Many things affect the price a restaurateur is prepared to pay for premises - such as location, trading history and potential, and building configuration. However, once the price is agreed between buyer and seller, the parties will then enter into a second round of negotiations as to the apportionment of the price between the lease, fixtures and fittings, and goodwill.
The lease element may attract stamp duty if the value exceeds £150,000 (including VAT) and, accordingly, purchasers will be mindful to keep below this threshold - although, naturally, both parties will have a duty to satisfy the Inland Revenue that the figures are "realistic".
Firms specialise in valuing fixtures and fittings, but the value often has no bearing on the real value to the purchaser and is more likely to be the seller's historic book value. For capital allowance reasons the purchaser will often try to keep the value of the inventory as high as possible. However, that is not always in the best interest of the vendor.
The value of the lease will depend on the length of lease remaining and may include a "profit rent", the difference between the actual rent and the market rent. This can add much-needed profit to the business as the restaurant establishes its trade.
To a large extent, goodwill is the intangible parts of the business and includes the restaurant's reputation, customer loyalty, brand image and, most importantly, the ability to trade from day one with the benefit of licensing and planning. However, since the first thing many restaurateurs do is close for refurbishment and change the restaurant name, goodwill should, in theory, attract little value. Often, however, the respective buyer's and seller's financial advisers will determine the value of goodwill to suit Capital Gains Tax and stamp duty liability.
In summary, the value of a leasehold restaurant is the opportunity cost to the operator to trade from the premises. The apportionment of the value will depend on the negotiating positions of buyer and seller, and the quality of advice from their respective legal, financial and property advisers.
by Richard Negus of chartered surveyor Fleurets
www.fleuretsrestaurants.com