You’ve found a great business and are excited to start negotiations with the sellers – but here’s a thought you may not have considered. That’s not the only negotiating you’re going to have to do.
When you buy an existing business, you typically are not buying the physical space that the business occupies.
Most businesses come with a lease, and that lease comes with a landlord and/or property manager.
Most landlords accommodate transfers easily, but not all do. Deals can get hung up on the lease when the landlord refuses to grant the transfer or has decided to change the lease terms dramatically. They can also get hung up if you don’t start working on the transfer until the last minute.
The most important thing you can do as a buyer is get your hands on a copy of the current lease as soon as possible, and then deal with any lease issues long before the day you are supposed to close your deal.
Once you have the lease, the language you would typically want to see is in the section of the lease that has to do with transfers or assignments of the lease. Does it say something along the lines of “any assignment will not be unreasonably withheld”? If it does, you are probably in good shape. This type of language means the landlord would have to come up with a very good reason to keep from transferring the lease to you.
Landlords, for the most part, are concerned with keeping a rental space filled and generating rental income. Some, however, are unwilling to reassign leases (at least initially).
This is a part of the business sale process where your business broker will be an invaluable asset. They can act as a buffer between you and a difficult landlord, and can help to negotiate your new lease or the reassignment of the old lease to keep the lease rates reasonable.
Another way to keep the lease from holding up your closing is to be forthcoming with your financial information when the landlord asks for it. Most landlords are going to want to see some kind of financial statement that proves you have the capital to keep the business open. It would be foolish for them to rent to a tenant who will be forced to close the business doors only a third of the way through the lease. Some landlords also want to see some kind of resume or work history to show you have the experience necessary to keep the business running and profitable.
You should also be aware that in some cases the rental rate will slightly increase from what the seller is currently paying when you get a new lease. You can negotiate a lease extension at the same rate, but eventually your new lease may come with a new rental rate. You will also be responsible for coming up with the deposits necessary for the lease.
The message here is your business won’t be much of a business if you can’t get a lease assigned to you for the space. Deal with lease issues early on and the won’t become a big headache in the end.
Are you a business buyer who has questions about business leases? Have you had a deal fall apart because of a difficult landlord? Please feel free to leave us a comment or question here, and we will be happy to assist you with any lease questions.
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