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    Tenerife Business » Useful Information » Buying a Business in Tenerife » Business Buying Options in Tenerife
Updated: 31-10-2009

Business Buying Options in Tenerife

Buying an existing business in Tenerife can be advantageous, as along with the inventory of working equipment, fixtures, fittings and furniture one also acquires an established business concept and the goodwill and reputation built through years of operation and a loyal customer base, which is normally reflected in the past and actual earnings figures.  Those factors along with the business location, size of premises, form of business ownership and future earnings potential determine the price of the business for sale.  Below are the most common options of buying or starting a business in Tenerife:


1. Leasehold Business Purchase. Leasehold (Cesion) which in practice means “transfer of a property lease contract” is by far the most common choice of selling or buying business in Tenerife. Compared to the freehold purchase which requires a significantly higher initial capital outlay, leasehold is a much lower cost option of acquiring a business which makes it a popular choice for many starting their new business in Tenerife.  It might be worth noting that the most common term which you will hear in Spain for a Leasehold sale is Traspaso. Traspaso was regulated by the old Spanish Letting Law (1964) and tended to favour 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. The practice however 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 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. When buying leasehold one normally acquires 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. For the renewal of the lease however the landlord has the right to increase the price up to 20%. The tenant’s main responsibilities include regular payments of the monthly rent, payments of 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 a 2 months refundable deposit paid by the tenant on signing the lease.  It is also not unusual that the landlord gets a percentage from the sale of lease – these and other terms are ruled by the 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 Purchase.  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 then 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 businesses to find real bargains. Apart from an existing business one can also acquire empty commercial premises suitable for any type of business activity, therefore giving more flexibility to the owner.


3. Rentals. This is an alternative to buying a business and even though a very rare case, but one 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. Some landlords however will ask for a higher deposit, up to 6 months or even longer. Also, one should not forget and 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 in the purchase of leasehold or freehold of an existing business, where one 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.
 

By Irina Saltmarsh


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