Leases, Landlords and Paperwork When Buying a Business in Pattaya

Buying the business is only half of it. You're also taking on a lease, a landlord and a company. Here's how I think about each.

The lease

Most businesses in Pattaya are on leased premises, and you'll usually only get a three-plus-three lease. (Under Thai law, a lease longer than three years has to be registered at the Land Office to be fully enforceable, which is one reason short leases are the norm.) So if a business has been trading in the same spot for a long time, I don't worry too much about how much is left on the lease.

What I think about is the landlord, and how risky it would be if they decided to redevelop the site. I also ask whether the business would survive a move. If you bought a restaurant with a really good customer base, lost the lease and moved somewhere close by, would you still have a business? For a lot of places with loyal regulars, the answer is yes.

Always meet the landlord

I always meet the landlord before I buy. I don't ask about their plans for the site, though, because I don't think they'd tell you honestly. Even when landlords do have plans, they often don't happen for many years.

The meeting is about getting a sense of who they are. Do they own lots of other properties? Would they ever want to run a business themselves, and could they? Some of my landlords are Thai, and I could tell from meeting them that they have neither the expertise, the energy nor the desire to be operators. They're happy being landlords, getting their 5, 6 or 7% on their investment, and that suits everybody for years to come.

I've known people whose landlord waited until the business was busy and then took it over. That hasn't happened to me. My businesses mostly serve foreign customers, so a landlord wouldn't necessarily know how to run them. If you're running a business aimed at Thai customers, it's more of a risk to think about.

Key money

I've never paid key money. I'll pay a reasonable deposit, sometimes a large one, but not key money. When it comes up, I negotiate to add the equivalent to the rent and pay it monthly instead.

In the end it's the same money, but key money is a large lump you have to find every time the lease comes round, every three years or so. If you do pay it, you need to manage your money well so you're ready for it.

Take over the company

I've always taken over the existing company rather than having the seller close it down while I start a new one.

You do take on some liabilities. Debts are less of a worry than people think, because it's very difficult for a foreign-run company here to get a bank loan in the first place. The one that catches people out is staff. If someone has worked there for a long time, you take on that length of service too, along with the severance that goes with it. Under Thai labour law, severance for long-serving staff can run to many months' pay, up to 400 days' wages after 20 years, so find out how long everyone has been there before you agree a price.

But that's what you're buying. If I found myself thinking I didn't want to take on the company because I wasn't sure about something, that would be a red flag, and I'd walk away from the deal altogether.

This is part of my series on buying a business in Pattaya: why buy rather than start, how to value a business, leases, landlords and paperwork and taking over: the first few months. For the basics, including foreign ownership rules, read starting or buying a business in Pattaya.