When you are considering acquiring or transferring a commercial activity, it is essential to clearly understand the distinctions between leasehold rights and business assets. These two concepts, although often confused, have very different legal and economic implications. Contact your Capifrance advisor, an expert in commercial real estate, to support you with your purchase, takeover, or transfer projects.
What are leasehold rights?
Leasehold rights are a sum of money paid by an incoming tenant (the buyer or successor) to an outgoing tenant in order to benefit from the favorable terms of the existing commercial lease. It is the right to occupy a commercial premises under the terms of the current lease, in particular the rent amount, the remaining term, and the location. This right has economic value, especially when the rent is lower than the market rental value or when the premises benefit from a prime location such as a shopping street, city center, or busy area.
However, leasehold rights do not include the commercial activity itself, nor the equipment or the customer base. They represent only the right to occupy the premises under the terms of the existing lease.
What are business assets?
Business assets are a fundamental legal and economic concept for anyone wishing to take over or acquire a commercial activity. They represent a set of tangible and intangible elements which, when combined, make it possible to operate a commercial, artisanal, or industrial business activity.
The elements that make up business assets
Business assets include several essential components, which are generally transferred in full when a sale takes place.
Customer base and footfall
The customer base is the most valuable element of business assets. It refers to all regular and potential customers attached to the business activity. Footfall refers to all the people naturally drawn in by the location of the business. These two elements form the economic foundation on which the sustainability of the activity depends.
Trade name and signage
The trade name is the name under which the business owner carries out their activity and is known by customers. The signage is the visible sign displayed on the premises, making it possible to identify the business. These elements contribute to the reputation and visibility of the business assets and are important intangible assets.
Equipment and fittings
These include all the tangible assets necessary for the operation of the business: machines, tools, furniture, installations, professional vehicles, stock, and so on. Their nature and importance vary depending on the type of activity.
Employment contracts
In some cases, the transfer may include the employment contracts of staff linked to the activity, especially if the takeover is carried out as a continuation of the business. This transfer may create specific obligations toward employees.
Intellectual property rights
Business assets may include intangible rights such as registered trademarks, patents, designs, licenses, or other exclusive rights linked to the activity. These rights strengthen the value and uniqueness of the business.
Leasehold rights
Finally, business assets almost always include leasehold rights, that is, the right to occupy the commercial premises under the terms of the existing lease. This right is fundamental because it guarantees the stability of the location, which is often crucial to the success of the activity.
Buying business assets means taking over a complete business
Unlike buying leasehold rights alone, acquiring business assets means taking over the business as a whole, with all its tangible and intangible elements. This includes not only the location, but also the customer base, reputation, equipment, and in some cases, employees.
This acquisition allows the buyer to start operating immediately, with an already established economic and commercial base, thereby reducing the risks associated with starting a business from scratch.
Key differences between leasehold rights and business assets
Leasehold rights and business assets are two concepts that are often confused, but they have notable differences. Leasehold rights refer only to the right to occupy a commercial premises, whereas business assets include all the elements necessary to operate a business activity, such as the customer base, signage, equipment, and trade name.
As such, business assets include the customer base, which is not the case with leasehold rights alone. In addition, professional equipment is generally included in the sale of business assets, whereas it is not included in the sale of leasehold rights. As a result, the value of business assets is often higher than that of leasehold rights. Finally, from a transfer perspective, leasehold rights may be assigned independently, whereas business assets automatically include the leasehold rights connected to the premises.
Should you buy leasehold rights or business assets?
The choice between buying leasehold rights and buying business assets depends mainly on the nature of your commercial project and your objectives.
Buying leasehold rights
Leasehold rights correspond only to the right to occupy a commercial premises under the terms of the existing lease. This option is particularly suitable if you want to create your own activity in an already identified location, without taking over the previous business or its customer base.
This allows you to benefit from a strategic location, often with rent set below market rates, while remaining free to operate your own concept. It is an attractive solution for an entrepreneur who is starting out and wants to limit the costs associated with taking over an existing business.
Buying business assets
Business assets, on the other hand, include all the elements necessary for operating a commercial activity: the customer base, signage, equipment, trade name, and of course the leasehold rights.
This option is ideal if you want to take over an already established activity, with an existing customer base and reputation that is often already built. You therefore benefit from an immediate start with an existing flow of customers, and sometimes even with staff already in place, which makes business continuity easier.
Legal and tax aspects to comply with
The transfer of leasehold rights or business assets is governed by strict rules designed to protect the parties involved and ensure transparency in transactions.
Publication of the transfer: the deed of transfer must be registered with the business tax office.
Legal notice: a notice of transfer must be published in a legal announcements journal in order to inform third parties of the transaction.
Pre-emption right: the landlord may have a right of first refusal over the leasehold rights or the business assets, and in certain cases employees must be informed and may also exercise a right of first refusal.
