QHA_Sep-2020_Online

LEGAL MATTERS
with Curt Schatz
TIPS FOR ENTRANTS TO THE PUB & HOTEL MARKET
There is no doubt that the first eight months of 2020 have been nothing like what we all expected when writing our
New Year’s resolutions back in January. Despite the challenges and obstacles of the last few months, it has been
fantastic to see the beers flowing and venues bustling again as the Queensland hospitality industry welcomes a
(partial) return to normality. As a result of the staged relaxation of COVID-19 restrictions in Queensland, we have seen
a gradual increase in interest in the hospitality transactional space. Hopefully we will see this continue to rise in the
months ahead, and with this in mind, I thought it timely to run through some tips for new entrants to the pub and
hotel market, or those well-versed veterans looking to revisit the basics.
QHA REVIEW | 26
What assets do you want to
buy?
While it may seem a simple
question, it’s one that requires
careful consideration. For
example, combined freehold
and business transactions will
bring higher purchase prices,
but provide additional exit and
restructuring opportunities in
the future (such as a sale of the
freehold title, but retention of
the leasehold, or vice versa).
Alternatively, leasehold purchases
will be cheaper, but require careful
consideration in relation to leasing
matters and options to renew.
Both prospective buyers and
sellers should consider what
assets will form part of the
transaction, as it is often the
case that some aspects of the
business (such as branding,
vehicles or specific products or
licences) are excluded from the
sale.
Who owns what?
This is a common issue when
dealing with long-established
businesses as it is often the
case that certain assets have
been purchased over time, or
are used in the business but are
owned by or registered in the
name of someone else. These
inconsistencies ought to be
investigated prior to listing your
asset for sale, or at the very least
(for purchasers) addressed in the
sale agreement so that the buyer
can be assured that they are able
to take ownership of all necessary
assets to run the venue after
settlement. Importantly, these
matters will often have a bearing
on the tax treatment of the
transaction, particularly in relation
to GST.
Financial information and
equipment leases
As a starting point for both buyers
and sellers, financiers should be
given as much notice as possible
of any potential transaction. As
with any transaction, prospective
buyers should be fully aware of
their financial capacity and the
terms required by their financier in
any potential transaction (such as
director’s guarantees). For sellers,
company directors should confirm
whether any personal guarantees
have been provided as part of
the financial arrangements and
ensure that they are released
upon the sale of the venue.
Information regarding the
financial position of the business
is a key preliminary detail in the
transaction process. As outlined
in my column in the August
edition of the QHA Review,
qha.org.au/curts-tips, we have
seen some contracts negotiated
in the midst of COVID-19 include
conditions precedent, to the
effect that settlement of the
transaction will not be triggered
until the venue sees a return to
‘normalised’ turnover figures
(ordinarily two consecutive
months reflective of the numbers
achieved 12 months prior).
Careful structuring consideration
needs to be given by both
parties as to the ‘triggers’ for the
settlement of the transaction.
Business names
It is important to ensure that the
name of the venue has been
registered with ASIC and is
current. The name of the hotel
and any bottle shops can make
up a large component of the
goodwill associated with the
business so for sellers and buyers
alike, it is vital to ensure that these
matters are in order.
Leases
Quite often the terms of a hotel
lease (for leasehold premises) are
neglected, particularly when the
landlord and tenant are related
parties. Prospective sellers should
look to rectify any internal leasing
matters prior to going to market.
Consideration should also be
given to the terms and status of
any detached bottle shop lease.