Learn the Lingo

Industry Terms

FREEHOLD: Ownership of the Land, Buildings and Business. Generally called an “Operational Freehold” as the owner owns the land & buildings as well as operating the Business. Shouldn’t be confused with an Investment (sometimes referred as a Passive Investment), where the land and buildings a Leased out (rented) to a third party who operates the Business.

LEASEHOLD: A Leasee (tenant) owns and operates the Business and has a right to occupy the land and buildings from a Leasor (Landlord) for a fixed term and subject to the terms and conditions of the lease agreement, which includes a Rental payment.

ADDBACKS: Those private or unusual expenses in the Accounts that are added back to the Accounts Net Profit to give an “Adjusted Net Profit” figure. They are designed to give an expected Industry based Net Profit figure for a working ownership couple, before they pay themselves, their Mortgage Interest and Tax. They standardise or normalise the Business expenses over the year, based on Industry expectations. Typical “Addbacks” are Depreciation, Mortgage Interest, Owners Wages, owners Superannuation, excessive Repairs Maintenance and Replacements, excessive Motor Vehicle expenses, excessive wages (based on a working couple). 

COLLATERAL: Other assets that they use as security to satisfy a financier's criteria. Should there be a default the lender can seize those other assets to satisfy the debt.

APPORTIONMENT: The splitting up of the sale price into its various components of goodwill, goods and chattels and land is called the apportionment. We strongly recommend an unapportioned Contract price, ie a single Contract price (other than a split where a Freehold Property is being sold under 2 Contracts –  Land & Business), which allows you to bring in a Quantity Surveyor and revalue your Fixtures & Fittings for Depreciation purposes.

CONDITIONAL CONTRACT OR APPROVAL: A Contract that exchanges subject to certain conditions being met eg Accountant Due Diligence of provision of Finance to the buyer. A Contract becomes Unconditional when these conditions have been met. There will be a definite time limit to an Unconditional Contract, usually 28 days.

GOODS AND CHATTELS: These are the moveable items that are sold as part of a business or a motel. Eg Beds, TV’s, Washing Machines

STOCKTAKE: A count of consumable items (food & beverage items, laundry detergents, guest amenities, linen if hired etc) which takes place on Settlement day. The value of Stock is usually in addition to the purchase price of the property and is calculated at cost price.

INVENTORY: List of Goods & Chattels/Fixtures & Fittings that are included in the Sale. Eg Beds, TV’s, Fridges, kitchen appliances, etc.

MOTEL/CVP SPLIT: Operational Freehold is divided into a Leasehold operation (Tenant) and a Passive Investment (Landlord)