Hotel Disposal in the United Kingdom: Comprehensive Guidelines and Procedures Involving Such Exercise

Author:  Mohd Ashraf Ramli & Nadia Emira Sazahan

The sale of a hotel property by a company in the United Kingdom (“UK”) involves multiple coordinated steps across valuation, due diligence, legal compliance, transaction structuring and completion. Below is a comprehensive guide on the sale and purchase of a hotel in the UK, drawing from our past experience in representing clients in acquiring UK-based hotels. We will also use Malayan United Industries Bhd (“MUI”)’s disposal of its Lake District hotel as a case study. 1. Valuation and Market Preparation

1.1. The seller, along with their advisors, conducts a thorough market analysis to establish price expectations. Understanding current market conditions is crucial, as hotels are often valued using metrics like RevPAR (Revenue Per Available Room) or ADR (Average Daily Rate). Comparable transactions and market data play a key role in guiding the pricing strategy to ensure the property is priced appropriately and positioned to attract serious buyers.

1.2. A professional valuation, often performed by RICS-certified surveyors, may also be obtained. This valuation can involve comparing similar hotel transactions, capitalising net income using EBITDA multiples, or applying a discounted cash flow model. These approaches help establish an accurate and defensible asking price. Additionally, such valuation process may also assess the property’s physical condition, legal title, financial performance, and compliance with all regulatory requirements.

2. Legal and Financial Due Diligence

2.1. Comprehensive due diligence is carried out to assess the asset’s legal and financial standing.

Legal Due Diligence

2.2. Legal due diligence encompasses several critical components. It begins with verifying ownership through a Land Registry search to confirm freehold title and any encumbrances. This process also involves checking planning permissions and consents, building regulation compliance, fire and safety certificates, and any occupancy licenses (such as liquor or music licenses). Additionally, historic covenants, rights of way, and chancel repair liabilities on the land must be examined.

2.3. A structural survey is typically conducted to assess the building’s condition. Sellers should identify and remedy major defects to justify the asking price. Investigations should also include checking for asbestos (under the Control of Asbestos Regulations 2012), assessing flood risk (per the Flood and Water Management Act 2010), verifying utility connections, and addressing any outstanding disputes.

2.4. Environmental due diligence is especially critical for larger sites. Under the Environmental Protection Act 1990, owners are liable for contaminated land. If the original polluter cannot be found, the current owner or occupier may be ordered to remediate it. A buyer who fails to clean such land can even become a “Class A” liable party under the Act. Therefore, environmental searches (e.g., for past industrial use, mining, waste sites) and soil tests are often conducted.

2.5. In our case study, the hotel is located in the Lake District National Park and is Grade II listed, meaning that any planning permissions or alterations must observe heritage and conservation rules. The seller must ensure planning compliance, including obtaining appropriate consents for recent works, and inform the buyer of any restrictions by providing complete documentation—such as title deeds, planning approvals, and environmental reports to ensure a smooth transaction.

Financial Due Diligence

2.6. Financial due diligence involves scrutinizing accounting records, profit and loss statements, occupancy data, and operating costs. Presenting accurate financial records is essential for instilling buyer confidence. This process may also include commissioning third-party audits or valuations to ensure fairness, as well as reviewing the hotel’s revenue records, profit history, liabilities, and tax exposures.

3. Structuring the Transaction

3.1. Hotel disposals can be structured as either asset sales, involving the sale of the land and business assets, or share sales, involving the sale of a company that owns the hotel. Asset sales are often preferred, as they allow the buyer to acquire a clean slate of assets—such as land, buildings, furniture, fixtures and equipment (“FF&E”), brand rights, inventory, customer bookings, and contracts—without inheriting old liabilities. The sale contract typically lists the transferred items, including freehold title, FF&E, hotel reservation systems, trademarks (if applicable), and possibly goodwill.

