In this article we will take a look at three key considerations involving leases. If you are selling a business that involves a lease, it is important to be aware of the nuances involved because of the lease. Does your business rely heavily on its location? If you don’t own the property, then you will find the lease will be quite an important consideration for your buyer. If you are buying a business that involves a lease, you will want to carefully examine the lease and consider how it might impact your business.
The leased space may have an impact on your potential sale. Here are three key considerations involving leases:
A buyer will want to know if the lease is assignable. If you think you will be selling your company in the near future, make sure your lease is assignable. Check to see if it specifies how long the landlord has to approve a lease assignment. A buyer will not want to wait a long period of time for your landlord to approve the lease assignment.
The first two questions that a prospective buyer will ask is, when does the lease expire and are there any options to renew. A buyer will think it’s an advantage if there are more than three years left on your lease. If your lease will expire soon it is important to talk with the landlord to determine if you can have an option to renew or extend your current lease term. This way the company doesn’t have to move in a hurry.
It is important to look for clauses that address what happens in the case of adverse events. One example of this is, who will pay in the interim if a fire destroyed the property?
There are other considerations to consider in leases. Some examples are:
- How are real estate taxes covered?
- Will you be charged a fee to cover maintenance of the property? If so, what is it?
- Is someone in particular responsible for necessary repairs and who will pay for those?
You will also want to check out clauses impacting rent changes. If you don’t, you may face unexpected rent increases that negatively impact your business.
These are three considerations involving leases. There is much more involved in a lease than just the amount of the rent. Sellers should understand all the terms and conditions regarding their lease. This not only affects what the buyer is going to inherit, but it could also affect how much the seller has to pay at the time of the sale.
EBIT Associates can assist you with understanding lease terms when you are selling or buying a business.