Motel leases commence with periods between 25 to 30 years.
For a lease period to be this long it creates a position similar to ownership.
This means the Lessee maintains the property as though he owns it.
The Lessor (Landlord) usually pays for structural faults and resultant damage.
When the lease becomes less than 15 years careful consideration on Capital Expenditure must be carefully assessed.
A properly acquired and run leasehold motel is a very profitable business returning 30% yield to the Lessee.
I must place emphasis on PROPERLY ACQUIRED AND RUN
Motel Assist can supply extensive information when purchasing a Leasehold Motel business.
It is important to understand the conditions of the lease. We suggest when you have decided on a Leasehold business that before you commence negotiation read the lease.
Highlight the areas you do not understand in pencil and visit your Solicitor for his explanation. The legal interpretation in many cases is determined differently to what you consider logical. The lease controls the bounds of your business existence. Please I implore you to get this right.
The AAoA has resources in this area which are available once you join.
About the Lease:
Leases in NSW are prepared by the legal fraternity which requires close scrutiny by your Solicitor when purchasing a leasehold business. We reiterate from above under no circumstances do not think that you understand the terms of the lease because you need a legally trained mind to interpret the lease.
A draft of a typical NSW lease is here which you can download and read through enabling you to see the complexity of the document.
If you are entering a new lease consider including a sinking fund allowing for replacements over a 10 year period. When a lease is prepared capital expenditure is calculated over the nominated period and a figure is included in the lease as a contribution to a sinking fund. This is drawn down when capital expenditure is required on the motel.
In NSW some Leasehold motels become run-down due to lack of maintenance. Once a motel passes a certain point it is too late. The room rate and occupancy begin to reduce at the same time spiraling the motel into a non-recoverable position.