I. The main lever : securing the commercial lease (3/6/9 Lease)
A commercial lease is the cornerstone of any business. Without it, nothing holds together. You sign a solid commercial lease with a consistent commercial rent and, above all, sufficient room for maneuver to develop the business. The main thing is the famous clause of destination of the premises, which sets out what you are actually allowed to do.
And here, be careful : a “small catering” commercial lease is not the same as a “catering” commercial lease. In the first case, you sell simple small dishes (sandwiches, tapas…) that are quick, without preparing any dishes. In the second, you really cook : there is a real preparation of dishes that requires a compliant exhaust duct.
Another key point : the seller can ask to be released from the solidary rent guarantee to which he may be bound by a clause in the commercial lease. Indispensable security to avoid, years later, having to pay the unpaid debts of its successor relating to the 3 years following the sale. Without this release, the buyer can claim them from the seller of the business.
Securing a commercial lease also means ensuring that the premises meet the standards of the activity being conducted. A hotel without standard air conditioning in the rooms ? Unthinkable. A hotel without hot water ? Not anymore… The buyer must therefore verify that everything is in order : work, equipment (air conditioning, boiler…) and installations. These elements that make up the hotel business guarantee a serene operation and a business that retains its value.
At the time of purchase of the hotel business, the buyer must verify that the lessor of the commercial premises and the seller of the hotel business have completed the compliance work and that the premises are suitable for the intended activity.
This vigilance protects the operation on a daily basis, but also the value of the fund in the event of resale.
And then there are the creditors. When a business is sold, the law protects them : the price is blocked for 2 to 6 months (or more) with the price sequestrator chosen by the buyer and seller of the hotel business. This time is used to receive any objections and to pay those who need to be paid first. The seller of the hotel business, on the other hand, only receives the rest once everyone has been served.
On the other hand, when selling shares in a company that operates a hotel, none of this applies : you simply sell your shares. The funds are settled directly, without blocking the sale price. The hotel company retains its business, its assets… and also its debts.
In the hotel industry, the reference value remains that of the business. He reveals the essentials : the operating capacity, profitability, and potential of the establishment.
II. Deciphering hidden liabilities: social, health, environmental, and fiscal
1. Social risk : employment contracts and unpleasant surprises
In the hotel and restaurant industry, labor law is a minefield. The teams operate in a dense collective framework, with complex rules on schedules, breaks, overtime, and part-time work. And the risks of reclassification are very real : overtime finally considered as working time, overtime not paid at the correct rate, poorly written part-time contracts, fixed-term employment contracts reclassified as indefinite contracts, cancelled dismissals…
Each irregularity can be expensive.
That is why, before any acquisition, it is advisable to audit the employment contracts precisely and quantify the risks. This amount can then be incorporated into the price negotiation or be the subject of a specific clause in the hotel business sale contract.
2. Health and environmental requirements : a vital issue for the operation
In a restaurant or hotel, hygiene and safety are not options. The buyer of the hotel business must therefore verify the conformity of the equipment: air conditioning and ventilation, boilers, smoke extraction, grease treatment, cold chain… Nothing should be left to chance.
The seller of a hotel or restaurant business, on the other hand, has a simple obligation : to sell a business that is in line with the activity specified in the lease and is operable. If not, it is up to him to ask the owner of the walls or to finance the necessary work, according to the clause provided in the lease, unless he agrees otherwise with the buyer. And it’s better to know this before signing, because a municipal or prefectural inspection for the purpose of bringing the property up to standard can be expensive.
Administrative closures of a hotel or restaurant business are a good example of this. Some are not penalties ; they simply allow for urgent work: bringing facilities up to standard, checking temperatures, pest control, and so on. These closures last as long as the work in these cases, hotel or restaurant, but every day without operation, it’s turnover that evaporates.
If the seller of the hotel or restaurant business has not been able to obtain permission from the lessor or make the necessary compliance work before the sale, the buyer must therefore anticipate the potential cost of compliance, as these expenses will be his responsibility once in control. A good compliance analysis is an indispensable investment to avoid the unpleasant surprise that can put a hotel or restaurant business at a standstill from one day to the next.
