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Selling a UK business can be a complex and daunting process, and it becomes even more complicated when dealing with leased equipment. In the UK, companies that lease equipment as part of their operations must consider several factors before selling their business. In this article, we will consider the best way to sell a UK business that leases equipment.
1. Understand Your Lease Agreement
The first step in selling a business with leased equipment is to understand your lease agreement. This document contains the legal terms covering the equipment lease between your company and a third party.
Before any sale, you must carefully review your lease agreements and understand their terms and conditions. In addition, you should pay close attention to the clauses that relate to the following:
- the sale of leasing equipment;
- termination of the lease; and
- any fees or penalties applicable in the case of early termination.
It is also essential to check if the lease agreements are transferable, which may affect your ability to sell your business.
2. Notify Your Lessors
A lessor is a third party who leases equipment to your company. After reviewing your lease agreements, you must notify your lessors that you intend to sell the business.
The lessor may ask you to provide them with specific information about the buyer, such as their creditworthiness and future intentions, to assure them that the prospective buyer will make future operating lease payments.
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3. Negotiate With the Buyer
When selling a business with leased equipment, you must negotiate with the buyer to determine how they will handle the equipment.
There are usually two main options when it comes to handling leased equipment within a business sale, which includes:
- transfer the lease rental agreement; or
- terminate the lease rental agreement.
Let us explore each in turn below.
Transfer the Lease
The first option is to transfer the lease to the buyer. This means the buyer will take over the relevant lease agreement and be responsible for making the lease payments going forward. This is a good option where the business equipment is vital for continuing operations and cash flow.
To transfer the lease, you must obtain the lessor’s consent and provide the buyer with a copy of the lease agreement. In addition, the buyer must agree to assume all the terms and conditions of the lease agreement, including any obligations related to maintenance, insurance and equipment return at the end of the lease.
Furthermore, some potential buyers may want to negotiate lower monthly payments or an amended lease period before agreeing to a lease transfer.
Terminate the Lease
The second option is to terminate the lease term under the equipment lease agreement and return the leased equipment to the lessor. However, this is usually less attractive to buyers as it requires them to purchase new equipment or find alternative equipment to lease.
Nevertheless, if you decide to terminate the lease, you must notify the lessor and follow the termination procedures outlined in the lease agreement. You may also need to pay early termination fees or penalties as specified in the lease agreement.
LegalVision’s Buying a Business: Guide to Negotiating Terms allows you to protect yourself by understanding which key terms to negotiate when buying a business.
4. Draft the Sale Agreement
Once you reach an agreement over the leased equipment, you will need to draft a sale agreement outlining the terms and conditions of the sale.
You should also include a provision that specifies whether the leased equipment will be transferred to the buyer or returned to the lessor.
5. Seek Legal and Financial Advice
Selling a business with leased equipment can be a complex process. Therefore, seeking legal and financial advice is vital to comply with the relevant regulations and requirements.
It may be wise to engage an expert lawyer to help you with the sale agreement and your compliance with the buyer’s due diligence requests. An expert lawyer can also advise you on the best way of structuring a sale and ensuring the best possible price for your company.
Key Takeaways
Selling a UK business with leased equipment can be challenging, but with careful planning and preparation, it is possible to achieve a successful sale. Understanding your lease agreements and notifying your lessors of your intention to sell is essential. You must also negotiate with the buyer to clarify whether they intend to transfer or terminate commercial leases. Once you have agreed to the terms, you must draft a suitable sale agreement covering your lease’s future conduct. Naturally, many business owners instruct expert lawyers to assist them with this final step.
If you need assistance selling a UK business with leased equipment, our experienced business sale lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Many small business owners utilise equipment leasing to safeguard their balance sheet due to the high purchase price of the relevant machinery.
Many prospective business purchasers may want written assurances as to the leased equipment being in good condition (to safeguard against any penalties for damage).
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