Navigating Lease Transfers: Real Estate Considerations in a Sale
Unless you own the space where your business operates, you probably have a commercial lease. Assuming your landlord is reasonable, a commercial lease won’t have a significant impact on your daily operations.
However, if you’re selling your business, you will need to determine how to transfer your lease to your buyer. This is a process that unfortunately sounds much simpler than it is. Here’s a look at some of the potential challenges that come with navigating a transfer of your commercial lease.
Reviewing Lease Agreements
Before you start planning how you’ll transfer your commercial lease agreement, take a look at your lease. Often, landlords will include something called a change of control clause.
This is a stipulation that allows the landlord to terminate the lease if there is a change of control (usually a sale) in your business. Typically, the point of this clause is to allow the landlord to directly negotiate with the new tenant.
Negotiating With Landlords
The process of selling your business is one that demands negotiation at every turn. Here’s a brief overview of the negotiation process that may be necessary during the sale.
Proper Notification
Your commercial lease will almost always require you to notify the landlord of any change of ownership by a certain deadline. You should make sure you’re familiar with the notification requirements before you attempt to negotiate a sale.
Assignment and Assumption
The assignment and assumption agreement is a document that clearly specifies which provisions of your lease will transfer over to the company’s new owner.
Other Key Documents
In many cases, the process of negotiating with a commercial landlord also comes with a number of documents. You may need to provide proof of the new owner’s financial soundness, statements of their intent to take over the lease, and more.
If you aren’t already familiar with the documentation this requires, there’s no need to worry. Your business broker can help you assemble whatever you have to provide so you can complete the process of selling your business.
Legal and Financial Implications
Even if you can successfully transfer a commercial lease to a new buyer, the transfer can be expensive. The exact financial stipulations you’ll have to contend with can vary significantly depending on the city, state, and county where your business is located. However, they often include one or more of the following:
- Transfer fees
- Rent assignments
- Adjustments to security deposits
- Personal guarantees
If you are contractually allowed to transfer your lease, the landlord will almost always have to personally vet the prospective new tenant. It’s possible that you could choose a buyer for your business only to find out that the landlord refuses to transfer the commercial lease to them. This can become a tricky situation very quickly.
Situations like these are where your business broker can really help. Brokers routinely handle unexpected problems with sales, and your broker may have an idea of how to proceed. Because the laws around commercial lease transfers can be complex, they may be able to connect you with an attorney familiar with business sales.
Selling Your Business Doesn’t Have to Be Complicated
When you’re selling your business, you have a million details to worry about. Even factors that aren’t necessarily central to running the company — like the lease of your office space — can pose significant hurdles during the sale. Navigating lease transfers can be challenging and overwhelming, but that’s where business brokers come in.
At Sunbelt Business Brokers, we’re dedicated to helping owners of small and medium businesses find motivated, qualified buyers. Wondering if we’re right for you? Get in touch with us today or get started with our free business valuation calculator.
