In Chiang Mai / Thailand (as in other countries) the ownership of many commercial premises such as restaurants, bars or guesthouses/hotels (Building Owner: “Landlord” or “Lessor”) is separate from the business operating therein (Business Owner: “Tenant” or “Lessee”).
The Tenant leases the property (or land) from the Landlord on a contractual Term (maybe 2-3 or more years) and pays rent (let’s say Baht 30,000pm) to the Landlord.
At some point, the Tenant may decide to “sell” his operating business for an agreed price (the “Takeover fee”), and the components of this fee/price (let’s say Baht 500,000) should include at least: his physical improvements to the property, his “goodwill”/business name recognition, fixtures and fittings included in the sale (ie chairs tables, kitchen fittings), the ongoing right to his NET profit (ie profit after staff, marketing, repairs, cost of goods etc) and his current and forward bookings (if a guest house or hotel (if any)).
The amount of this Takeover fee is materially affected by:
- the net profitability of the business
- evidence of some real records of income and expenditure over a reasonable period of time
- the duration of the Tenant’s existing lease
- any contractual right to a lease extension
- the willingness/agreement of the Landlord to agree to a transfer of the lease, or further extend the lease and, if so, at what rent
If the new Tenant later “sells” the business, normally he can seek to recover all or some of this Takeover fee from the next incoming Tenant—or even more if he turns around a business with low profits into one with high profits!
Sometimes the Takeover fee is called “Key money” and there are cases, even when there is no operating business, where certain Landlords may demand Key money (not to be confused with the rental or security deposit which is paid to ensure the Tenant’s obligations under the lease).
Finally, in most cases, even though the ratios of the components to each other within the said Takeover fee can vary, most people just look at the total amount of such fee/money payable as a total business cost.
If you need our advice on specific cases, please do not hesitate to contact us—but you really need to decide if the amount of the Takeover fee or Key money is worth paying before you make any binding commitment!
Perfect Homes is a leading Chiang Mai real estate agency with extensive experience in the city, regionally, nationally and internationally.