If you're a business owner and you also own the property it operates out of—congratulations! You can skip this article!
But if your business operates out of leased space, you should keep reading. You'll soon understand how your lease agreement can either smooth the path to a successful sale or become a major roadblock.
When it comes to business sales, the ease of transferability cannot be overstated. Buyers want to know they can continue operating the business without disruption.
That starts with securing the space where your operations take place.
So whether you run a retail shop, a manufacturing facility, or a service business, handling your lease properly is essential to securing a deal.
Let’s break down why your lease matters and how you can manage it effectively when preparing to sell your business.
Why Your Lease Agreement Matters in a Business Sale
For many businesses, the location and space they operate in are key components of success.
If you're selling a retail store, restaurant, or service-based company, the physical location can be just as important as the products or services you offer. Buyers need to know they can continue running the business in that space without the risk of losing it or facing huge rent increases.
In some cases, your business's value is directly tied to its location. For example, an auto repair shop without its garage bays is just tools and equipment.
If the buyer can’t secure the lease, they’re not buying a functioning business—they’re buying parts.
That’s why reviewing and managing your lease is critical before selling. A poorly handled lease can sink a deal, while a well-managed lease can make your business far more appealing to buyers.
Step 1: Review Your Lease Agreement
The first step is to thoroughly review your current lease agreement.
Understanding the terms of your lease will help you identify potential issues that could arise during the sale process. Pay close attention to the following:
Assignment Clause: Does your lease allow you to transfer the lease to a new owner (the buyer)? Many leases require the landlord’s consent before the lease can be assigned.
Notice of Ownership Change: Some leases require that you notify the landlord if the business changes hands, even in a stock sale where the lease stays with the same entity.
Sublease Options: If assigning the lease isn’t possible, does your lease allow you to sublet the space to the buyer?
Renewal Terms: Do you have any renewal options available? Extending the lease before selling can add stability and value to your business.
Security Deposit and Guarantees: Understand what happens to your security deposit and any personal guarantees attached to the lease. Will they transfer to the buyer, or will you remain liable?
If any of these areas raise concerns, now is the time to address them—not when you’re deep in negotiations with a buyer.
Step 2: Open Communication with Your Landlord
Once you’ve reviewed your lease, it’s time to approach your landlord. But how and when you do this can make a big difference.
Landlords can sometimes see a business sale as an opportunity to raise rent or renegotiate terms. That’s why it’s important to be strategic.
Start the Conversation Early
Don’t wait until the last minute to involve your landlord. Give them ample time to consider the situation and approve any necessary changes.
If you’re planning to sell in the next year or two, start the conversation now. This gives you time to address any issues before they become problems.
Frame It as a Transition, Not a Sale
When speaking with your landlord, frame the conversation as a partnership transition instead of an outright sale.
Explain that you’re bringing in a new owner to continue running the business successfully. This can help ease concerns and reduce the risk of the landlord using the situation to raise rent.
Gauge Their Flexibility
Use the conversation to feel out your landlord’s willingness to transfer the lease or approve a sublease. If they seem hesitant, it may be a sign that you need to explore other options.
Step 3: Explore Your Lease Transfer Options
Depending on your lease and your landlord’s stance, there are several ways to handle your lease when selling your business.
Option 1: Assign the Lease to the Buyer
The best-case scenario is that you can transfer the lease directly to the buyer. If your lease allows assignment and your landlord agrees, this is the smoothest option. The buyer simply steps into your shoes, and the lease continues under the same terms.
Option 2: Extend the Lease Before Selling
If your lease is nearing its end, consider negotiating a long-term extension before selling. A longer lease term can make your business more attractive to buyers, giving them security and reducing the risk of sudden rent increases after the sale.
Option 3: Sublet the Space
If your lease doesn’t allow for assignment but permits subletting, you can sublet the space to the buyer. This isn’t ideal because you remain legally responsible for the lease, but it can be a workable solution if transferring the lease isn’t possible.
Option 4: Negotiate New Terms
If your landlord is resistant to transferring or subletting the lease, it may be worth negotiating new terms. Sometimes offering to increase the security deposit or sign a personal guarantee for a short period can ease the landlord’s concerns.
Step 4: Eliminate Lease-Related Surprises
No buyer wants to be surprised by unfavorable lease terms during the due diligence process.
Be proactive by addressing these potential issues early:
Outstanding Rent or Disputes: Resolve any unpaid rent or disputes with the landlord before listing your business for sale.
Hidden Fees: Review your lease for any hidden costs, such as maintenance fees or automatic rent increases.
Personal Guarantees: Work with your landlord to remove or transfer any personal guarantees tied to the lease.
Buyers will appreciate the transparency, and it will make negotiations much smoother.
Step 5: Work with a Professional
Navigating lease agreements can be complicated, especially when selling a business.
That's why it's critical to work with an experienced business broker who understands lease transfers and small business sales.
They can help you interpret lease terms, negotiate with landlords, and ensure the transition is handled correctly.
A Secure Lease Means a Stronger Sale
Your lease is more than just a piece of paper—it’s a key part of what makes your business valuable.
By reviewing your lease, working with your landlord, and securing favorable terms, you make your business more attractive and reduce the risk of last-minute surprises that could kill the deal.
Don’t let your lease become a roadblock. Handle it early, handle it well, and set your business up for a smooth and profitable sale.
Interested in learning how to prepare every part of your business for sale? Contact us today to ensure your business is ready for a successful transition.
About Robbins Pellegrino: Robbins Pellegrino is a Florida-based business brokerage firm led by Chandler Robbins and Joe Pellegrino, Jr. that is committed to redefining industry standards. We focus on creating meaningful partnerships and ensuring successful business transitions for both buyers and sellers. For more information, visit us at www.robbinspellegrino.com or call (239) 360-6273
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