues which might need to be considered when buying a convenience store.  You should consult a solicitor with experience in buying or selling convenience stores to make sure you are properly advised.   Dominic Beeton of Beeton Edwards is a property solicitor with over 22 years experience of purchasing retail businesses and used to act as the main property lawyer for Alldays Stores (now part of the Co Op) advising them on hundreds of purchases and disposals of convenience store businesses.

Leave a Reply

Dominic Beeton, Solicitor
Get Discount
Keywords
  • An error has occurred; the feed is probably down. Try again later.