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frannyD

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I’m looking at a place in my town. Once upon a time it was very popular. About 8 years ago it was bought, run absentee, and basically run into the ground. It has a fully equipped kitchen, with a double deck. Hoods look real good. All equipment is old, I will replace as it inevitably breaks down. It’s an older free standing bldg., which was expanded, so the kitchen is practically separate behind the orig. bldg. There’s an area between that is actually outside, w/ stairs that go to a small apartment, which is part of the lease.
I’ve had my eye on this place for awhile. Everyone was complaining about them, it was empty night after night. I found out I knew the owner, an accountant that did our construction biz taxes way back when. When I originally approached him, he sounded interested, but then was wavering (his accounting biz is very successful). I offered to rent it for lunch service, and as a possible base for a mobile operation. He flaked on a meeting then didn’t return our calls.
Fast forward 6mo. Later. I’m driving by and notice its “closed for remodeling”, hmmm. Husband calls him, “What’s up”? Said he can’t handle it anymore, (I’m sure it’s bleeding $). Calls us right back to come meet him. Wants to unload it ASAP. Now, I’m freaking out because it’s all happening so fast. It seems like a great deal. The hoods alone (new) would cost me what he wants for the place. Basically an asset sale, includes beer, wine license. It’s close to my house, I can walk there. . We can pay cash for this place tomorrow. When we did the tour, I noticed: 1) no grease trap, 2) no bowl guard, 3) no ada. There’s no prep sink, he said I can use the triple. Does anyone know if that sounds right? Also, no mop sink, but remember they have a big outdoor area between, that’s where I saw a mop and bucket. Also, I know this place has some liens according to county records, I don’t think they will transfer to a new owner, but am not sure. These things wouldn’t be a deal killer for me, but he says there’s no need for an inspection before deposit, contract.
 
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frannyD:
These things wouldn’t be a deal killer for me, but he says there’s no need for an inspection before deposit, contract.
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In my opinion due diligence on your part would include a complete inspection by health, fire and building inspectors. If you feel you need to do the deposit and contract without, make sure there is an escape clause tied to the inspections.
 
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I definitely planned on it. I’ll see what his reaction is to the clause. Like I said, I expect to do some things of course, but I’m afraid of being closed up for 6 months - while paying rent. He’s in a real rush for whatever reason. Also, since Monday is a holiday, I cannot contact anyone from the city.
 
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If you have done much reading here you will likely have seen posts by a fellow named George. His standard advise is all systems must be brought up to current code. There is no grandfathering when there is a transfer of ownership.
 
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I know, it’s scary. We have a construction business, just getting a permit for something small can be a nightmare. Times that by a 100 when you’re talking about a restaurant. Ansel’s been upgraded, and he has brand new extinguisher’s that cost 2500.00. He showed us the receipts. Luckily, my husband can do most of the work 🙂 I’ve done lots of reading here, books, etc. Add to that, what I’ve looked at over the past year, talking to owners, brokers, etc. That’s why this seems to good to be true…just walking in here like that.
 
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OK…take a step back. You call and he runs out to meet you. He wants to sell it today. He says you do not need inspections. This building is old and missing ALL of the big and required items that all those nasty city, county, and state guys will want. It is a closed establishment so there goes the grandfather clause on most of it. If he wants…sign a letter of intent and base it on final inspections. This place will not disappear overnight and if he is selling so cheap… there is a reason! Oh…and you better believed that property taxes can follow the property. It’s called the sheriffs sale! Get a good business attorney involved if you are serious to protect yourself and call the inspectors out first…ALL OF THEM! Think of the possible outcomes here.
  1. You listen to him, sign, buy, and open without many issues. (Dream Act)
  2. You sign intent, inspect, buy, and open without many issues. (Still Dreaming I Think!)
  3. You sign intent, inspect, buy, REPAIR, and open… (Possible)
  4. You listen to him, sign, buy, GET ESTIMATES TO DO ALL REQUIRED UPGRADES, CRY! and walk away with a building for sale.
  5. Same as #4 but you invest a lot into repairing all the issues the seller, who blew you off once, and now wants to hide in a fast sale, is trying to pull over on you!
A couple days is not the issue here…it is why is he pushing and the comment that you do not need inspections has me out the door already! Oh…yeah, the mop bucket in the alley code got changed in 1947! Be careful and best of luck.
 