3. The tax risk : the hidden side of selling a business :
Before buying a hotel or restaurant business, a savvy buyer has their accountant and lawyer conduct an accounting and financial audit. The seller also has an interest in avoiding the risk of future disputes. The best thing is for the seller and the buyer to agree on a shared-cost audit of the business or company. Objective : set a selling price that truly corresponds to the economic reality of the business or company operating a hotel or restaurant.
This audit is also essential for calculating the professional surplus value realized by the seller. It’s simple : compare the selling price of the business or shares to the original value of the business or shares.
Still, it is necessary to know what kind of added value is being referred to :
– in the short term, for assets held for less than 2 years;
– in the long term, beyond two years.
Taxation then varies depending on the structure that sells the fund: corporation, sole proprietorship, tax regime, etc. Each configuration applies its own rules and rates.
When the seller is a company, the capital gain is added to the income and is taxed at 25% corporate tax. This rate is reduced to 15% if the turnover does not exceed €10 million and if 75% of the capital is held by natural persons. If the turnover before tax is greater than €7.63 million, companies are subject to a social contribution equal to 3.3% of the corporate tax calculated on their taxable results, minus a maximum deduction of €763,000 per twelve-month period.
If the executive wishes to recover these amounts in the form of dividends, a second taxation applies : the Flat Tax (PFU) at 30%, or the progressive scale by option. A double level of taxation that must be anticipated from the beginning of the negotiation.
Taxation then varies depending on the structure that sells the fund: corporation, sole proprietorship, tax regime, etc. Each configuration applies its own rules and rates.
When the seller is a company, the capital gain is added to the income and is taxed at 25% corporate tax. This rate is reduced to 15% if the turnover does not exceed €10 million and if 75% of the capital is held by natural persons. If the turnover before tax is greater than €7.63 million, companies are subject to a social contribution equal to 3.3% of the corporate tax calculated on their taxable results, minus a maximum deduction of €763,000 per twelve-month period.
If the executive wishes to recover these amounts in the form of dividends, a second taxation applies: the Flat Tax (PFU) at 30%, or the progressive scale by option. A double level of taxation that must be anticipated from the beginning of the negotiation.
To respect a collective commitment to hold the company’s securities, which ensures continuity in the holding of capital. This is the essential tool to prevent a business transfer from becoming a tax burden.
For executives whose companies have multiple subsidiaries, intra-group loans are a highly effective tool. In practical terms, a group company with cash can finance another company it controls, directly or indirectly. A flexible way to support the development of the group without going through traditional bank financing. The tax advantage is far from being trivial : borrowing interest is deductible from taxable income. However, there is a condition : compliance with the rules that prevent a tax adjustment.
The loan must be formalized in writing, have a market-conform interest rate, and be based on real capital ties between the companies.
The partners must be careful about the rate of reimbursement to the parent company so as not to be liable for misappropriation of corporate assets.
III- Secure the intangible : succeed in the transmission of know-how
A hotel and restaurant business is more than just walls and machines. It’s primarily know-how, a clientele, recipes, inventory, but also human relationships patiently built. At the time of the transfer, the buyer is not just purchasing a work tool: he is purchasing continuity.
It is the seller’s responsibility not to compromise this transmission.
That’s why it’s often essential to include a non-competition or non-reinstatement clause. She prevents the former operator from opening a competing business right next door and draining the clientele of the business or the company that sold a hotel.
Its duration remains within a certain range, generally between 6 months and 5 years, depending on the judge’s assessment, as it must be proportionate.
The buyer, a company, or a society that is transferring the operation of a hotel may also ask the seller for a support period, during which the seller shares his methods, recipes, and procedures, and facilitates the transition for the teams. In the hotel and restaurant industry, this handover is often decisive in stabilizing staff and preserving turnover.
In the event of a dispute during the sale of a business or a company that operates a hotel, the first course of action to be preferred remains the amicable settlement. Mediation is a free, confidential solution accessible to any individual or merchant. She avoids the trial, whether it’s for price issues or disputes over work or borrowing interest rates or any other subject. The mediator can be, for example, a lawyer.
It is essential to have a lawyer’s assistance before the sale to buy a business safely and also during the entire management by the manager of his hotel or restaurant business.
SELARL PETROUSSENKO Law Firm
Sophie PETROUSSENKO
Court Lawyer