The purchase of a motel or caravan park lease is a specialised process and should be approached with the assistance of industry professionals. It is essential that an industry expert accountant review the financial records of the business and ensure that the net profit after rent can be verified. The accountant will also provide tax planning advice, assist with the setting up of business entities including companies and trusts and complete cash flow forecasts for the business. The accountant can also be of invaluable assistance in framing the business plan that will be required by the lender in support of the finance application.

The purchaser’s lawyer should be familiar with commercial leases and particularly motel and caravan park leases. The validity of the lease, rent review triggers and terms, the vendor’s right to sell and the obligations of the lessee are all areas requiring specialist legal advice.

Motel and caravan park leasehold finance is also highly specialized. Most banks will lend around 50% of the value of a going concern motel lease. Terms will usually be dictated by the term of the lease with 15 years Principal and Interest being common. The lender will require security by way of a charge over the motel lease together with a landlord’s deed of consent and right of entry. The deed of consent is required as most motel leases include a provision which obligates the lessee to have the land lord’s approval in terms of the lease being used as security for a loan. The bank will require a right of entry as this allows them to enter the motel and operate it should the borrower default on the loan.

Lenders will require the motel or caravan park lease to be valued by an industry expert valuer. The costs can be substantial and must be covered by the borrower. Likewise, the costs of preparing the specialised security documents required can also be significant and should be allowed for when the motel or caravan park lease purchaser is calculating the total costs of purchase and finance.

Many motels and caravan parks continue to generate a significant return on investment and can be a great opportunity for operators to derive substantial returns on capital invested. While the purchase and finance process can be intimidating for first time entrants the use of specialists in all fields will certainly make the process that much easier.