1. Make sure you get what you expect
Motel sellers and buyers often believe that they are purchasing the motel as inspected, including all plant and equipment, furnishings and fittings, intellectual property and stock in trade. This is not necessarily the case! The assets being sold as part of a motel sale will generally include:
- the land or a lease to occupy the land (depending on whether you are buying a freehold or leasehold motel);
- the intellectual property noted in the contract including the specified business name, trademarks, email addresses and domain names;
- the phone numbers (and if relevant any facsimile numbers) noted in the contract;
- the furniture, fixtures and fittings;
- the plant and equipment listed in the contract; and
- the stock in trade.
Buyers should conduct a thorough inspection of the business prior to signing any contract or during the due diligence enquiries to ensure that all furniture, plant and equipment, and office equipment on the premises are listed in the contract or the inventory. A further inspection should also be conducted by buyers prior to settlement to ensure that all of these items are still on the premises.
Motel business will often require a significant number of licences in order to legally operate the business. These will vary depending on the jurisdiction and the local council requirements. What licences are required will also depend on the particular services that the motel provides. The most common licences we come across are:
- food licence;
- liquor licence;
- sign licence;
- registration as an accommodation premises;
- APRA music licence; and
- passenger transport drivers licence (if a transfer service is offered to guests).
You should make enquiries into any appropriate licences and requirements of the local council when looking to purchase a motel. Licenses are obtained from various government departments and are not granted instantly and some will require training to be completed. It is generally advised to get a head start on any training and licences as soon as you have an understanding of the type of property you wish to buy.
3. Be ready to meet the landlord
One of the major assets being purchased when buying a leasehold motel is the lease. Part of the process is to obtain the consent of the landlord to any assignment of the lease.
The consent process should not be taken for granted, and the landlord may have their own forms, requirements and in most cases will want to actually meet (or at least speak to) the proposed buyers.
Generally, most motel leases provide that landlords may consider whether a buyer is respectable, responsible, solvent and capable of performing the tenant’s obligations under the lease when determining if it will grant consent to an assignment. Landlords usually require the buyer to provide a series of written documents which will generally include:-
- 2 written business references;
- 2 written personal references;
- a business plan; and
- a statement of assets and liabilities.
If there is more than one buyer, each of the individual buyers may be required to provide this information. If the motel is being purchased by a company, each director may be required to provide the information listed above and a statement of assets and liabilities may be required for the company.
Of course, each lease and landlord is different, the above is simply indicative of what we commonly see.
This information may take some time to collate, particularly with respect to obtaining written references which requires others to assist you. This can become stressful to arrange after a contract has been signed as the conveyance process can be a busy time – arranging finance, undertaking legal and financial due diligence, inspecting the motel, undertaking training, arranging transfers of licences, meeting with employees and suppliers etc.
In our experience, the most common delay in motel transactions is obtaining the consent of the landlord to the assignment in time for settlement. This is particularly the case where buyers do not have the required information ready to provide to the landlord immediately on request. If you are preparing to purchase a leasehold motel you should also commence preparing the documents that are likely to be required by a landlord.
As each lease and business situation will be different, please take our comments as general guidance and contact Mahoneys if you are preparing to purchase a motel please feel free to contact Mahoneys. We have a number of checklists for motel buyers that can be invaluable in preparing to purchase a motel and entering into a motel purchase contract.