Knowing Your Lease When Buying or Selling a Business

It isn’t typical for small- and medium-sized businesses to own the property from which they operate. Most businesses start out renting commercial space for their office space, store, warehouse, or restaurant. Many continue leasing even several years into their business because it can provide several benefits. When business owners are party to a lease with the building owner, the lease becomes an integral piece of the puzzle of buying or selling a business.

When it comes to M&A, you’d be surprised at the number of people involved who neglect the importance of leases. In this piece, we’ll help you understand why you should avoid doing that and instead be get ahead of the lease to prevent issues from occurring down the road.

Common Types of Leases

The three most common types of leases are the sub-lease, a new lease, and the assignment of lease. Each presents its own issues, which is why it’s advisable to work with a professional M&A advisory firm when either buying or selling a business.

Sub-Lease

A sub-lease is best understood as a lease within a lease. When sellers have sub-leased a property, they’re often permitted to serve as the landlord themselves. It’s important to note, however, that the building or commercial space owner still possesses a binding agreement with the seller of the business. Hence, sub-leasing still requires the initial landlord’s permission.

New Lease

In the event that the previous lease on the property expires, or a substantial change to the lease is required, a new lease may be in order. If you’re buying a business where a new lease is required, you’ll work with the landlord directly to negotiate terms.

Assignment of Lease

By far the most common, assigning a lease is used when there’s already a lease in place with time remaining on the contract. The seller assigns all rights of the lease to the buyer; therefore, the buyer is granted permission to use the commercial premises where the business for sale presently exists. Typically, once the assignment is completed, sellers don’t have any further rights.

Disclose All Issues with the Lease Before Starting the Sales Process

If there are any issues or potential issues with the lease, it’s essential to disclose them at the start of the sales process. Buyers aren’t typically thrilled about surprises down the road that’ll keep their business location unstable. They want to see sellers do their part in making their transition from buyer to owner/operator as smooth as possible.

If you’ve decided to sell your business or are looking for a business for sale in Massachusetts, South Carolina, Ohio, Florida, Pennsylvania,  New Jersey or elsewhere in the US, it’s crucial to have experienced M&A business advisors oversee the process to avoid potential problems in the future.

As a leading M&A business advisor, we have decades-worth of experience in helping clients in the complex arena of mergers and acquisitions. We help sell businesses by maximizing deal value and creating lasting and positive relationships. When it comes to our buy-side clients, our vast network of resources successfully minimizes risk potential, wasted time, and expenses.

Contact Gulfstream Mergers & Acquisitions for more information or call at 1-704-892-5151.