Thinking Of Selling? Top Tips For Independent Hoteliers WITH the market being as buoyant as it is, many independent hoteliers are listing their properties for sale, hoping to attract the interest of larger hotel groups.
The process of selling a hotel can be long and drawn-out at the best of times, but planning is key and there are steps hotel owners can take to ensure the deal is done with as little disturbance to day-to-day business as possible.
Here are Fladgate LLP’s top tips for independent hoteliers thinking of selling:
•Think about corporate structure in advance. It may be preferable for a buyer to acquire shares in a company which owns the hotel and its contents and through which the hotel business is run, rather than transferring the assets, contracts and staff individually to the buyer.
•It is important to identify the right person with the knowledge to answer any replies to enquiries so that the process is managed as efficiently as possible. Often the hotel manager will have a lot of the information required.
•Full legal due diligence, including real estate diligence, will be carried out by the buyer. The process will be a lot easier if good records have been kept from the purchase of the asset. It is a good idea to locate the deeds for the property early on (bearing in mind these may be with your lender or their lawyers) and to ask your solicitors to locate their purchase files.
•The purchaser will want to confirm the value of the hotel and identify the cap-ex requirements. The hotel’s trade stock (FF&E) will be assessed in terms of condition to confirm value and to identify investment requirements.
•A building survey is likely to be carried out by the buyer to examine the state and condition of the hotel. Following recent events relating to combustible cladding, buyers are much more alert to the requirement to understand more about what has actually been built.
•You should anticipate that the purchaser will require details of all major works carried out at the hotel within the last 12 years, including copies of relevant contracts. Where construction works are ongoing, the purchaser will want details of the progress of the works, any claims history and confirmation of completion date.
•In advance of a possible sale, it is a good idea to collate copies of key documents such as contracts with suppliers and clients, standard terms of business, copy employment contracts and details of agency staffing arrangements.
•Other relevant documents that the buyer will want to see include insurance policies, asbestos registers, fire inspection certificates, premises and other licences. Air conditioning reports and health and safety manuals must also be made available for inspection. It is important that all licences are in the correct company name and that the responsible individuals are up to date.
•It will be important that all non-guest occupancies have been formalised legally. Therefore, any services provided by third parties (e.g. gym facilities, restaurants, spas) must be properly documented.
•It is likely that the purchaser will want to review maintenance and supply contracts. The purchaser will be looking to see where there are overlaps with block contracts the group has and to identity where contracts can be terminated to create cost savings.
•If the hotel is under franchise or management, give some thought to the transfer and termination provisions set out in the contracts. Most contracts have a mechanism for transferring the contracts to a new owner, but some are more complex (and involve more time and money) than others. Certain franchisors (particularly US-based brands) will require more evidence to satisfy their compliance teams about the probity of a buyer. A buyer may want to purchase the hotel free of any franchise or management contracts, and there may be an expense in exiting these.
•On any company sale it is also important to ensure that Company statutory registers (such as registers of members) are up to date and copy minute books are available. You should also consider whether any back-office function for the hotel business being sold is provided by a company in the group that is being retained. Consider how the functions might be separated and operated for a period after the sale.
Fladgate LLP’s cross-firm hotels team provides the full range of legal services required across the hotel sector and supports clients in undertaking a wide range of sophisticated and complex transactions both in the UK and internationally.