Preparing to sell a pharmacy business

By Jessi Tamber, Associate, Charles Russell Speechlys

For any pharmacy owner considering selling their business, the terms of the building the business is housed in must not be overlooked. Leasehold or freehold? Here’s what you need to consider

If you’re looking to sell a pharmacy business, it’s important to consider the property aspects from the outset to avoid delays over the course of the transaction. These include, but are not limited to, the following:

• Registration of the property
• Considering the issues with freehold versus leasehold properties
• Ownership of the property
• Obtaining landlord consent
• Documents and legal requirements.

Is the property registered at the land registry?

When property is unregistered, there is a compulsory obligation to register the land following a transaction. This doesn’t mean there is an issue with the property or ownership; essentially it means that a transaction hasn’t triggered the requirement for registration. This is rare, but will usually occur when the property has been owned by the same person or entity for a prolonged period of time.

If selling a property as part of a corporate transaction, it is highly likely that any prudent buyer will want it to be registered as a prerequisite to entering the transaction to ensure they are receiving good title. The registration will need to be dealt with as soon as possible, otherwise it is likely to cause potential delays. Please be sure to contact a solicitor as soon as possible to arrange registration prior to any potential sale.

Which type of property?

Initially, you’ll need to consider whether the property is freehold or leasehold. With freehold properties, you will need to think about whether to grant a lease of the building to the purchasing entity, allowing you to retain ownership of the freehold entity. Alternatively, you could sell the freehold as part of the sale of the company, which may attract a greater premium.

For leasehold properties, the lease, variations and ancillary documentation, including any landlord’s consents (e.g. to alterations, assignments, underlettings, etc) will need to be collated. Should you have failed to obtain any consents (e.g. for works undertaken to the property), this will need to be done retrospectively. Further, you will need to consider the method of transferring the property:

• Underletting – you will effectively become the landlord while the purchasing entity becomes the undertenant. This method is used in pharmacy sales when looking to retain the leasehold interest and occupy part of the property (e.g. for a flat above the pharmacy)
• Assignment – essentially selling the entirety of the lease to the buyer for the remaining term
• Granting a new lease to the buyer – allows a landlord to grant a lease on new terms to the incoming tenant. This method is often used when (i) you’re looking to retain the freehold interest and grant a lease to the incoming buyer as outlined above or (ii) if you hold a lease for the property that has expired or will likely expire while the business is being sold.

Who is the owner?

There are two means of selling a pharmacy business:

• Asset sale – where the buyer only purchases the assets from the company that owns them (e.g. the property)
• Share sale – where the buyer purchases the shares in a company and thereby takes on the property as part of the sale.

With an asset sale, the property can usually be in the name of an individual or a company.

If selling via a share sale, the seller will need to be the owner registered with the land registry for it to be sold. If it is not, the land will need to be transferred to the name of the company (rather than the individual). This usually occurs when a sole trader purchased the pharmacy and then later incorporated a company to operate the business.

Landlord’s consent

If the property is being sold as part of a share sale, it is unlikely that landlord consent will be required. Very rarely, a leasehold property may contain a change of control provision which requires consent from a landlord when selling the shares of a tenant entity. This is a highly unusual provision in UK leases, but more common when the landlord is an overseas entity. Obtaining the relevant consent may cause a delay in the transaction, particularly if the landlord is based overseas, so it is worth noting this from the outset of the transaction.

On an asset sale, as the tenant entity will be changing hands, it is highly likely that landlord consent will be required, whether the property is being transferred by way of an underletting, assignment or grant of a new lease by the landlord. It is essential to notify each and every landlord of the property and obtain contact details for their legal representatives to begin the process of obtaining landlord consent as early as possible.

Documents and legal requirements

Unless already obtained, you will need to commission the following:

• Fire risk assessment
• Asbestos survey
• Energy performance certification.

These are all legally required for pharmacy businesses and can take up to three weeks to produce. If any works have been undertaken to the property, copies of all consents should be collated, including all planning permissions and building regulations documents. These only need to relate to works undertaken in the last 10 years.

In addition to the above, the buyer will usually also request copies of the electrical installation condition report, service charge invoices, business rates bill and buildings insurance policy.

The above is a general overview and we recommend that independent legal advice is sought for your specific concerns. If you require further information in relation to the points raised in this article you should contact Jessi Tamber (Pharmacy Transactions) on tel: 020 7427 6767 or by email: jessi.tamber@crsblaw.com