Buying an existing retail business – with stock, staff, goodwill, and an ongoing lease – can be faster than starting from scratch.
However, it involves multiple legal layers: business purchase, lease transfer (assignment), and often a franchise approval.
This article outlines the step-by-step legal process for taking over a retail business and its lease in Australia, including due diligence, required consents, and asset protection.
Step 1: Due Diligence – Investigate Before You Sign
Do not rely on the seller's verbal claims. Obtain and verify:
- Financials: 3 years of profit & loss statements, tax returns, BAS statements (compare declared sales to bank deposits).
- Lease document: Full copy including all variations and disclosure statements. Check remaining term, rent reviews, make-good obligations, and assignment conditions.
- Outgoing notices: Has the landlord issued any breach notices or repair orders?
- Licenses: Does the business need a liquor licence, food safety certificate, or trade waste permit? Are they transferable?
- Staff entitlements: Under the Fair Work Act 2009, when you buy a business as a 'going concern', you may be required to retain existing employees on their current terms (transfer of business provisions). Obtain a list of employee contracts, leave balances, and any pending claims.
- Litigation: Search court records for any pending disputes (ACCC, fair trading, customer claims).
Do not pay a deposit until you have seen audited financials. Use a solicitor to review all documents – do not rely on a conveyancer alone.
Step 2: Negotiate the Business Sale Agreement (Asset Sale)
Most retail business sales are structured as 'asset sales' (you buy the stock, equipment, goodwill, and lease – not the company shares).
Key clauses:
- Purchase price allocation: How much for stock (depreciable), goodwill (capital gains tax may apply), and equipment.
- Restraint of trade: Seller agrees not to open a competing shop within, say, 2km for 2 years. Essential to protect goodwill.
- Stocktake adjustment: You pay for stock at cost (or cost + markup) based on a physical count on settlement day. Include a cap (e.g., maximum $50,000).
- Training period: Seller provides 2–4 weeks of handover training (included in price).
- Conditions precedent: Contract is conditional on landlord consent, transfer of licenses, and finance approval.
Step 3: Obtain Landlord Consent to Lease Assignment
Under the lease, you cannot simply take over – the landlord must consent.
Provide the landlord with:
- Completed assignment application form.
- Your financial statements (personal or company – show assets, cash flow).
- Business plan (summary).
- Franchise approval letter (if franchised).
The landlord cannot unreasonably withhold consent under most Retail Leases Acts. However, 'reasonable' includes refusing if you have bad credit, a criminal record, or if your proposed business would violate an exclusivity clause (e.g., the centre already has a coffee shop).
The landlord may charge a 'reasonable' assignment fee (usually $500–$2,000).
Warning: The seller must remain liable on the lease unless the landlord grants a full release (uncommon). You will be asked to sign a 'deed of covenant' assuming all obligations. The seller may still be sued if you default – so sellers often demand a larger deposit or personal guarantee from you.
Step 4: Transfer Licenses, Utilities, and Insurance
- Liquor licence: Lodge application with the state licensing authority (e.g., NSW ILGA, VIC VGCCC). Process takes 4–12 weeks.
- Food business registration: Notify local council. Inspection usually required.
- Utilities: Electricity, gas, water, waste, internet – transfer to your name effective settlement date.
- Insurance: Public liability, workers compensation, property insurance (contents only – landlord insures building).
Step 5: Settlement Day Checklist
- Final stocktake conducted jointly by both parties.
- Payment of balance purchase price (bank cheque or electronic transfer).
- Handover of keys, security codes, point-of-sale systems, supplier lists, customer databases.
- Signed deed of assignment from landlord (if not already signed).
- Transfer of phone numbers and domain names.
After settlement, change all locks immediately. File a change of business name and ABN with ASIC (if not using your own company).
Notify the ATO of the new business address.
Taking over an existing retail business is complex but manageable with a good solicitor and accountant.
Budget at least $10,000–$15,000 for legal, accounting, and due diligence fees – a small price compared to inheriting hidden debts or a lease you cannot afford.