3.2. In the MUI case, the transaction was structured as an asset sale, separating the property component (acquired by Belsfield Propco Ltd) from the operational business component (acquired by Belsfield Opco Ltd). In this scenario, employees’ rights were preserved under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”). These rules regulate the transfer of employees and the terms and conditions of their employment to the new company, ensuring continuity of employment in the event of a change in business ownership. Therefore, sellers must notify and consult employees or unions prior to the completion of the proposed exercise.

3.3. In addition to the above, the transaction required assignment or novation of service contracts, franchising arrangements, and operational licenses including liquor licenses, safety certificates, and franchising agreements. Other relevant legal framework that needs to be taken into consideration would be the Law of Property Act 1925, the Land Registration Act 2002, and the Licensing Act 2003 for alcohol or entertainment permissions.

4. Corporate Governance and Approvals

4.1. From the seller’s perspective, corporate governance mandates that the disposal of substantial assets is properly authorized. Directors must fulfil their fiduciary duty by securing an approval of the sale from its shareholders after obtaining independent valuation and legal advice.

4.2. For listed companies, such as MUI on Bursa Malaysia or a PLC on the London Stock Exchange (“LSE”), stock exchange rules often require prior announcement(s) of material transaction(s) and may necessitate shareholder approval if the sale exceeds a certain threshold. For instance, MUI classified the deal as a “Chapter 10” disposal under Bursa rules and announced it to the market. Similarly, the LSE’s Listing Rule 10 requires shareholder sign-off for disposals of a main undertaking.

4.3. Additionally, Section 172 of the Companies Act 2006 (in the UK) imposes a statutory duty on directors to act in a way they consider, in good faith, would promote the success of the company for the benefit of its shareholders. In the context of a hotel sale, directors must ensure that the transaction is fair, transparent, and aligned with the long-term interests of the company and its stakeholders. Compliance with corporate governance obligations is essential, especially where the sale constitutes a major transaction, in which case both board and shareholder approval may be required.

5. Completion and Registration

The sale is completed through the execution of a deed of sale, which must be executed as a deed under UK law. Once completed, the transaction must be registered at HM Land Registry in accordance with the Land Registration Act 2002. This registration updates the title and records the new ownership. The buyer is also responsible for paying Stamp Duty Land Tax (“SDLT”) under the Finance Act 2003. Additionally, the seller must close any utility accounts or assign service contracts, where applicable.

6. Post-Completion Actions

6.1. Following completion, compliance with TUPE is essential if employees are transferred as part of the sale. This includes notifying and consulting with them prior to the transfer. The seller must also fulfil tax obligations by reporting any gain realized from the disposal under the Corporation Tax Act 2009. If the seller is a foreign entity, such as MUI, repatriation of proceeds must comply with both UK and foreign exchange control laws and tax reporting obligations.

6.2. Typically, the buyer pays a deposit upon the exchange of contracts, with the balance due at completion. The sale proceeds are allocated according to the seller’s corporate plan; for instance, MUI designated the funds from the Belsfield sale to repay bank borrowings and partner entitlements, with the remainder earmarked for expansion.

6.3. After completion, the seller issues any necessary transfer documents (e.g., board resolutions) and may adjust its capital structure—MUI, for example, carried out a capital reduction prior to this sale to facilitate returning funds to shareholders. The seller should also update its financial statements to reflect any gain or loss on disposal and inform auditors. For a listed seller, a post-completion announcement or inclusion in annual reports may be required.

In summary, the sale of a hotel property by a company in the United Kingdom requires careful coordination across valuation, due diligence, legal compliance, and transaction structuring. The case study of Malayan United Industries Bhd (“MUI”)’s disposal of its Lake District Hotel illustrates the critical considerations involved in such transactions. Our experience in representing clients in hotel acquisitions further emphasizes the importance of a comprehensive approach to navigate the complexities of the UK hotel market. Disclaimer:

This newsletter is for informational purposes only and does not constitute legal advice. Please consult with a qualified legal specialist for advice tailored to your specific situation