The rush seems a bit suspicious given that there appear to be no other buyers or marketing attempt prior to your call. If you give a deposit, have it held at an escrow company with escape clauses tied to due diligence inspections as Daddio pointed out.
What kind of lease comes with the place? Is it transferable and renewable of does the owner have other plans for the property soon? Is another pizza shop opening soon in the area? Your going to want to talk to the property owner. Perhaps the present pizza shop operator is behind several months and notice has been served. You may become responsible for liens upon purchase of the business. If this is the case, maybe your better off letting the owner evict the present tenant and then lease from the owner with a clean slate. Much of the equipment will still be there.

Have you ever operated a restaurant or pizza shop? I’ve had friends that hadn’t worked in one before opening their own and they said “their dream turned into their worst nightmare.”

In my area, if a restaurant changes owners but continues running uninterrupted then there is a grandfathering of code. However, if it closes and reopens then ADA, etc have to come up to code and this can sometimes be very expensive.
 
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His lease is up in June. It’s very cheap, but I can’t expect any TI. He said he’s going to contact them as soon as he has my deposit, to meet with them, talk about lease terms, etc. He just closed up Feb. 1st. All utilities, phone, garbage, etc. everything is still on. He cancelled his sysco / food orders, has employees waiting. If it wasn’t for deliveries, he’d have been gone a long time ago. His son was opening it after work, and he’s doing something else now, and the owner is a very busy acct., and knows nothing about pizza. I’ve worked at pizza/ sub places growing up in NJ, and since moving to Cal over 20 yrs ago, have been making my own. I also make a lot for parties. I’m pretty confident I can make it work or I wouldn’t be doing it, I’m not a huge risk taker. It will be a fairly small operation. I do all the bookkeeping, payroll, taxes, etc. for our construction biz, so no problems there. There isn’t any half-way decent pizza in my entire town.
He tells me, he’s doing it just like he did when he bought it. Sort of “trust me”. lol
 
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Lol Qfc Mike. I know, I know. That’s why I posted this here. I’ve read it all before on these boards, that’s what I tell my husband. The property taxes are paid up. The liens look like they may possibly be for taxes, sales or payroll. I definitely will have a lawyer look at anything I sign. If I didn’t know this guy personally forget it. I definitely know he is very busy and cannot possibly run this place. He was interested when i last talked to him, but his son was still around. His son is like 25 yrs. old, he got tired of it. I figured all along, he was using the place to launder money or something. lol
 
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This has potential . . . .but two flags jump out at me.
  1. Why is he going to negotiate YOUR lease for you. If his lease is expiring, then you need to negotiate lease and extensions yourself before signing anything. Short or crappy lease is no bueno.
  2. Find out hard evicence about those liens before you go any further. If those liens are against property and/or equipment then this is a complete non-starter. If the business comes with debt, and you are assuming that debt, then this isn’t worth the equipment. Get financials for an accountant to review. Otherwise, don’t pay more than a little for equipment. You are ‘buying’ cashflow in an axisting business. If there is no documentation of a free and clear cashflow, then this is a non-starter.
 
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Ok…now that I re-read the posts… I thought you were buying the property. That not being the case…it gets more interesting. You might just be buying a lot of old worn out equipment in a leased space that will not pass inspections to open if you buy the current owner of the business out. Step back and break it all down. Ask what you are looking to do here. Take over his failed operation or start your own? He is closed so that kind of fills in the current sales numbers! So what value are you really getting here? From what you have described not much. Start with the lien and tax search. That wont cost you anything. Then get a walk-thru with the inspectors to at least get a feeling where they are at. With so many possible and obvious red flags…I wouldnt even sign anything until you get some answers first. It is not like they are lined up at the door to take the place. I would also contact the landlord directly. Inform him/her of your possible intent and see where they sit right now with things. With 4 months left on the lease… what is it worth to the owner to have you take over? Is this space likey to rent quickly if put on the market in June or sit for a year or longer? With what will likely be a long list of needed improvements why not negotiate a solution that works for both of you. Say free rent for X numbers of months in return you invest that money into bringing the space up too current code for ada and additional kitchen requirements. This could be a win for both. It is something you would have to install anyway and although they are not collecting rent… what are the real chances this space sits for a while empty? It is a gamble that they should be willing to take if the location fits the vision I see it in. Also by getting the landlord on board you can use these four months rent as leverage in the purchase of the equipment. No matter which way you proceed you need to handle both sides independently of each other…as the seller is walking away and the landlord is going to be a new longterm relationship!
 
