Leasing a business

winkie

A family member is leasing a business from another family member and I am concerned because I am not sure of the ramifications of leasing a business.
Is there normally a buyout at the end of a lease and what kind of liabilities
does the lessee have in a situation like this?

Thank you for any help you can give me!

boa-constrictor

Do you mean leasing a property or just a business or both.

If its a property, the amount of annual rent can have an effect on the value of the property. It would be important (from the lessors point of view) that it is leased at a market rent and that a formal lease document is drawn up to reflect this.

The biggest worry for the lessee is that the business can produce sufficient revenue to pay the annual rent. If you pay key money to take a lease over and you cant keep up the payments, the lease may revert to the lessor
As far as a buyout at the end of the lease is concerned, that would depend completely on the terms of the lease agreement. In alot of cases where someone leases an established business, the rent is so high that it is difficult for the lessor to turn a profit. It basically allows the owner to make almost as much without day to day involvement. Mind you, you'd hope a person wouldn't do this to a family member.

winkie

Thank you for your input.

It is, unfortunately, a lease for the entire business which includes the property and a lot of expensive machinery, which my son (family member) has also added substantially to. My son is doing a good business but I am worried that the other family member is doing as well (or better) off the business as my son.

lomb

winkie wrote:

but I am worried that the other family member is doing as well (or better) off the business as my son.

if ur son is a good businessman he should look at the figures, machinery value is easily totted up and he needs to check if the machinery is leased on a repair and replacement basis.
property is easily valued to the nearest 10%. values currently are 1800 per sq meter in dublin for warehouse type properties in good locations to buy and maybe 15-25 euro a sq foot to rent.
u shouldnt be concerned if the other member is making money as he would have every right to if your son is paying market value...

Victor

Look out for the tax implications. If the Revenue can construe that a large chunk of the money is for the premises Stamp Duty and/or VAT may be payable.

I would strongly (separate) advise professional advice for both parties.