There are a two ways to buy a restaurant in New York. You can do it by purchasing the ownership shares of the seller or you can purchase the assets of the seller. Each has its advantages and disadvantages in New York but an asset purchase is almost always more beneficial for the buyer. With an asset purchase, the buyer is only assuming certain specified liabilities of the seller. With a purchase of the ownership shares (stock certificates if seller is a corporation and membership interests if seller is a Limited Liability Company), the buyer will be assuming ALL of the liabilities of the seller, known and unknown. In either scenario, a lien and judgment search must be performed on the seller’s business.
GENERAL RULE: Buy the restaurant by means of a bulk asset sale / purchase rather than a purchase of the ownership shares.
You must review the existing lease carefully to determine if the seller is able to assign it to you. If they are able to assign it, you must determine whether the existing clauses are acceptable to you including the term remaining on the lease, the rent amount, the security deposit, the personal guaranty, etc. If they aren’t able to assign the lease, the landlord needs to be contacted to inquire if they are willing to let the tenant off the hook and issue a new lease directly to you.
The purchase agreement, which will either be a stock purchase agreement or bulk asset purchase agreement, will need to state all of the terms of the sale including, but not limited to, the purchase price, the amount being held in escrow, the amount to be paid at closing, the specific assets being purchased, the date for closing, any contingencies to closing (e.g. liquor license granted to Buyer), and any personal representations and indemnifications. A Bill of Sale should accompany the purchase agreement along with a corporate resolution from the seller authorizing the sale. Remember, even with an asset purchase agreement, the buyer will be responsible for any unpaid New York State sales tax owed by the seller. This is why it’s very important to (i) file the appropriate bulk sales notice (form AU 196.10), (ii) have the seller personally represent that no taxes are owed and have him/her agree to personally indemnify the buyer for any unpaid taxes, or other liabilities, that were incurred on or before the closing date, (iii) set the closing date to occur after a tax release letter is received from the New York State Department of Taxation stating that no taxes are owed, and/or (iv) have a large portion of the purchase price held in escrow until the release letter is received from the Department of Taxation. This article is intended to give you a general idea regarding what to look out for but you should retain an experienced restaurant attorney if you are considering purchasing a restaurant or bar in New York.