Whether you’re planning for retirement, relocation, pursuing a new business opportunity or simply looking for a change, the day may come when selling your hotel is the right next step. In the hotel world, this will normally be achieved through a business or asset sale, or perhaps a through a merger or acquisition.
At Nockolds, we advise on hotel transactions of all sizes, from owner-managed boutique hotels to larger hospitality businesses. One common theme runs through almost every transaction: the smoother the preparation, the smoother the sale. The run up to completion is stressful, and delays could often have been avoided with the right preparation. In the interest of saving time, legal costs and a few additional grey hairs, we have compiled a guide to help hotel owners prepare for a successful sale, minimise risk and keep the transaction moving efficiently from start to finish. So, if your days of hotel ownership (or at least, this particular hotel ownership) are soon to be behind you, we hope this guide provides a useful starting point and highlights some of the key issues to consider before taking the next step.
Finding a Buyer
When marketing your hotel for sale, ensure that your promotional materials are strong, accurate and up to date, including your website and any sales particulars. Present the hotel as the business you are proud of, while ensuring the marketing reflects its true character, facilities and operational capabilities. An accurate portrayal will help attract buyers who genuinely value the business for what it is, reducing the risk of issues arising during due diligence and, ultimately, helping to prevent the transaction from falling through. Sales that fall through are in no one’s interest, finding a buyer that genuinely likes what the hotel is, not what the hotel is made out to be, will help ensure the sale proceeds to completion.
Although finding a buyer may seem like the first step in the sale process, it is often more effective to view it as one of the last. Once a buyer has been identified, they will typically be keen to proceed quickly, particularly where funding or lending arrangements are involved. By taking the preparatory steps outlined below before taking the hotel to market, you can help ensure a smoother, more efficient transaction for all parties involved.
Choosing the right agent is equally important. An agent with experience in the hospitality sector can help identify suitable buyers, market the hotel effectively and manage expectations throughout the transaction. Whilst achieving the best possible price is important, a buyer’s ability to proceed and their genuine interest in the business can be just as critical to reaching a successful completion. A well-connected and proactive agent can often make a significant difference to the efficiency and outcome of the sale process. We are proud to work alongside a number of trusted agents and find that a collaborative approach between seller, agent and legal advisers can be invaluable in keeping a transaction on track and progressing towards completion.
Types of Sale
The first consideration is the structure of the transaction; hotel sales usually take one of two forms:
- An asset sale, where the buyer acquires the property, business assets and goodwill.
- A share sale, where the buyer purchases the shares in the company that owns the hotel.
The structure affects the due diligence process, tax implications and the documentation required. Early legal advice can help determine which approach suits you best. An asset sale has TUPE (transfer of employees) considerations, but a share sale normally brings with it higher levels of due diligence as historic liabilities are taken on by the buyer, along with the business.
Getting Organised
If the hotel is owned by a company, a lack of records or disorganised records can inhibit the due diligence process. Legal due diligence is the buyer’s opportunity to understand exactly what they are purchasing. They will ask to see all kinds of paperwork, and they may not progress without it. The buyer may request:
- title documents and Land Registry information;
- planning permissions and building regulation approvals;
- licences, including premises and alcohol licences;
- health and safety documentation;
- fire risk assessments;
- asbestos reports
- environmental reports where available;
- insurance policies and claims history;
- material supplier contracts;
- maintenance agreements;
- equipment hire agreements;
- utility agreements;
- employment contracts;
- customer booking platform agreements; and
- details of any ongoing disputes or litigation.
Providing complete information from the outset is more efficient and preferable for everyone involved.
Legal Documents
As part of the process on a share sale, the background of the company will be reviewed and documents requested. As part of preparing to sell, ensure that your:
- statutory registers are up to date;
- board and shareholder resolutions are available where required;
- share certificates and ownership records exist, and are accurate; and
- any historic changes to directors or shareholders have been properly documented.
Missing or inconsistent corporate records can raise questions during due diligence and may cause delays. If there are significant issues with your share structure, such as shares missing or belonging to people who are non-contactable, speak to us as soon as possible to look at your options to remedy it ahead of time. In many cases, these issues can be resolved relatively simply, but if they are only identified once a sale is underway, they can cause significant disruption and delay.
A sale cannot complete if ownership of the company is uncertain. For this reason, it is advisable to carry out a general corporate health check before marketing the business for sale. A general corporate health check can help identify any issues requiring attention before a buyer is found. This is a service offered by Nockolds and can assist in ensuring the company is transaction-ready.
