Should you sell the property or the business of your hotel?

In French hotel transactions, two assets are distinguished: the property, or murs (the building), and the business, or fonds de commerce (the clientele, trade name, lease rights, furniture and certain contracts). The question of which to sell is rarely abstract. It depends first on the starting point: who owns the building, who runs the hotel, and through what legal structure. It then depends on your aim: to exit entirely, to keep a property holding, or to stay on as operator while releasing capital.

Three situations come up most often:

• the same owner holds both property and business, directly or through a single company: every option remains open.
• the property and the business belong to different parties, bound by a commercial lease: each can only sell what it owns, and a sale by one directly concerns the other.
• a property company and an operating company belong to the same family or group: the sale can cover the assets themselves, or the shares of one company, the other or both.

What each option involves

The buyer profile shifts with the option. An operator usually wants the business, sometimes the property as well. A property investor is interested in let property, provided the tenant looks sound. Property and business together appeal to both, as long as the deal size fits their criteria.

The lease at the centre of the decision

Once property and business are separated, the commercial lease becomes the key document in the file. For the buyer of the business, it sets how long they can trade and what they will pay. For the buyer of the property, it sets the income and its quality.

Four points are read closely:

• the remaining term of the lease
• the rent as a share of revenue
• the split of major works between landlord and tenant
• the clauses on assignment and landlord’s consent

A lease nearing expiry, or a rent out of line with what the hotel generates, ends up in the price one way or another. Our guide to selling a hotel business under a commercial lease goes into the detail.

Selling one and keeping the other

Two structures make it possible not to sell everything.

An owner-operator can sell the property and stay on as operator, signing a lease with the buyer: this is a sale and leaseback. It releases capital, but the seller becomes a tenant and now pays rent.

Conversely, the owner can sell the business and keep the property. They then become their successor’s landlord, and their income depends on an operation they no longer run. The lease is drafted before the sale, with care: it is part of what the buyer is acquiring.

Tax and timetable

Registration duties, tax on the capital gain, accounting treatment: none of these work the same way for a building, a business or shares. The rules and rates change over time. They should be assessed with the notary, the lawyer and the accountant as at the date of the transaction, before choosing the structure, not after.

Timetables differ too. Property requires a notarial deed and the clearing of any pre-emption rights. The business has its own formalities, starting with the landlord’s consent where the lease requires it. Shares go through a share purchase agreement and the negotiation of its warranties.

This choice belongs at the valuation stage, because it changes the value, the pool of buyers and the documents to prepare. Our guide to asset deals and share deals compares the structures in detail, and our page on hotel sales explains how we weigh them up with your advisers.