frannyD,

This may be a great opportunity or a terrible one. Here’s the way I look at it:
  1. His lease is up. This means he is a stranger, total stranger. If he’s out, there’s no going back in. YOU SHOULD BE TALKING WITH THE LANDLORD! Find out all your information from the landlord. Is the former tenant in arrears on rent?? Is the landlord taking possession of any equipment in lieu of rent??
  2. You need to stop talking with guy immediately! DO NOT GIVE THIS GUY MONEY!! He is a nobody. If you need to talk, go schedule a meeting with the landlord.
  3. If you and the LANDLORD can come to some agreement, ensure that its contingent on the building passing inspections. Most of the equipment you mentioned is NOW PART of the building.
  4. Beer & Wine. Check with your state!! In my state, thay ARE NOT TRANSFERABLE.
  5. NO GO on using the triple for prep. Do not talk to this guy anymore. Find another professional to look at it with a new set of eyes. Your health department & fire department would be a great start.
You don’t have to pay this guy one cent. He doesn’t have anything for sale. Its already over for him. Get the landlord’s number and talk with them. Good luck!!!
 
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Thanks for all the input! I think it’s very possible he may be in arrears on the rent. That is why he says, “after a deposit”, I’ll call the landlord. Perhaps he was just letting it go, then we called…But why would he have utilities all on? Maybe he was behind at Sysco and for marketing also. He figures he can take my money to pay off his debts? Also, he said he would work it with me for 2 weeks, and do all transfers with me. Maybe he’s in a rush to do this thinking of the grandfathering, if any, as opposed to it closing? He did mention the inspector wanted him to replace the shelves in the lower pizza prep. What else? He showed me the report, but I didn’t see that. Maybe he was paying the inspectors off, who knows? I’ve looked at places before and they told me the things that needed replacement. I’m sure everything is worth what he is asking, I’m in California, so I think the liquor is transferable. I’m not opposed to doing some work. Mop, prep sink,etc. The ADA bath would be easy, as it’s just moving one wall over and there’s plenty of room. For this though, of course, we would have to close…then what? I don’t want to be closed months upon months while paying rent. If this were to happen then by all means, I would be better working with landlord for sure. I think it would move moderately fast, if they kept the same price for lease, and marketed it.
 
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Franny…DO NOTHING UNTIL YOU TALK TO THE LANDLORD, INSPECTORS, AND CITY/COUNTY/STATE. Do not assume anything. Would you buy a used car in this situation, where the seller was pressuring you to buy now before having a mechanic look at it? If you would, let’s talk about you buying my car.
You want it, and he knows it. Something smells like an overflowing grease trap, which means either the trap is underside or it’s been ignored too long. A metaphor I like, and it seems pretty accurate at this point, from this perspective.
 
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Hi guys:

I a pleased to see all of those urging Building, Health and Fire Marshall inspections’

There was a comment " In my area, if a restaurant changes owners but continues running uninterrupted then there is a grand fathering of code. However, if it closes and reopens then ADA, etc have to come up to code and this can sometimes be very expensive."

I have never encountered that situation in any jurisdiction. It is to the best of my knowledge, a universal requirement that a new occupancy permit be issued when a business changes hands. A new occupancy permit usually entails inspection by Building And Fire officials in any building plus the health department for food service facilities and every thing brought up to code.

George Mills
 
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Thanks George! Also my jurisdiction has bad rep as it is! I’m not giving up on it, as it is almost perfect, and I’ve been looking a looong time. My husband’s going to call him tomorrow, and tell him we want it, but not without,
  1. talking to landlord 2) having it inspected, to see what needs to get it to code. See what he says. I can’t go to county 'til Tuesday to find the owner of bldg. We would probably do the work, provided we get free rent. Would be even better if they wanted to sell the building! We can do the work quickly enough, but you never know how long inspection process will take. I’ve heard of some nightmares around here.
 
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Many counties now have tax records available online. The county where my commercial property resides does have a website searchable by name, address, tax parcel, so maybe our county is big enough to have done it.
 
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Take a breath and take your time! There is no rush on your part the longer you go the better decisions you will make and the cheaper things will be. You ate basically buying used equipment package.
 
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Husband talked to the owner, shared our concerns about lease / inspections. He wants 5K, and he said he will give us money back, if everything doesn’t go through. Calling him back in the morning, we will go see what the agreement says. I’m going to tell him I want to at least see his current lease.
 
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Something simply feels wrong about this whole story. $5k? I hate to say it, but I’d think about turning away and running as fast as I can.
 
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