To secure your transaction and avoid disputes, it is strongly recommended to use a notary or a lawyer specialized in commercial and real estate law. Their expertise will help you verify the validity of the documents, comply with legal formalities, and protect your interests. If you have any questions on the subject, contact your Capifrance advisor, who will guide you as effectively as possible through your procedures.
In summary
Leasehold rights: this right allows you to occupy and operate a commercial premises under the conditions defined by an existing lease.
Business assets: these include all the elements necessary to operate a commercial activity, including in particular the customer base, equipment, trade name, and of course the leasehold rights.
Essential distinction: understanding the difference between these two concepts is crucial to properly assessing the value of a transfer, securing your investment, and choosing the solution best suited to your project.
Key takeaway: buying leasehold rights means above all acquiring a strategic location. Buying business assets means taking over a complete activity, with its assets and customer base. To learn more and benefit from expert support in your commercial real estate projects, contact your Capifrance advisor specialized in commercial premises and business assets in your geographic area.
FAQ
Can I sell only my leasehold rights without selling my business assets?
Yes, this is possible. However, the transfer of leasehold rights may be subject to the landlord’s approval, depending on the terms of the lease agreement.
What formalities must be completed when transferring business assets?
The transfer of business assets requires specific formalities, such as registering the transfer deed, publishing a notice in a legal announcements journal, and informing the landlord or employees.
Is the sale price the same for leasehold rights and business assets?
No, the sale price of business assets is generally higher because it includes additional elements such as the customer base, equipment, and leasehold rights.
Why buy leasehold rights?
Buying leasehold rights allows you to benefit from commercial premises with an existing lease already in place, often with rent below market price. This may be attractive for an entrepreneur who wants to launch a new activity in a strategic location without taking over the previous business or buying a complete set of business assets.
How do leasehold rights work?
Leasehold rights work through the transfer of the existing commercial lease between the outgoing tenant and the incoming tenant. The buyer pays a sum to the outgoing tenant in order to benefit from the conditions of the current lease, particularly the remaining term, the rent amount, and the location. This transfer must comply with the conditions set out in the commercial lease and may require the landlord’s approval.
What is the price of leasehold rights?
The price of leasehold rights mainly depends on the location of the premises, the level of rent compared with the market, and the commercial attractiveness of the area. In a very busy street or a dynamic city center, the value may be high. Conversely, if the rent is already aligned with the market or if the area is less attractive, the value of the leasehold rights may be low or even nil.
Key money or leasehold rights: what is the difference?
Key money is a sum paid to the owner when signing a new commercial lease, often in order to obtain the premises or compensate for low rent. Leasehold rights, by contrast, are paid to the outgoing tenant when the lease is transferred. In one case, the sum is paid to the landlord, and in the other, it is paid to the previous tenant.
Leasehold rights or business assets: what is the difference?
Leasehold rights refer only to the right to occupy a commercial premises under the conditions of the existing lease. Business assets, on the other hand, include all the elements necessary to operate a business activity, such as the customer base, signage, equipment, and trade name. Business assets therefore generally include leasehold rights.
Are leasehold rights mandatory?
No, leasehold rights are not mandatory. They exist only when a tenant transfers their commercial lease to a successor and that lease has a particular economic value. In some cases, the transfer may take place without payment of leasehold rights if the rent already corresponds to the market rental value.
How do you calculate commercial leasehold rights?
The calculation of leasehold rights is generally based on the difference between the rent of the current lease and the market rental value. If the rent is below market level, this difference may be capitalized over several years to determine the value of the leasehold rights. The location, the remaining term of the lease, and the authorized activity also influence the valuation.
How do you pay for leasehold rights?
Payment of leasehold rights generally takes place when signing the deed of transfer of the commercial lease. It is paid to the outgoing tenant, often by bank transfer, and may be financed by the buyer’s own funds or by a bank loan. The transaction is formalized in a deed drafted by a legal professional.
How long do leasehold rights last?
Leasehold rights are linked to the remaining term of the commercial lease, which is generally concluded for 9 years. When a lease is transferred, the buyer benefits from the remaining time until the lease is renewed. At the end of the term, the tenant may request renewal in accordance with the rules governing commercial leases.
How do you sell leasehold rights?
To sell leasehold rights, the tenant must find a buyer and arrange the transfer of the commercial lease. This transfer must comply with the clauses of the lease, which may require the landlord’s approval or certain formalities. The deed of transfer is generally drafted by a notary or lawyer and may require legal publication.
How do you assess the value of leasehold rights?
The value of leasehold rights is mainly based on the location of the premises, the rent level, the remaining term of the lease, and the commercial potential of the area. Premises located in a shopping street with attractive rent will generally have a higher value. A professional valuation by a Capifrance commercial real estate advisor makes it possible to obtain an accurate estimate before a transfer.
Author:
Bernard Schustermann, head of retail and business division
With 20 years of experience in the real estate sector and expertise dedicated to the retail and business division, my objective is to share practical information and concrete analysis to help every professional make the best decisions for their real estate project. Because a well planned project is a successful project.