Property Matters
Buyers will carefully examine the legal status of the hotel property; as it is often the most important and valuable asset of the business.
Areas requiring attention include:
- confirming ownership;
- identifying any mortgages or charges that will need to be discharged;
- checking rights of way and easements;
- reviewing restrictive covenants;
- Checking historic planning permission consents;
- ensuring boundaries are accurately documented; and
- resolving any outstanding property disputes.
If the hotel occupies leasehold premises, the lease should be reviewed to identify any assignment restrictions, landlord consent requirements or upcoming lease events.
It is often worthwhile carrying out a legal review of the property before the hotel is marketed for sale. Identifying potential issues at an early stage can reduce the risk of delays during due diligence and allow sufficient time to obtain any missing documentation or consents. Nockolds can assist with reviewing title documentation, raising enquiries with the Land Registry where required, identifying matters which may concern a buyer or lender, and advising on any remedial steps that may be needed before a transaction progresses. Early preparation can help ensure that the property aspects of the sale proceed as smoothly as possible.
Employment Documentation
Employees will invariably be an important area of focus for a buyer. They are often key to the successful operation of the hotel and can provide valuable insight into the day-to-day running of the business. As a result, the employment arrangements in place and the business’s compliance with employment law will be subject to careful scrutiny during the due diligence process. The contracts each employee is on, and the legal position around their employment, will understandably be scrutinised as part of the transaction process.
Before marketing the business, sellers should ensure employment records are organised, including:
- employment contracts;
- staff handbooks and policies;
- records of salary and benefits;
- holiday entitlements;
- pension arrangements;
- disciplinary and grievance records where relevant; and
- details of any ongoing employment disputes.
If the transaction is structured as an asset sale, the seller should also consider the implications of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), which may transfer employees to the buyer automatically together with their existing rights and obligations.
Employment issues identified late in a transaction can create uncertainty and delay. Taking the time to review employment documentation and practices in advance can help ensure that any concerns are identified and addressed before they become an issue during negotiations or due diligence. Nockolds can assist with reviewing employment records, identifying potential risks and advising on the employment law implications of the proposed transaction, including TUPE where relevant.
Commercial Contracts
Hotels often operate through a network of commercial relationships, many of which are essential to the ongoing success of the business.
These may include:
- food and beverage suppliers;
- laundry services;
- booking platforms;
- franchise arrangements;
- management agreements;
- software providers;
- marketing agencies; and
- maintenance contractors.
Each agreement should be reviewed to determine whether it can be assigned to a buyer or whether third-party consent will be required. It is therefore sensible to identify any contracts requiring consent or renegotiation as early as possible. Missing contracts, informal arrangements or agreements that have expired but continue in practice can all raise questions during due diligence and may delay a transaction.
Nockolds can assist with reviewing commercial contracts, identifying provisions that may affect the sale process, advising on any required consents and preparing assignment or novation documentation where necessary. This can help ensure that key business relationships are transferred to the buyer as smoothly as possible.
Proactivity is better than Reactivity
Many transactions encounter avoidable delays because issues are only identified once the buyer begins due diligence. It is better to be proactive, locate the issues and remedy them as soon as possible, instead of having to react to queries, concerns and potentially deal breaking observations whilst mid transaction.
The issues we most commonly see causing delays include:
- expired licences;
- undocumented alterations;
- unsigned contracts;
- not having health & safety documents, such as an asbestos report;
- insurance queries;
- historic planning breaches;
- unresolved employee disputes; or
- incomplete or muddled corporate records.
Early Preparation can Make all the Difference
A successful hotel sale is not achieved by focusing solely on finding a buyer, finding a buyer is only one element of reaching completion. Behind every smooth transaction is careful preparation, organised documentation and proactive legal review.
Selling your business is often a life milestone, it brings with it significant financial and personal consequences. We cannot remove every surprise, or every stress, but proactivity ahead of time definitely helps to limit unnecessary delays and get you ever nearer to completion day.
Taking the time to review your position at an early stage can pay dividends later in the process. Where necessary, seek advice from your legal and financial advisers, including your accountants. Nockolds’ Corporate, Employment and Property teams regularly assist hotel owners in preparing their businesses for sale and identifying issues that can be addressed before they become obstacles to a transaction.