Part 3 – Choosing a Leasehold or Freehold Businesses
Leasehold and Freehold Businesses
By far the most popular choice for most clients when considering the purchase of a business is the lease option. Leaseholds are easy to buy and easy to sell on in the future if required. The term of the lease does vary as in the U.K., usually the lease agreements are minimum 5 years and in a lot of cases with an option for a further 5 years known as a 5 plus 5. In all cases when considering the lease purchase of any business it is highly advisable and in fact we would say imperative to seek legal advice to discuss and ensure the terms and conditions of the new lease contract from the landlord are fair and favourable. In the new lease contract a monthly rent will be agreed, once this is agreed it can only be increased once a year by inflation as set out in the Spanish law for the length of the lease. When the lease expires, this does not mean that you have to pay for another lease, it is merely a paper exercise with the landlord for him to issue you with a new one and this would then enable the landlord to increase the rent by up to a maximum of 20%, however your legal advisor will negotiate this with him on your behalf. The monthly rent agreed with the landlord is paid monthly in advance, on the day of signing the contract the buyer will also have to pay 2 months rent deposit. Please note that the monthly rent will be plus i.v.a. which is 21% minus 19% retention, your legal advisor will explain this in detail if you don’t understand this process.
The freehold purchase of a business is not as popular as the leasehold purchase, mainly because of price and availability, however the benefits of being the owner of a freehold business is that there is no monthly rent to pay, and as a freeholder owner, you could also lease the business receiving an agreed payment for the lease and a monthly rent.
License & Legal Paperwork
When you have hopefully found the business that you have been searching for the next major important decision you have to make is finding legal representation to ensure a safe purchase that would also include having the due diligence and licence checks done on the business. Our company work with an independent group of lawyers and financial advisors who we are happy to introduce you to for an informal chat and to listen to the package and services they offer. with this important part of the jigsaw in place you can now concentrate on your new business with the piece of mind that everything is done legally and correctly, the following is required and part of your lawyers services:
N.I.E. NUMBER
FISCAL LICENSE
OPENING LICENSE
REGISTRAION FOR I.V.A.(V.A.T.)
APPLICATION FOR SOCIAL SECURITY
RESIDENCE PERMIT – ENPADRONAMIENTO
FOOD AND HANDLERS CERTIFICATE
SECURITY CERTIFICATE
LIAISON WITH TOWNHALL (COUNCIL)
SANITARY INSPECTION
TECHNICAL INSPECTION
LAWYERS FEES AND SERVICES
Your lawyers job is broken down into two parts. The administrative side of things which is the setting up of bank accounts, the filing for the NIE numbers and residents cards, the checking and preparing of new lease contracts & the presentation of these documents in the corresponding offices and Town hall’s. The second part is made up of the work involved in the technical side of opening license, projects, plans and corresponding inspections.
This process would usually follow for the transfer process to confirm all the details that have been given to the estate agents from the owners/sellers, and request a draft of the proposed rental agreement. At the same time the lawyer will send an engineer to have a look at the property and then he will check at the town hall that there will not be any issues in changing the opening license into your name. These are the first steps that the lawyers will undertake in the due diligence process.
Once the initial checks have been carried out as mentioned above then any deposits paid would be released to the seller under a deposit agreement setting out the terms for the completion. These will include the price, the deposits paid to date, the duration of the contract and the completion date period.
The legal services have a member of staff who will handle the after sales matters with you either in their office or at your place of business. They will be able to spend some time making phone calls, changing the names on the utility bills, setting up phone and internet for you etc. They will be on hand at the start or as much as you need them for the first few days.
The legal department work directly with a firm of accountants and would normally recommend their services to set up your social security and tax etc. He would recommend a meeting with them as soon as you can to run through the social security and tax obligations.
The standard fee that the legal department charge is 1.500€ plus IVA ( 1.815,00€) for the transfer.
This includes the transfer process, all administrative documentation, bank accounts, and the after sales service.
The engineer would usually charge 450,00€ Inc. IVA for his work including all applications needed by the town hall.
Most town halls charge a fee to change the name of the municipal opening license which is usually in the region of 400,00€ inc IVA
The accountant would charge 200,00€ to set up your tax and social security obligations.
The transfer process should therefore be in the region currently of 2.800-2.900€ including all the above.
If you wish to send a reservation deposit to your lawyers clients account you can arrange this with him directly to receive it. With a deposit received your lawyer will then be able to notify the seller that he has received the deposit on your behalf and request the information from them that he will need to commence his work. The lawyers will also request from all their clients that they pay a retainer to enable him to begin the due diligence process, the deposit of One Thousand Euros (1.000€), with the outstanding balance payable at the completion of the purchase.
In the event that for any reason the sale cannot complete on the business, the retainer paid will remain on account for a period of six months and can be used for the purchase of an alternative business.
Although it does take time for all this paperwork to be completed, you can open the business in Spain while waiting for the final papers as long as you have certain documents in place. All license applications are made by your solicitor and the charges for this are set out as above.
STOCK
All bars and catering businesses in Spain are FREE HOUSES. So you choose what breweries and suppliers you want to deal with. Beer coolers and fonts are supplied by the breweries. You do not need to keep large amounts of stock as most wholesalers deliver daily, however you should allow yourself approximately 1.500 Euro for your first initial opening stock.
Overheads
Compared to the U.K. overheads in Spain are much lower with profits running as high as 65% on drinks and usually higher on food, this is why our clients usually go into the pub/catering business in Spain. Most of our clients have never worked in this industry before, but it is much easier and less stressful than being a publican back in the U.K.
Summary
To most people being the owner of a bar or business in Spain is a dream scenario and it can be achieved relatively easy ! But like being the owner of any business it’s hard work but fun work and done properly can still be very profitable. If you are considering the purchase of any business here in Spain then we can help you turn that dream into reality. Why not contact one of the team on the numbers below to discuss your requirements in more depth and arrange for you to view some bars on the Costa del Sol that may be of interest to you.
Our office showroom is located at Calle Jacinto Benavente local 1, Edificio Residencia 2 Fuengirola Malaga 29640. Only a short one minute walk from the main Fuengirola bus station and a three minute walk from the train station, our office telephone number is 0034 952464615 or mobile 0034 664893320. We are available to discuss your requirements or simply answer any questions you may have about buying a business in Spain from 10am until 4pm Monday to Friday, we are also available out of normal office hours for pre arranged appointments, we look forward to your visit and meeting with you soon.