Print Posted on 03/30/2017 in business broker

Transferring your Lease after a Business Sale

Transferring your Lease after a Business Sale

When you sell your business you’re selling more than just its inventory, reputation, goodwill, fixtures and equipment. You’re also selling the physical location of your office or the commercial lease you signed. The real estate covered by that lease is one of the important assets you’re transferring to the buyer. Have your attorney review the lease for problems before contacting potential buyers.  

A commercial lease assignment is a provision included in many leases that transfers lease obligations from the seller to the buyer. This eliminates the need for negotiating a new lease when a business is sold. Your lease agreement may contain requirements for additional deposits for a seller (assignor) and buyer (assignee) when a commercial lease is transferred from one party to another. 

Tenant Rights and Selling Your Business

Landlords aren’t required to offer an assignment clause in commercial leases, so unless you negotiated to have it added, it may cause problems when it comes time to sell your business. Most independent companies are eventually sold by their owners, and an assignment clause makes the transition easier for buyers and seller. 

Neglecting to address the assignment clause in a commercial lease many result in buyers walking away from the sale. Landlords may take up to 60 days to approve the assignee and some buyers don’t have the patience to wait this long. Bottom line – the sale should be conducted between you, the buyer and your respective teams. 

Is the Renewal Option Clause Transferable?  

A renewal option clause may protect the buyer from being evicted when he or she buys the business with 18 months left on the lease. “May” is the operative word – not all renewal option clauses are transferable to the buyer. Review the lease before discussing final sales arrangements with the buyer to prevent problems. 

Working with the Landlord and Buyer during the Approval Process

Find out what financial information the landlord wants from the assignee (buyer). Unless the request is to intrusive, most buyers will oblige. If you (or your broker) pre-qualified the buyer, you should have no problem with this process. When you’ve pre-qualified a prospective buyer who has good credit and has successfully helmed businesses in the past, the landlord will be glad to accept them as a new tenant. If you’ve neglected to pre-qualify the prospect, he or she may be in debt or have other problems that make the landlord hesitant to transfer the existing lease. 

Consider the Assignment Processing Fee

The assignment processing fee varies, and in some instances you won’t need to pay one. If you do need to pay, you need to let the landlord know in writing, and he or she will start the process. The guaranty, deposit and other parts of the assignment agreement can be negotiated. If the buyer defaults, the landlord may require you to pay the lease. 

Your landlord wants proof that the assignee will be able to pay on time. A suspicious landlord can sabotage your sale if they don’t like the buyer’s financial information. How can you, as the seller, prevent this?  If you’ve pre-qualified the buyer and your landlord trusts your judgment you won’t have a problem. The landlord won’t have any objections, and the lease transfer will proceed without delay.  

Confused by your commercial lease agreement and how it will affect selling your business? The business brokers listed with have worked successfully with all types of businesses to resolve commercial lease issues during the sales process. Call us at 1-800-BIZ-BROKER today or visit our website to find a qualified business broker in your area.

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