To buy an existing business in Tenerife instead of starting from scratch can be an advantage. When buying a running business, you get the inventory of equipment, fixtures, fittings, and furniture, also you acquire an established business concept and the goodwill and reputation built through years of operation and a loyal customer base. Last mentioned is normally reflected in the past and actual earnings figures. Those factors along with the location, size of premises of the business determine the price of the business for sale. Another reason to buy an existing business in Tenerife can be your wish for a certain location. Naturally, the best spots are taken and therefore you need to buy the freehold or take over the leasehold to get into the exact area you need. Below are the most common options of buying or starting a business in Tenerife.
1. Leasehold Businesses To Buy
Leasehold (Traspaso) means “transfer of a property lease contract” and this is by far the most common choice of selling or buying businesses in Tenerife. Compared to the freehold purchase which requires a significantly higher capital, leaseholds have a much lower cost option of acquiring a business. Naturally, this makes the leaseholds a popular choice for most people who start their new business in Tenerife. It might be worth noting that in Tenerife the most common term for a leasehold for sale is Traspaso. Traspaso was regulated by the old Spanish Letting Law (1964) and tended to favor the landlord. The new Spanish Letting Law issued in 1995 replaced Traspaso with the Cesion which gives much more flexibility to the tenant such as for example the right to sublease or sell the lease without prior authorization from the landlord, which was not possible with the old Traspaso. However, the practice is still very often based on the old Traspaso and it is not unusual to see in the lease contracts the clause requiring authorization from the landlord for the sale of a lease or subleasing, which if breached by the current tenant might lead to the eviction of the new tenant. The old lease contracts dated before 1985 are clearly governed by the old Spanish Letting Law and would be dealt with based on the regulations of the old Traspaso. Therefore, we strongly recommend having a competent lawyer involved in the transfer of the leasehold sale and negotiation of the new lease contract.
The lease of a leasehold (traspaso)
When buying a leasehold, you normally acquire the fixtures, fittings and the goodwill of the business, as well as the right to lease the business premises. The term of most leases in Tenerife is normally between 5 and 10 years with the possibility of renewal. Once agreed the monthly rent can be only increased by the rate of inflation which is set by the Spanish government every year. However, for the renewal of lease, the landlord has the right to increase the price up to 10%. The tenant’s main responsibilities include regular payments of the monthly rent, payments for utilities (water, electricity, rubbish, community fees if applicable), obtaining all required business licenses and operating within the community rules and regulations. The tenant can alter the décor, fittings, and furnishing of the premises, but no structural changes to the building can be made without the permission of the landlord. Any major repair and structural work on the premises is the responsibility of the landlord. There is normally 2 months refundable deposit paid by the tenant on signing the lease. It is not unusual that the landlord asks for a percentage from the sale of lease. You can see this and other terms in the rental contract, so to make sure your interests are protected it is once again highly advisable to have professionals managing your purchase of a leasehold business.
2. Freehold Business To Buy
Freehold purchase of an existing business, apart from the above-mentioned fixtures, fittings, equipment and business goodwill, also includes the property. In addition to the steps required for the verification of the business sale, the freehold business purchase follows the same process as the purchase of real estate, including signing the Title deeds in front of a Notary and payment of the relevant property transmission taxes and notary fees. This, together with the actual price of the property leads to the fact that the initial capital required for a freehold business purchase is considerably higher than the one for the leasehold purchase. On the other hand, a freehold business brings obvious benefits to its owner. You can decide if you want to run the business yourself without any rent to pay or you can lease the business and secure your monthly income from the rent paid by the tenant. For many, it is a good investment opportunity bringing a secure monthly income. Not so common in the past, freehold business opportunities are coming on the market more frequently nowadays, perhaps driven by the overall economic climate. Some of the current opportunities are even available for a very competitive price – check our portfolio of freehold businesses to find real bargains. Apart from an existing business, you can also acquire empty commercial premises suitable for any type of business activity, therefore giving more flexibility to the owner.
Freehold Sold As Investment
When you search for freehold businesses for sale in Tenerife note that some freeholds are sold as investments, which mean you will not take over the leasehold (traspaso), but only the locales and with that benefit from the monthly rent. Other freeholds are sold including the business and then you are free to sell the business as a traspaso or run it yourself.
3. Business Rentals & Empty Locales
This is an alternative to buying a business and even though a very rare case, but you can also come across to an opportunity of renting the operating business including all fixtures, fittings, and equipment. On the other hand, renting empty commercial premises with the intention of starting a new venture compared to a freehold or a leasehold business purchase might be an economical solution. Initial costs would include an advance payment of two to three months deposit (normal practice) and the first month’s rent. But some landlords will ask for a higher deposit, up to 6 months or even longer. Also, do not forget or underestimate the costs and time required for fitting and equipping the premises, obtaining all required business licenses and building a business reputation, all of which are offset by the purchase of leasehold or freehold of an existing business, where you can start trading and earning from day one. There are different ways and options to start your own business in Tenerife and it is important to find the right solution matching your individual situation. We at FRINA Tenerife will do exactly that: listen to your needs and together work out a solution suitable for your personal requirements. So, don’t hesitate to share your dreams with us and let us start working on turning them into reality.