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MASTERCLASS: The legal aspects every future hotel owner should know before buying

for sale

If you intend to buy a hotel, knowledge of the following legal elements is vital.

By Jo Thornley, head of brand and partnerships at Dynamis. 

Lease contracts

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One of the first things you will need to find out is whether or not the building that the hotel is in is owned or leased by the hotel owner. If it is leased, what arrangement does the owner have with the landlord? Will you be able to take over the lease- on what terms and for what price?

You should be able to negotiate a new contract before the purchase to ensure the hotel runs smoothly. However, to make sure you are on to a good start, you need to do a legal audit. Read the lease contract and understand the requirements. Usually, the remaining years on the lease affects the ability of the seller to transfer ownership.

It is also vital to understand the role of the property owner. For instance, is all the maintenance up to date? What are the rules for the renovation?

Permits and licences

Hotels require multiple permits and licences to operate. Therefore, you need to check the necessary licences in the area and the hotel’s compliance. While you do not have to apply for new permits, the seller must transfer ownership before signing the purchase agreement.

Apart from the business licence, you need a liquor licence if you offer alcoholic drinks to customers. The food and beverage licence is a must-have if you have a restaurant attached to the hotel where you will be serving food.

Some licences are not transferrable. Therefore, you need to apply for new licences before the purchase.

Inspect the building and equipment

Compliance with federal and local laws is vital when running a business. Therefore, you should take the initiative to inspect the building and ascertain its compliance. Do you need permits for the equipment and heavy machinery? What is the structural condition of the building?

You can conduct an appraisal to assess compliance with building code and ensure it is structurally sound. Some of the items to inspect are utilities, electrics, plumbing, and IT systems. An inspection will also point out the area in need of renovation and the estimated costs of the repairs.

Contracts with suppliers and financial institutions

You need to review contracts with suppliers to avoid future legal liabilities. Therefore, your lawyer should examine existing agreements with vendors, and find out the impact of the acquisition on the contracts.

If a management company runs the hotel, you need to review the terms of the agreement. Does the hotel have a loan? What arrangements does it have with the financial institution? How can it affect your acquisition process?

To avoid costly mistakes due to complacency, conduct a legal audit. You need to know the problems that you are likely to encounter. Uncover the disputes or litigation against the hotel and ensure they are resolved before the transfer of ownership.

You also need to go through the employment contracts for the hotel staff. Ensure the owner was compliant with labour laws, and you will not face disputes in the future.

Data protection laws

Nowadays, the law requires adequate protection of personal data. Therefore, you need to know the measures in place that protect the employees’ and guests’ privacy. What procedures are followed in data management, and what are the necessary contracts for handling data? If third party entities are in charge of data processing, you also need to ascertain compliance with the data protection laws.

Tax obligations and financial issues

Future hotel owners must check for tax compliance and adherence to financial reporting standards. Tax obligations should be up to date to avoid fines and problems with authorities.

With knowledge of the legal aspects of acquiring a hotel, you are now ready for purchase. Having a clear idea of what you need to keep an eye out for should help in your search for hotels for sale. .

If you find a hotel business for sale that does not meet all the regulations and guidelines, though, do not completely discount it. You can use this to negotiate down the price of the business if you are confident that you will be able to adequately address the issues after purchase.

Jo Thornley creates and develops partnerships between BusinessesForSale.com, FranchiseSales.com and PropertySales.com and likeminded companies.

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Zoe Monk

The author Zoe Monk

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