The short version
- Buyers treat the lease as critical for location based businesses.
- Look for assignment language that cannot be unreasonably withheld.
- A personal guarantee can outlive the sale unless the landlord releases it.
- Below market rent is a risk, not a perk.
Why Buyers Care
A restaurant, shop or clinic cannot move easily, so buyers will not close without a lease that fits. They check the remaining term, renewal options and the rent history.
Landlord Approval
Most leases require the landlord to approve a new tenant. Language saying approval cannot be unreasonably withheld protects your ability to sell. Landlord approval has taken about two months in some deals, so ask early.
Personal Guarantees
A guarantee you signed can survive an assignment and even closing the company. Ask your attorney to negotiate a release from the landlord as part of the deal.
Rent and Renewal Terms
Buyers underwrite at market rent. A cheap lease that expires soon lowers adjusted earnings and the price. Renewal terms should state a rate rather than say market rate at renewal.
Fixed base rent is easier to value than percentage rent, where the landlord takes a share above a sales level.
Lender Requirements
A lender or landlord may ask for a lien subordination, which sets who takes the assets first if the buyer defaults. Attorneys negotiate it, and it can hold up a loan closing, so start early.
Questions for Your Attorney
- Can the lease be assigned, and what does the landlord have to approve?
- Will I stay liable after the assignment?
- Does the buyer need a new lease instead?
- How long will the landlord take to respond?
Start Before You List
Read the lease cover to cover and ask your attorney about anything unclear. Fixing a problem before a buyer sees it costs far less than explaining it during diligence.
If You Own the Building
Set a market rent in a written lease before you list, even if you will own the building after the sale. Read the transfer tax guide and then request a valuation.